CSIL World Report  



GULF REGION AS A TARGET MARKET. FOCUS ON OFFICE FURNITURE

by Paola Govoni, CSIL Centre for Industrial Studies, Milan – Italy


The Gulf region is currently one of the fast growing markets of destination for office furniture. Office furniture consumption in the area is estimated to be worth about US$ 1 billion, accounting for an average growth of 8% in the time span 2006-2014. The highest per capita office consumption is recorded in Qatar and the United Arab Emirates. Fastest growing markets, performing well above the average, are Bahrain, Qatar, Saudi Arabia, and UAE.

AFRICA. Breakdown of furniture consumption by region. % in value
Source: CSIL processing


Since manufacturing in the area is still limited (with only exception Saudi Arabia) and the level of demand robust, the local market shows a high degree of openness to foreign products, with imports accounting for about 72% of the domestic consumption of office furniture on average. It is worth to underline, that imports of office furniture increased by 7.7% yearly in the period 2006-2014 and reached US$ 762 million last year. Office furniture imports satisfy over 80% of domestic demand for Bahrain, Kuwait, Oman and the United Arab Emirates. Lower incidence (about 57%) is recorded for Saudi Arabia.

Almost one half of the total comes from China and Italy, with a share of 31% and 15% respectively.

GULF COUNTRIES*. Office furniture imports, 2007-2014. US$ million
Source: CSIL processing * Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates

A PROJECT DRIVEN BUSINESS
The largest economies in the area are Saudi Arabia and the United Arab Emirates. The fastest growing countries in terms of GDP are Bahrain and Qatar. Kuwait and Qatar record the higher per-capita GDP. This area includes cities like Abu Dhabi, Dubai, Kuwait City, Doha, which are fast growing economies thanks to their oil and massive natural gas reserves. These cities are increasingly diversifying their economy, shifting from oil related activities to service sector.

Also, in recent years, huge investments have addressed real estate, tourism and hospitality industry, culture and entertainment, which have in turn boosted demand for the furniture sector. According to local sources, office building project completions in the area in 2014 amounted to US$ 13.4 billion and further growth is expected for offices, commercial and hospitality business. Due to its strategic location as a transit hub between the East and the West, the Gulf region is planning to host several international events. The run up to these events is supposed to open up opportunities across the sectors of real estate, tourism, hospitality, retail and infrastructure, translating into growth for construction activities.

About 25 million visitors are expected at Expo 2020 in Dubai from over 180 countries. As many as 20,000 new businesses are being set up in Dubai due to the event, creating around 275,000 new jobs across sectors. Such a boost to the economy could benefit the residential and commercial construction industries. The retail construction sector is also likely to see growth, as there are plans to double the mall space in Dubai to meet the anticipated increase in demand from the rise in tourist inflow.

The Gulf region’s hospitality, retail and leisure construction industries will also benefit from higher tourist inflows.

Comparing to the past, local development is experiencing a lower number of mega-projects and an increased focus on phasing projects over many years in line with end user demand. The office/commercial business shows a high level of fragmentation, it is mainly driven by projects and mainly in the hand of local contractors.

Under UAE strategic vision 2021, the Emirates plan to allocate a huge budget on the development of its infrastructure sector. Similarly, Qatar’s strategic vision 2030 plans to make heavy investments in its infrastructure, healthcare and hospitality sectors. Developing its infrastructure and reducing its housing shortage remain the principal focuses of the Bahraini government in 2015. Such infrastructure projects in Bahrain are likely to be financed by the GCC Development Fund. Oman is also planning to improve its infrastructure in a bid to support the development of its tourism sector for greater economic diversification. Such factors are setting the stage for increased construction activities across the Gulf Countries, particularly between 2015 and 2021.

PRODUCT BREAKDOWN
The Gulf market in 2014 can be broken down into different segments. Office seating (29%) and operative desking (31%) are the most important. Over the years the demand for office furniture has been influenced by Western “tastes”, this has led to an increase in panelled workstations, bench systems and ergonomic seating, as well as surrounding solutions and furniture for waiting areas (accounting for 6%). Executive furniture absorbed 11% of office furniture consumption, while storage and filing cabinets claimed 15%.

Some differences can be noted between the two main markets in the area. Executive furniture in Saudi Arabia accounts for 14% (10% in the UAE) and furniture for communal areas and wall-towall units/partitions cover a lower percentage than in the UAE. Western trends are widespread in the United Arab Emirates due to the presence of several corporation headquarters and the high incidence of expatriates among the population.

GULF COUNTRIES. Sales breakdown by product segment, 2014. Percentage shares
Source: CSIL processing

DISTRIBUTION CHANNELS
The role of architects and interior designers is a central one. Interior designers may act as consultant and intermediary between the customer and furniture dealers. Many interior designers are foreign, mostly from Western Europe, with a growing quota of East Asians.

Both local and foreign companies mainly pass through local retailers with their own showrooms that account for around 60% of total office furniture sales. Turnkey contractors and design studios controls another 30% of the market, the “direct” channel accounts for just 10% of office furniture sector sales and is managed by the biggest local companies or by the local representative offices of foreign manufacturers.

GULF COUNTRIES. Sales breakdown by distribution channel. Percentage shares
Source: CSIL processing

When distributing products through contract buyers, manufacturers in the Middle East produce goods on a made-toorder basis, creating specific designs requested by developers or consultants. Foreign retailers and wholesalers generally order a representative sample of products to be displayed in showrooms and shops. Products are then manufactured based on order demand from end-users, usually retail shoppers.

In order to offer better quotes for turnkey projects, foreign subcontracting clients coming from higher cost countries, make partnerships with local manufacturers to buy local frames and assembly finished products locally.

Price levels are mainly driven by product provenance. The budget segment mainly shows products imported from the Far East, in the middle segment there are all the products manufactured by local furniture companies. The exclusive upper-end segment is mainly the domain of furniture imported from North America and Europe (mainly Western Europe).

GULF COUNTRIES. Relevant factors when choosing office furniture suppliers. Number of quotes
Source: CSIL processing NOTE: Sample of 30 local distributors, multiple options were possible

When it comes to competitive advantages of each country in comparison to the others, China boasts the largest volume of office furniture exports towards the Gulf region and it recorded double-digit growth over the last three years; however, delivery times are long.

Turkish office furniture companies’ exports towards the Gulf have grown by 23% annually over the last three years. North American companies have steadily grown and also offer long delivery times. While Western European companies have long delivery times too, they have performed better over the last three years, mainly due to strong investments in brand communications for architects and designers made by Italian and German companies.