The intersection of the Khudairi family with the world of vehicles and machinery dates back to the early 20th century, when it became the first dealer of General Motors and Volvo in Iraq. While the next century saw the family’s commercial ventures expand to include the establishment in 1963 of food and beverage distributor Al Nadir Trading Company by Subhi Khudairi Sr., it has always retained its connection to, and competency in, equipment distribution.
When in 2003, the invasion of Iraq was followed by a massive programme to help rebuild the country and its infrastructure, the Khudairi Group was selected as the dealer for John Deere Construction Equipment — a US brand not frequently seen in the Middle East, but existing as a sizeable population in Iraq on account of its use by American contractors.
Subhi Khudairi, president of the Khudairi Group, notes: “This largely consists of earth-moving machinery such as wheel loaders, dozers, backhoe loaders, and skid steers. Acquiring this brand allowed us to provide equipment to government ministries, municipalities, and private sector clients to support the reconstruction efforts of Iraq.”
Weakness in the aftersales market, however, in part due to an abundance of counterfeit spare parts in Iraq, encouraged the Khudairi Group to diversify its efforts in 2009 to include the support of Iraq’s recovering oil sector.
By 2011, this had translated into Khudairi being selected as the dealer for Sany’s mobile crane, crawler crane and excavator lines in Iraq. The mobile cranes, Khudairi notes “have been popular rental solutions for clients in the oil and gas sector”, where Sany hits the sweet spot between quality and price expectations.
The market’s fundamental lack of under-standing for, and undervaluing of, aftersales support for heavy equipment has nevertheless persisted as a source of headaches for the group, and in the context of falling oil prices, has demanded an even more aggressive strategy of expansion and diversification.
Over the last six months, Khudairi has signed a hat-trick of deals boosting its capabilities both beyond heavy machinery and beyond the scope of the average market dealership’s conservative proposition.
The first deal, signed last October, introduced Terex’s Genie aerial work platforms (AWP) to the Iraq market, with Khudairi taking on the distribution of the brand’s full range of self-propelled scissor lifts, articulating and telescoping booms, portable material lifts, trailer-mounted booms, telehandlers and light towers, while offering preventative maintenance contracts in order to support sales.
The service offering is important, as it comes hand-in-hand with the awareness the group is attempting to cultivate in the market.
Khudairi notes: “While there are many brands available, most of what many would think of as ‘dealerships’ are traders focused primarily on selling machines. This means there are few official channels for aftersales service or customer support, and any services short of sales, including equipment rentals, are rare.”
The next foray into the unknown for the group was to sign the franchise for Hertz Equipment Rental Corporation (HERC) in Iraq, where, according to Khudairi, it will offer one of the largest light to medium equipment fleets, serving customers across the oil and gas, construction, industrial and government sectors.
Indeed, Khudairi explains: “Due to the budget issues and plummeting oil prices, many of our customers are low on cash and simply cannot afford to purchase equipment that they may need. Additionally, the cost to manage and maintain their own fleet is not only high in Iraq, but availability of genuine parts and certified service providers in Iraq is limited.
“The time and effort involved in maintaining assets in Iraq is very burdensome on customers that are not local to the country, and many of our customers also prefer to rent equipment in order to minimise lead times.”
Khudairi also secured the dealership for Cummins light commercial generators in Iraq, allowing the group “to pursue many types of customers in the Iraqi private market and diversify from our original customer base”, by adding the metaphorical power generation feather to its rental functionality cap.
GOING RENTAL
While Khudairi established its dealership network to provide earth-moving machinery — primarily to facilitate the reconstruction efforts by Iraqi ministries and municipalities, and in recent years for defensive purposes — increasing volumes are sold to private sector companies looking to rent out the equipment.
Khudairi notes: “In some cases, heavy forklifts using our wheel loaders are a preferred rental solution for the international companies, while Genie rentals are well-suited for construction and maintenance projects across many industrial sectors — so we will have various customers for these equipment rentals. Crane rentals are very popular in the oil and gas sector, while Sany crane sales are more popular among local companies.”
In the interest of cost control, Khudairi goes on to explain that the group’s international customers are increasingly relying on master agreements, agreeing set daily, weekly or monthly prices across the duration of their contracts. This has the benefit of allowing these larger customers to more accurately forecast and control project costs based on their pre-determined project mobilisation schedule.
By contrast, in the long-term the hope is that, with the gradual arrival in Iraq of more international companies who value aftersales, the value of the group’s parts and service businesses will rise to a more typical level.
Khudairi comments: “We hope this will be a result of more security and stability in the country, but as of today the barrier to entry for many international companies remains high — and due to the security issues in Iraq, I do not envision this change taking place for many years, perhaps even a generation from now.”
IN THE NOW
Today, Iraq’s main challenge is the low oil price environment that has caused the Iraqi government to spend less and enforce lower budgets for the oil and gas sectors, resulting in few equipment purchases and fewer rental opportunities for equipment providers.
This reduction in government spending has trickled down to private sector markets and equipment purchases and rentals remain in a depressed state across the board — which is why the agreement with Hertz and the swing towards rental are so pivotal for the group.
Noting the opportunities that still exist with a handful of large customers working on key projects throughout the country, Khudairi comments: “Having Hertz as a partner will enable us to learn from its leading practices in the region in terms of its procurement, operations and administrative support.
“Hertz’s strength in these areas, together with our local knowledge and capabilities, will enable us to successfully support these projects. More importantly, the franchise will enable us to diversify the business over the coming years to include small- to mid-sized customers across many industries in Iraq.”
SHELLING OUT
In line with the group’s fervent optimism, as well as its aim to attain not just leading practices within the country but international safety and quality standards, Khudairi has also been appointed as the macro-distributor for Shell Lubricant’s range of motor and industry products for the non-Kurdistan areas of Iraq.
Remarkably, the problem of counterfeit goods in Iraq extends even to the lubricants sector, so the Khudairi Group is looking to seize the moral high-ground and establish itself as a standard bearer for the industry.
Khudairi comments: “Shell is one of the top lubricant brands in the world, and has great potential in Iraq. We have some challenges to face — including the fact that there are many Shell lubricant counterfeits in Iraq and that the system in place to enforce trademarks and prevent counterfeit product is weak.
“Over time, we plan to address this problem through anti-counterfeit efforts, such as special labelling, educating the marketplace of the dangers of counterfeits, and through commercial efforts.”
FRAGILE FUTURE
In summation of the business situation, Khudairi says: “There remains a depressed market in Iraq, but there are pockets of opportunities that continue to need high quality machinery that are compliant with international safety standards. This is allowing us to prepare for the market upswing by providing a broader range of services and improve customer satisfaction.
“While we have primarily focused on renting large equipment in the past, we are now focusing on diversifying our fleet and providing light- to medium-size rentals in order to cover the entire rental market.”
However, while considerable cuts in budgets and investments present a very challenging situation that is applying downward pricing pressure and a reduction in business flow, even the most ominous of storm clouds can have a silver lining.
Khudairi highlights: “The security situation and budgetary issues are making it more difficult to get new machines within Iraq, and this will lead to an increase in market demand for all types of equipment.”
For the moment, however, the goals are simpler, as Khudairi ends: “We are ensuring our assets and personnel are maintained and that we have a strong organisational infrastructure in place for when the economy bounces back in the coming year or two.”
