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PRODUCT MARKET STUDY

AIR-CONDITIONERSAND PARTS

MATRADE JEDDAH



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PRODUCT MARKET STUDY:AIR-CONDITIONER AND PARTS

1. INTRODUCTION

Due to its extreme hot and dry weather, Saudi Arabia remains one of the most rapidlygrowing markets for air-conditioner and parts. Robust construction activities in thekingdom are another factor that raises the demand for air-conditioners.

This study is aimed to get information on market potential of air-conditioners in SaudiArabia with view to encourage our Malaysian manufacturers and exporters to capturebigger share in the Saudi air-conditioner and parts market.

2. OVERVIEW OF THE MARKET

Saudi Arabia is experiencing a boom in real estate and construction activities in

which many new buildings for commercial as well as residential are coming up dayby day. Virtually all new houses and office buildings constructed in Saudi Arabiarequire some form of climate control and air-conditioning system.

Besides, high liquidity and growing disposable income encourage owners of buildings, houses and offices to spend more on top-notch air-conditioning systemwhich could endure Saudi Arabia’s hot and arid climate.

Saudi Arabia’s air-conditioner market was worth US$693 million last year and isexpected to reach US$748 million in 2007 and US$1 billion by 2011. Although thekingdom does produce air conditioners domestically, it satisfies slightly over 30percent of the demand through imports. The market size is growing on an average of

6 to 7 percent annually.

Characteristics and Trend

Majority of the demand for air-conditioners (AC) in Saudi Arabia has been satisfiedthrough local production. Locally produced air-conditioners are mostly OEM of well-known brands by customers in the market for many years.

Saudi Arabia imposes a 12 percent custom tax on imported air-conditioners in order to protect its local AC industry. Besides, locally produced AC has advantages over imported ones in the sense that it could offer faster delivery and better after-salesservice due to easily available stocks, parts and components.

The Saudi AC market has become extremely price-conscious over the last few yearsas competition among distributors and retailers has increased. Local dealers andbuyers of air-conditioner and parts usually look for products of competitive prices,good quality and reliability.

The most prevalent type demanded is the split unit air-conditioner. This kind of AC iscomparatively less noise than window-type air-conditioners. Japanese, Korean andother Far-East producers focus on this AC type which has contributed to the upsurge



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Saudi Arabia and ninth for LG in the world, is being constructed in Al Tatweer Industrial City, south of Saudi Arabia's capital city Riyadh. It is expected to startoperating in the fourth quarter of 2007 with an annual production capacity of 250,000units. LG plans to double production capacity to 500,000 units by 2011.

In terms of types, American suppliers dominate the packaged and central units,

which is usually associated with large construction projects. The split system isdominated by both Japanese and Korean manufacturers. Local manufacturingconsists mainly of window-type units.

Saudi Import

The kingdom imported air-conditioners worth US$216 million in 2005, a decline of 21percent against US$273 million in 2004. The decline in import is due mainly to theincreasing usage of locally produced air-conditioners to meet the demand.

Wall-mounted split unit is the main type imported by Saudi Arabia. In 2005, alone,import of this AC type was amounted at US$132 million and accounted for 61 percent

of total AC imports by Saudi Arabia. The largest supplier of split units to SaudiArabia is Republic of Korea (ROK), followed by China, Thailand, Bahrain, UAE andUSA. Malaysia ranked number 11.

Central unit came as the second largest type imported with value of US$66 million or 30 percent of the total AC import by Saudi Arabia. Thailand is the largest exporter of central units to Saudi Arabia. It is followed by China, USA, ROK, UAE and Malaysia.These two types collectively accounted for over 90 percent of the total import of air-conditioners by Saudi Arabia.

Table 1 shows the trend of Saudi Arabia’s import volume of air-conditioners from

2001 to 2005.

Table 1: Saudi Arabia’s Import of Air-Conditioners

ItemValue (US$ Thousand)

2005 2004 2003 2002 2001

Air-conditioners

(HS codes: 84151020,84151090, 84158121,84158129, 84158190,84158229, 84158290,

84158321, 84158329,84158390)

215,966 273,433 146,779 184,523 102,151

(Source: Central Department of Statistics, Saudi Arabia)

On the contrary, in 2005, Saudi Arabia’s imports of parts for air-conditioners recordedan increase of 13 percent over the previous year. The import growth is mainly due tothe increase in demand for imported parts and components from local air-conditioning and refrigeration industry which do OEM assemblies. The Saudi AC



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parts import was worth US$30 million with USA as the largest supplier. It is followedby Germany, Italy, China, Thailand and ROK. Malaysia was ranked tenth.

The kingdom’s import trend for AC parts in the last 5 years has been increasing byan average of 21 percent. The growing trend is expected to continue, opening upmore opportunities for foreign suppliers of AC parts.

Table 2: Saudi Arabia’s Import of Parts for Air-Conditioners

ItemValue (US$ Thousand)

2005 2004 2003 2002 2001

Parts for Air-conditioners

(HS codes: 84159000)30,200 26,808 20,208 19,109 14,264

(Source: Central Department of Statistics, Saudi Arabia)

4. SAUDI STANDARDS AND IMPORT REGULATION

Industrial Standards

Saudi Arabian Standards Organization (SASO) is the authority which issuesregulations for the industrial standards and quality of national as well as importedproducts. Air-conditioners and parts imported into Saudi Arabia have to be compliantto SASO standards.

Certificate of Conformity (CoC) is a required certificate issued by accreditedlaboratories in exporting country. CoC certifies compliance of a product to the Saudi

standards.

Malaysian exporters of air-conditioners and parts have to obtain CoC prior to exportthe products to the kingdom. CoC can be issued by any laboratories accredited bythe official agency like SIRIM.

Export and Shipping Documentation

Besides CoC, Malaysian exporters of air-conditioners and parts have to prepare thefollowing documents for export to Saudi Arabia:

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