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[IT Channel] PC Market Overview in Malaysia: The Distribution Business Viewpoint
December 27, 2000 (KUALA LUMPUR) -- The Internet has not hurt distribution houses as expected when online sales began eating into the mainstay of traditional distribution methods.
Instead, distributors have leveraged the Net as a support medium, and widened their roles from box pushers to service providers to retain their market positions.
Apart from supplying hardware, distributors are also beginning to integrate e-commerce tools and supply chain management strategies to improve service.
While distributors conceded that the market became more competitive because of the Net, they are undaunted by its presence, as they are enjoying more than comfortable growth rates of between 20 percent to 35 percent annually.
"There is a lot of room for growth as sales rise year to year. Certain research companies have reported that the expected market size is about 600,000 units this year," said Alfred Chong, marketing manager at Ingram Micro (M) Sdn., Bhd.
IDC figures were much more conservative. According to IDC Malaysia research analyst Yvonne Yong, total units of PC shipments for Q1 2000 were 138,000, and grew to 159,521 in the second quarter of this year.
"The industry usually experiences an uptake in the third and final quarters, and expects shipments to hit between 185,000 to 199,000 units in the final quarter of this year," she added.
Clone PCs still dominate the market with a 50 percent share, and dealers are quick to say that the quality of components used by clone assemblers are up to scratch.
Yet Yong pointed out that even though clone PCs still dominate the market, branded PC manufacturers are beginning to close the gap by offering competitive price positions for their products. "You can expect price wars and price slashing over the next few years to narrow the gap," she said.
Compaq Computer Corp., Dell Computer Corp., Hewlett-Packard Co. and IBM Corp. have made their presence felt through aggressive marketing and promotion activities to push their products through the door.
Chong said that most corporations tend to opt for branded products given the dependability, reliability and service offered. "The image associated with using branded products is a motivating factor," he added.
Role Change from Distribution to Consultants
Greater technology use and adoption have also forced distributors to move up the value chain as margins have fallen to the single-digit range. According to a distributor who declined to be named, the distribution business is increasingly challenging as distributors vie to offer value-added services to dealers and retailers.
"The role of the distributor has changed from a traditional volume player moving products in huge quantities to one that offers expertise and solutions to dealers and retailers," he said.
"We also offer tips to dealers on how to sell and work very closely with them on marketing and promotion strategies," Chong said.
The only setback faced by international distributors with a local presence is that their hands are tied as they are not allowed to parallel import products, and have to obtain supplies directly from the local principal based here. Parallel importing products will result in cheaper goods, but it comes with a price of limited support.
The main players in the local market are Jardine Office Solutions Distribution (M) Sdn., Bhd., Servex (M) Sdn., Bhd., First Tech Pacific, Digiland Distribution (M) Sdn., Bhd., SiS Distribution (M) Sdn., Bhd., Ingram Micro (M) Sdn., Bhd., Pericomp Sistech and ASTAR Marketing Sdn., Bhd.
Most of the big distributors carry branded PCs such as IBM, Compaq, Hewlett Packard, Acer, Dell and Gateway.
Local PC manufacturers such as I-Berhad, Mimos Smart Computing, TechDOS, and NationTech depend on their own resources to promote their products. They are also very focused on pushing their products to the lower segment of the marketplace: the consumers.
Players such as newcomer I-Berhad are leveraging electrical consumer products by marketing computers through that channel.
E-commerce and the Internet have certainly boosted PC sales, but this is more apparent among corporate users. The Net has certainly proliferated in corporations and in city areas, said Yong.
She added that many people in rural areas are still largely unclear of what exactly the Internet is all about. "They have a vague idea of it, and therefore educating the public is vital to promoting the understanding of what the Internet is and bridging the gap," she added.
Rural computer literacy programs such as Desa Internet promoted by state agencies are aimed at bridging the gap. The national postal company, Pos Malaysia, has an initiative to sell PCs through its channels, and that also will boost the shipments of PCs among Malaysians. Pos Malaysia tied up with IBM, Gateway and Hewlett-Packard to market and install PCs at homes. The Employee Provident Fund also simplified the loan application process and approval system to allow its members to buy computers.
Ingram's Chong concurred, adding that government incentives to push the technology envelope had encouraged the common folk to want to embrace technology.
The Internet boom will also continue to fuel sales of computer products in Malaysia, as schools increasingly place emphasis on computing knowledge.
A survey conducted by the Ministry of Energy, Communications and Multimedia indicated that seven percent of the total population are registered Internet subscribers. The number is projected to reach 25 percent by 2005.
In the last five years, the number of registered subscribers has grown from 18,000 (1995) to 1.3 million now, and is expected to hit 1.6 million by the end of this year. The majority of subscribers are youths, with 70 percent of them located in the suburbs of Kuala Lumpur.
Distribution Online
Dell Computer Corp. has succeeded by emulating its direct marketing model online. By promoting its Web site through heavy advertising, Dell has capitalized on its early online presence to draw sales. Almost 50 percent of its sales worldwide are generated online, and close to 60 percent of its orders come from the corporate sector.
Its success has prompted local companies to enter the fray and find a niche in distributing products through the Net. Local companies such as the Tamadam Group and Megabuy Sdn., Bhd. have dived headlong to market products online and believe in the wisdom of an early entry into the market, despite claims that the Malaysian consumer is not comfortable about using credit cards to buy goods such as computers over the Net.
"They want to see and touch it. It is a psychological thing," said a dealer. Many dealers perceive Malaysian Internet users as window shoppers on a "cruise to nowhere."
Tamadam has its early beginnings as a logistics company providing bonded and specialized warehousing services. It has widened its scope to an online store offering magazines and electrical, electronics IT and telecommunication products, complete with an e-zine, via its Web site
Megabuy, a subsidiary of Acer Computer, did the reverse by starting an online store before setting up a brick-and-mortar presence.
According to Megabuy Sdn., Bhd. general manager William Lien, the population of Internet users in Malaysia is still relatively small, and the habit of buying online is not prevalent.
"The intention of starting an online store is a brand-building exercise apart from creating more awareness about online shopping," he said, adding that the company does not expect as much sales from its online business right now as it does at its physical stores.
Lien believes that e-commerce will become commonplace in three years, and by investing in it today, hopes to gain from it in the future.
Megabuy began business a year ago with the set up of an online store, followed by a physical store in the heart of Kuala Lumpur. A second store in a suburb of Subang Jaya will open its doors in November
"Currently, we have 3,000 items available at our online store at http://www.megabuy.com.my/ and that number is constantly going up. We shall continue to build our online presence and advertise our presence in the traditional media to direct people to our Website and stores," he said.
Megabuy plans to increase the number of physical stores as the demand rises. "Eventually our physical stores will help generate more members to shop from our online stores once they believe that Megabuy is a real store which will handle their after sales support issues," he said.
(By Anita Devasahayam, Malaysia)
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