According to the study, the Middle East’s commercial vehicle sector will grow by 47 percent between 2016 and 2026. High-end vehicles will grow by 106 percent and those in the medium price segment will grow 29 percent. The study expects growth in these segments because they correspond to the difficult conditions of the region.
The study also predicts that the demand for these mid-level and high-end vehicles will cause a decline in the demand for budget trucks, for which Chinese manufacturers like Foton and Dongfeng have been the dominant players for years.
“For decades, the market share of manufacturers in the Middle East was stable, with those from Europe and America dominating,” wrote the study’s authors, Roman Mathyssek and Michael W. Rüger. “During the past decade, Chinese manufacturers have entered as beneficiaries of the political developments and sanctions, consequently the eroding market position of Western brands.”
However, with sanctions being lifted from Middle-Eastern countries such as Iran, market dominance is poised to swing back into the hands of Western manufacturers. This presents an interesting conflict between Western and Chinese manufacturers.
The West vs. China in the Middle East
Chinese manufacturers currently dominate the market, but in order to maintain this position, they will need to revise their strategy for the region. If, as the report predicts, the demand for budget trucks will be overridden by the demand for mid-level and high-end vehicles, Chinese companies may need to shift their focus from production to R&D.
On the other hand, Western manufacturers are better positioned to satisfy the demand for mid-level and high-end vehicles, but may lack the penetration to deploy these vehicles to the Middle-Eastern market quickly. This could be a good reason for Western companies to explore opening new manufacturing facilities in the Middle East itself.
Manufacturing and the Middle East
Although the Middle East is not the only emerging market for mid-level and high-end trucks, what makes it interesting as a battleground is the relative parity of the combatants. Unlike China—another emerging market—neither Western nor Chinese manufacturers have a home-field advantage in the Middle East.
Moreover, the study suggests that the region will be a key one for manufacturing in the next decade. “In a nutshell, what is about to happen in the Middle East in the next decade has global implications for all manufacturers, suppliers and industry stakeholders,” wrote the study’s authors.
The Middle East has had a reputation as a volatile region for centuries, but in the next decade it seems we’ll see that volatility manifest in new ways vis-à-vis manufacturing. For once, a battle in the Middle East could actually be a good thing.
To read the full Arthur D. Little report, click here.