Kartik J Raval, General Manager, Leminar Air Conditioning Company, does not look it but is quite the grizzled veteran of the business. Sounding rueful and vividly remembering historical data, he speaks of how the HVACR market in the GCC region has presented some critical challenges in the past 24 months. And the recent global events, he adds, with an obvious reference to the Russia-Ukraine conflict, have only made them more critical. Listing some of the key challenges as a supplier, he speaks of the increase in the price of raw materials, unprecedented increase in lead times and shortage in shipping – with exorbitant shipping charges to boot.

“The current global crisis has not only increased the price of raw materials and shipping costs but has also had its impact on dire shortage of labour,” he says. “Unfortunately, the market has not reflected a price increase, which has resulted in severe margin erosions. There is not something major that can be done to control this at our end, so the one thing we have done as a distributor is that we have increased our inventory levels to partially mitigate the situation.”

Weighing in, Raphael Khlat, President, Faisal Jassim Trading Company, says prices have increased owing to increase in price of raw materials and owing to inflation, but margins have dropped. “Raw material costs have gone up by 30% but impacted 10% on the final product,” he says. “Prices have increased overall.”

An equally big – if not bigger – pain point, Raval says, is the situation triggered by recently established traders, who through lean operations are able to undercut business through offering lower prices that are not reflective of market costs, including increase in price of raw materials. And to top it all, they are only too ready to give extended warranty periods of hitherto-unheard-of durations, which Raval says, are bereft of logic and are unsustainable. And so rises the sceptre of unfair trading practices by a few notches.

Kevin Laidler

Kevin Laidler, Sales Director, Middle East & Africa – UAE, Armstrong Fluid Technology, is as annoyed with the situation as Raval. Many new suppliers are not qualified or ISO-certified facilities and are offering long-term warranty, he says. Giving long-term warranty does not help if the supplier is not in business for more than five years, he says bitingly. Many projects are offering low-cost products, which is not sustainable for the GCC region market, he adds. Khlat puts its succinctly, “The market is now seeing a lot of players and too much of negotiation.”

Subir Kumar Sinha, Manager – Sales, Desiccant Rotors International (DRI), calls it downright unfair that newer, smaller and leaner operators are able to circumvent well-established processes. He speaks of how DRI has a set up of plants and labs and R&D, which will have an impact on pricing compared to a small manufacturer, who sets up shop with only one or two certifications. “People are not complying to quality, to robustness,” Sinha says. “We have been manufacturing and supplying for 25 years, and it is not fair that we are compared to a year-old company. Your 25 years of service and R&D gets blown away when a year-old company give low price and warranty. They come out of nowhere and sell components at a price 60% less than others.” What makes matters worse, he says, bristling with anger, is they could flee the country, leaving no one to take care of the equipment. “All the defects that subsequently happen have to be managed by the OEM,” he adds.

Raval says it is not necessarily just recently established players. He says there always has been disparity between players in this market. The current situation, he adds, has only made this wider. “It all depends on how a particular distributor looks at running its operations,” he says. “Yes, there are few traders, who are offering greater warranties and some even include the labour also under warranty, which is not a standard practice and is not sustainable.”

Subir Sinha

Khlat says the trend of beyond-the-norm warranties is definitely spoiling the market. He says he understands why people are offering unsustainable timelines. “It (extended warranty) is one more liability, and it is coming out of desperation, and it is not healthy,” he says. Speaking in the context of compressors, Khlat says he is irked by instances of traders tricking end-users into buying by offering a seven- or eight-year warranty. He accepts that compressors can last that long – and beyond – provided end-users understand the value of preventive maintenance and put the money for it. He highlights instances of end-users wanting to save money and staving off maintenance for two years and then waking up to say, ‘Okay, let’s start a maintenance programme.’ That’s where the problem starts with extended warranties, he says.

The situation of under-pricing is not only limited to capital equipment; indeed, the practice of undercutting on the pricing is prevalent in the replacement market, as well, Raval says. Sinha says it is disheartening when clients do not come back to him for replacements. They have too many options and they go to a small trader, he says. “There is no loyalty as such,” he says. “Everything is commoditised.” Khlat is equally pungent in his criticism. “The replacement market is a mess!” he says. The only people benefitting are chiller suppliers, who incorporate PLCs, which means no one can touch their chiller till they have the password, he says. The same cannot be said of the pumps replacement market, Khlat says. “When it comes to pumps, there is no respect for genuine parts,” he adds.

What’s fuelling the practice?

Undercutting, as a practice, is not the mere product of the working of a shrewd business mind; the general view is that the ecosystem is such. It would be accurate to say unfair pricing is the love-child of the trend of Low Price-Technically-Acceptable (LPTA), as encouraged by some clients and consultants.

LPTA is one of the reasons established manufacturers and suppliers are finding market conditions challenging, Raval says. Agreeing, Laidler says the onus is on clients to make a difference. Speaking in the context of pumps, he says clients must play an active role to understand the building chilled water consumption and how to reduce the usage to get savings year over year. Raval feels there are clients and consultants who do understand the value of using the technical- and specification-compliant products and suppliers and prefer to not compromise their project by using-low priced alternatives.

The challenge remains, nevertheless. And to counter it becomes a necessity. Laidler says Armstrong is countering the situation by offering solutions that offer lower installed cost and lower operating cost by utilising the latest in technology to reduce the carbon footprint for the owner. Raval says Leminar’s approach to the challenge is based on its philosophy of being transparent with its customers. Raval says that along with its global partners the company has always believed in maintaining the quality of the products and services it offers to the market, irrespective of any market fluctuations and trends. “We continue to serve our customers not only as a trader but also as a solution provider with design and after-sales support,” he says. “We believe that customers looking for quality and dependability will continue to prefer working with us.” Khlat says business is about relationship, about trust. He speaks of a need to accept the situation of lower margins and adapt to the circumstances. At Faisal Jassim, he says, we have had to adjust operations to make them lighter. “We are having support operations coming from India,” he says. “And we are offering additional services. If you take small contractors, you are not only selling but also installing. You are not only selling a valve but installing it. You are not only selling a cooling tower but retrofitting a total solution on cooling towers. So, it is not about being only a trader but also a service provider and coming one level up the supply chain.”

In general, Khlat says, there is a need to step up on the game and move up to being a specialised supplier, who sells but also installs and offers design aspect advisory services. “If you want to make money, be competitive, because there is capacity availability and lot of principals,” he says.

Raval says Leminar, along with its global partners, has always also believed in continuously innovating its products and processes to ensure it remains in line with, or ahead of, the changing market dynamics. “We now have moved our focus from ‘working hard’ to ‘working smart’,” he says. “The Innovation Center, in Dubai Silicon Oasis, is one of the key initiatives launched by Leminar, in partnership with Rheem. The facility is one of the best in the region, where we engage with our customers to educate them on the innovative and efficient solutions Leminar can provide.” Laidler says Armstrong also emphasises on innovation. “Armstrong has been at the forefront of innovation for the past 60 years and, as early as 20 years ago, has offered a technology for pumping with parallel sensor-less technology, to reduce energy consumption in typical buildings by 34%,” he says.

While manufacturers and suppliers are impacted by unfair pricing and broad unfair trading practices, the other concern is the quality of equipment. Are those offering low prices selling products that are unreliable, deliver lower energy efficiency and fail to improve – or compromise – Indoor Air Quality (IAQ)? This is a genuine concern. Laidler puts it succinctly, when he says the low-cost products will have a higher long-term energy cost. Raval agrees with Laidler but says the issue is subjective and depends a lot on how a consultant or client understands and values the importance of reliability, energy efficiency and IAQ. “Some of the projects do compromise these parameters to an extent; however, some clients who see long-term benefits do not compromise on these important parameters,” he says.

The broad consensus is that consultants, end-users and MEP contractors are knowledgeable and well experienced and do understand the value of quality products and services. However, due to certain constraints from clients, at times, consultants do consider value engineering and specify ‘equivalent’, which Raval feels is not wrong. “The only support we would expect from the consultant community is to specify like-for-like products with similar specifications and features, and that the MEP contractors negotiate with suppliers based on the same,” he says. “End-users should review the entire life cycle value of the product while selecting and approving the same.”

The word on the street is that the pandemic has skewed the dynamic in the case of even well-meaning consultants, contractors and clients, who prior to the pandemic – and its economic fallout – supported the use of high-quality products. Today, many of them are contemplating accepting lower quality products than in the past, Raval says. Taking a divergent view, Laidler says not much has changed over the years, and that there has been no palpable difference during the pandemic – simply because energy efficiency has never been truly pursued. “I don’t believe the region has adopted energy efficiency strategies for many of the buildings built in the last 20 years,” he says. “Consultants should start designing buildings and take into consideration ASHRAE 90.1 design guidelines and green building applications to promote a more sustainable culture in the region. This will allow the technology-driven companies to offer products that meet or exceed both those guidelines, and the owners will get a more sustainable building for the future.”