Is the GCC’s HVAC sector set for growth?
Amidst growing demand and landmark events, plenty of firms are looking to grab a slice of the Middle East’s lucrative HVAC sector, but are such advances wise?
The Middle East’s mechanical, engineering, and plumbing (MEP) sector has always been capable of drawing the crowds. With high ambient temperatures across the region, heating, ventilation, and air conditioning (HVAC) systems spell big business for suppliers and contractors alike.
But a combination of factors appear to be further strengthening the popularity of the Gulf’s HVAC sector. Increased competition in other segments, technological advances, and landmark events are serving to attract fresh faces. Of course, established names within the Middle East’s HVAC sector have no intention of relinquishing their market shares, but neither are they surprised by the influx of newcomers. Rizwan Shaikhani, managing director of UAE-headquartered Rubber World Industries (RWI), says that the industry is booming, and expects growth to continue for the foreseeable future.
“Increased construction activities within the GCC’s residential, commercial, hospitality, and retail segments have fuelled the regional demand for HVAC technologies,” he tells Construction Week. “A growing population with a high standard of living has further driven this trend. Moreover, with an ever-increasing emphasis on sustainability, countries such as Saudi Arabia and the UAE are looking for energy-efficient systems. The sector is expected to grow by over 30% in the coming years.”
Shaikhani adds that events such as Dubai’s Expo 2020 and the 2022 FIFA World Cup Qatar have boosted regional demand for HVAC technologies. Little wonder then that so many firms are looking to make inroads.
With roots stretching back to the 1960s, and the establishment of its first UAE office in 1999, LG Electronics can hardly be described as a newcomer. Nevertheless, the South Korean manufacturer is looking to grow into new market segments.
At its 2015 general stockholder meeting, LG announced plans to shift its focus away from the consumer arena towards business-to-business (B2B) sales.
Commenting on this strategy, Dong Joon Kang, director of LG’s HVAC Business Middle East and Africa (MEA), says: “Over the years, LG has achieved many successes that have helped solidify [the company] as a prominent player within the HVAC industry. LG is already a true total HVAC and energy solution provider, but we shouldn’t rest on our laurels. That is why we are jumpstarting our new focus to achieve our ultimate goal of leading the industry with our innovative technology.”
LG tells Construction Week that it has invested in the production of a wide range of HVAC products over several decades. With a rise in sales of large air conditioning systems, it has expanded its manufacturing base and added extra research staff.
Indeed, the company has made large investments in research and development (R&D), and has constructed a new chiller manufacturing facility, which is due to open in 2017. LG adds that it has engaged in business-focused marketing activities, such as tours of its facilities, and has been active in improving its sales infrastructure in the Middle Eastern market.
LG’s most popular line in the Middle East is its Multi V series of central air conditioning units. Since the range’s launch in 2014, the manufacturer has added features including energy-saving and high-pressure oil return functionality. The firm also points out that its Multi V line has been modified for specific markets; the Multi V IV, for example, has been adapted to operate in temperatures of up to 54°C, making it ideal for use in the Gulf. For the region’s coastal areas, meanwhile, LG has developed a corrosion-resistant model to cope with high-salinity ocean air. It also offers versions localised according to differing power grid specifications so that fewer add-ons are needed.
RWI has also tailored its product offering for the GCC’s demanding operating environments. The manufacturer’s Gulf.O.Flex insulation sheets and tubes are designed to prevent the formation of condensation within pipework, and to minimise noise.
“We cater to the entire GCC,” says Shaikhani. “The UAE, Saudi Arabia, and Qatar are our three biggest markets. However, the UAE remains the largest; this is the country to which we supply 70% of our Gulf.O.Flex foam insulation.”
But it is not only suppliers that are benefitting from the Middle East’s burgeoning HVAC sector. Many contractors are also keen to grab a slice of the action, albeit within the broader arena of MEP.
Dubai-based Goldline Group has a long history of activity across a plethora of sectors, including real estate, pilings and shoring, recycling, scrap metal and commodities trading, shipping, logistics, and more. However, the firm is gearing up to expand the reach of its MEP division as the field of general contracting becomes increasingly squeezed.
Goldline’s MEP business has been an independent division since October 2014, and has jumped from 50 labourers to 250, backed up by a technical workforce of 40. The division is currently working off a project backlog of approximately $49m (AED180m), which should keep it busy until 2017, according in-house estimates.
All of these jobs have been secured directly from Goldline’s contracting arms. However, from next year, the MEP division will start to compete for work outside of the group.
Commenting on the strategy, Mohan Chacko, the group’s executive director, says: “We haven’t gone out and taken MEP jobs externally as yet because we have enough internally at the moment. We know that we are doing everything right when it comes to taking outside jobs.
A lot of tenders are coming in now. We will integrate our price with our general contracting company and tender as a package. It’s an obvious next step for us.”
Goldline’s MEP manager, Arun Salian, adds that shrinking margins in the highly-competitive civil contracting sector places greater emphasis on securing more MEP work. He explains: “There are so many civil contractors here. You quote somebody, somebody comes in and puts in a lower price, and you lose. Whereas in MEP, there’s a limited number of contractors. It’s technical. Civil is everybody’s game.”
But not all industry players agree with this assessment. M Vasanth Kumar, CEO of Qatar-based Arabian MEP Contracting, says that the sector is already saturated, and that firms should not be hasty in entering the market.
“[The MEP industry is a] high-risk, high-stress, and low-reward sector [that] only seems to worsen as stagnant economic growth, rising operating costs, and weak global oil prices exacerbate budget deficits,” he writes in his most recent Construction Week guest comment (CW 575). “These circumstances, of course, can lead to slowdowns in construction activities.
“Changes in market dynamics can also result in conflicts and adversarial relationships between industry players. And conflicts can lead to catastrophe. Even the most seasoned industry players have reported tough times; no-one is exempt. It is unfortunate, therefore, that the lucrative image of MEP continues to entice new entrants to an already-crowded market. The realisation that it is not possible to exit without incurring damages often comes too late,” Kumar adds.
Though they may be looking to make inroads in fresh segments, outfits like Goldline and LG – with vast regional experience in other sectors – are unlikely to encounter such obstacles. Even so, Kumar’s words represent a potent warning for inexperienced firms looking to make a quick buck.
But providing newcomers do their homework, the market assessment of RWI’s Shaikhani suggests that there is enough room for all.
He concludes: “The HVAC market will continue to grow in the region, supported by the robust construction market. The increasing shift towards energy and environmental design certifications has spurred the adoption of better HVAC design standards. Emerging energy-efficient HVAC technologies will continue to drive regional demand.”