Baghdad bound

First mover advantage will be critical to success in Iraq. Vendors and distributors are keen to make a mark in this emerging market and build channels now.

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By  Stuart Wilson Published  September 24, 2004

Pent-up spending power|~|louayorient200.gif|~|Louay Alkhatib, managing partner at Orient|~|The Iraqi IT market has had a turbulent year. Nevertheless, a select group of vendors and distributors has been laying the foundations for a structured IT channel to be built. Iraq remains a highly educated market of huge untapped potential with the ability to rival, if not surpass, both Saudi Arabia and Iran in terms of market size in the years ahead as pent-up spending power is finally unleashed. There is already a well-established network of resellers and integrators plying their trade inside Iraq. They may not be well known to those outside the country, but this group is best placed to take advantage of Iraq’s growth potential. Some distributors are already well placed to act as the conduit linking vendors to the Iraqi IT channel. Orient Technology has emerged as a frontrunner in IT distribution in Iraq. With ten years experience in Iraq and excellent local knowledge, the company is already working with major vendors including Samsung and BenQ. Already holding stock in Baghdad and Basra, Orient Technology has offices and staff across Iraq. “In the North of Iraq we sell to ten key resellers that are in turn supplying about 50 resellers,” explained Louay Alkhatib, managing partner at Orient. “In Baghdad we sell to some 20 companies that are serving the 200 retailers and resellers operating in the city. Sinaa Street is the main hub but Baghdad also has several IT plazas. There are between 20 and 25 retailers and resellers in Basra as well.” ||**||Local touch|~|nahjtech200.gif|~|Nahj Tech assembles around 2,000 PCs a year|~|Companies operating inside Iraq have no doubts about the market’s potential. Thikra Al Azzawi, chairperson at Baghdad-based PC assembler and systems integrator Nahj Tech, said: “The demand situation is huge due to the shortage during the embargo. We support the supply, installation set-up and maintenance for many IT products from vendor brands including HP, Cisco, Sun Microsystems and APC. The product is mainly shipped in from Dubai and is bought from many distributors including Tech Data, Emitac and Aptec Gulf.” Nahj Tech currently has 20 staff on its books and produces approximately 2,000 locally assembled PCs each year. With strong demand from both the public and private sector, Nahj Tech is also carving out a strong brand reputation as an integrator of complex network solutions. So too is UCC Computers and Integration, a regional network integrator with a considerable presence in Iraq. Specialising in wireless and satellite communications networks, it too is seeing strong demand in the government sector according to Helkot M. Alshuwani, UCC’s executive manager. Those believing that Iraq is a virgin IT market with no established channel landscape are sorely mistaken. Many of these companies have been operating in-country for over a decade and have excellent access to both potential and existing customers. The value of this ‘local touch’ cannot be emphasised enough. “If you are from Iraq you know how to handle issues like credit and approach the families,” explained Alkhatib. “Some of the Dubai-based distributors believe they can train up one Iraqi salesman and he will be able to handle the market for them. This is very different to being an Iraqi company from top to bottom. It is important to really understand how to approach the market, how to sell and how to collect money.” One area of agreement uniting vendors, distributors and resellers is the potential size of the Iraqi IT market. Hazem Bazan, director channel sales SPO at HP Middle East, is in no doubt: “If you look at the population it is a huge market equivalent to Iran and even Saudi Arabia. It is definitely a large market but the real question remains on how quickly it will evolve.” HP has already appointed distributors including Almasa IT Distribution and Emitac to supply the Iraqi market. “I now have a channel manager covering Iraq,” added Bazan. “There is a sales manager as well and they are in and out of Iraq and based in Baghdad. They are in a position to visit the seven resellers that we have already appointed as well.” ||**||Logistics challenge|~|Bakshi,-Manish-----BenQ----.gif|~|Manish Bakshi, director at BenQ Middle East and Africa|~|K. S. Vasudevan, senior manager digital IT division at Samsung Gulf, said: “As per our own guesstimate, I would put the PC potential in Iraq for the year 2005 at around 500,000 units. On the IT business front, I expect Iraq will have the fastest growth that the region has ever experienced. Iraq has all the fundamental requirements such as literacy levels, economic power — otherwise known as oil power — and most importantly the commitment to rebuild.” The last few months have seen a strong upward surge in Iraqi IT demand but it remains unstructured according to Pavan Gupta, general manager Middle East at components distributor eSys. “People are talking about two million PCs being sold into Iraq in the next three years,” said Gupta. “These estimates were made when the price of oil was expected to be much lower. There will be big contracts that will come up from time to time. We expect it to be a burst demand pattern and we will be well placed to serve this with our contract assembly facility at Jebel Ali.” Today, eSys has 12 customers selling product in Iraq. Of these, four are based in Baghdad with eight located on the periphery in Jordan, Lebanon, Kuwait and Dubai. The role of resellers outside Iraq moving product into the country is significant as logistics remains a daily challenge. Product that can be moved by courier such as memory of CPUs can be flown into Baghdad using courier services from major firms such as FedEx or DHL. It is the bulky products that need to be moved in by road that remain the challenge. Manish Bakshi, director at BenQ Middle East and Africa, explained: “Logistics and financing remains cumbersome. Looting can occur when trucks are moving from city to city and I know that some channel players have lost product. Some of the retail shops can also be a target for looting and the insurance just isn't available.” While vendors view these logistics obstacle as a challenge, the distributors and freight forwarders already working in Iraq believe it gives them the opportunity to provide the ultimate value-add to their operations. Those that can operate reliable and efficient logistics in Iraq are in demand. For Orient Technology, 50% of product moving into Iraq goes through Basra, 30% through Jordan and 20% through Syria. Alkhatib explained the intricacies of his logistics master plan: “There is no insurance inside Iraq so you rely on the strength of your relationship with the freight forwarders clearing your shipments. We move goods into Basra by sea and have good freight forwarders there. We store it here and wait until the road is safe before leaving early in the morning and moving it on to Baghdad.” ||**||The grey challenge|~|hughesphil200.gif|~|Philip Hughes, general manager Middle East and Pakistan at APC|~|With the logistics infrastructure still fragile it is inevitable that some authorised resellers in surrounding countries occasionally take advantage of moving some of their product into Iraq if they see a margin opportunity. Technically grey kit, most vendors are happy to tolerate this flow of product at this stage of market development. “With Syria, Jordan and Lebanon adjacent to Iraq there is some product filtering in,” admitted Bakshi at BenQ. “It is not ideal but I feel that Iraq is so emerging and vibrant that whatever is going in is being absorbed.” It is a problem that APC is already aware of and looking to tackle early as it witnesses strong demand for its infrastructure solutions and uninterruptible power supply systems. “We have fully trained resellers, a service provider and a distribution operation for Iraq,” says Philip Hughes, general manager Middle East and Pakistan at APC. “We run regular technical and training programmes for our partners in-country. APC Middle East is very concerned about protecting the market against grey. The partners in Iraq are able to offer technical solutions to ministries and local business users and are investing time and energy. APC aims to ensure that they can compete effectively.” The volumes that vendors know about moving into Iraq are already impressive. HP describes its volumes as ‘healthy’ while BenQ is already shipping 5,000 scanners a month into Iraq. Orient Technology is currently selling between 2,000 and 3,000 monitors a month for Samsung and BenQ, while eSys is pumping core components at rates between 6,000 and 8,000 per month. This volume is already impressive but those in the know reckon it is just the beginning. “The actual volume has not increased greatly between 2003 and 2004,” explained Alkhatib. “I expect 2005 to be four to five times the sales volume recorded in 2004. Demand may increase suddenly and those companies storing goods in-country will have a big advantage. To get a shipment in from Dubai can take up to two weeks.” Orient Technology is currently positioning itself to take advantage of the boom in demand that it expects to materialize in the first quarter of 2005. The distributor has already brought some of its staff to Dubai to train them up in marketing and accounts with the view to launching a local assembler in Iraq next year. The vendors share a common belief that the Iraqi IT market is poised for rapid growth in the years to come. A conversation on Iraqi channel strategy is never complete without an overview of the first mover advantages that building the brand and operation early will eventually deliver. Branding is already becoming a major factor in Iraq and some players are spending their marketing budget now believing that the costs involved can only go higher as the market matures. ||**||Building the brand|~|during200.gif|~|A D-Link billboard was positioned on Sinaa Street in Baghdad |~|BenQ is already moving point-of-sales promotional material into Iraq through its distributors, Almasa and Orient. “A few advertisements have also appeared,” said Bakshi, “and some pamphlets have been distributed. Emerging markets across the Middle east and Africa are vital to vendors because developed markets have become saturated.” Networking kit vendor D-Link has pulled out all the stops as it builds up its brand equity in Iraq. Working in association with local partner Arradhi, D-Link recently erected a huge billboard overlooking Sinaa Street — the bustling heart of Baghdad’s IT resell and retail community. “This is primarily about building brand awareness and product knowledge,” explained Wilson C. Xavier, business and support manager at D-Link Middle East. “The billboard on Computer Street in Baghdad is certainly part of that. Working on this at an early stage will give us a critical advantage. We are also well aware that long-term growth and stability will depend upon both our long-term strategic business model and also our willingness to invest for success.” While logistics problems are slowly being resolved and marketing efforts are now possible, the challenge of providing local service skills remains a potential headache for vendors. It is the essential cog that needs to be oiled in the channel machine. “It is absolutely vital especially in specific vertical markets,” commented Bazan at HP. “The unique partners to have in Iraq are value-added resellers — what we call a sales and service partner (SSP). You cannot sell without service. The challenge was to identify the SSPs in Iraq with access to important verticals such as government and healthcare and I believe that HP was one of the first to appoint partners with the ability to service as well.” eSys is also actively working on building up its in-country service network. “Service will be a major focus for us,” said Gupta. “When the market becomes more structured and more open the only edge you will have will be whether your product can be services locally so we are already working on this.” BenQ has given an extra 1% buffer to its distributors to pass on to resellers to ensure that the RMA costs are covered for partners in Iraq. Samsung is already in the process of training its distributors up as service partners capable of supplying spare parts and also training resellers in Iraq. Dubai-based Emitac, which has been appointed as an HP distributor for Iraq, is also keen to develop its service capabilities in Iraq. “We are interested in establishing an in-country product service and fulfillment centre in Iraq in the near future,” said Amer A. Khreino, general manager at Emitac Distribution. “Negotiations are taking place with existing business partners to form some kind of joint venture or strategic alliance to cover Baghdad and all major cities.” “Any market is limited should you ignore the service factor. Customers today evaluate the service before deciding on the product or even the brand to purchase,” he added. “From a geographic standpoint Iraq needs to be addressed with a focus on three key cities: Mosul for the north, Baghdad in the centre and Basra in the south,” explained Xavier. “Then we can focus on specific market sectors such as the government and telecommunications that require close attention. So we develop the business model accordingly and provide the relevant sales and technical resources needed to meet the market challenges.” Tentative plans to open Iraqi offices are already being penciled in by vendors for the second half of 2005. This is one of the few genuinely emerging markets left in the world and no one wants to miss out on what could prove to be the growth opportunity of a lifetime. Developing business in Iraq is not without its challenges, but those putting in the effort now genuinely believe they will see a massive return on their investment. Vendors need to make sure they are aligning themselves with the distributors and resellers that can truly deliver on their promises when it comes to meeting IT demand in Iraq. Those that do possess these skills are acutely aware of the vendors they want to work with. “We have been approached by a good number of vendors but we cannot sell everything,” admitted Alkhatib. “We prefer to work with vendors that are aggressive about getting inside Iraq and who are willing to move first with us. These are the vendors we are working with. Other vendors are still just watching to see how the market develops.” ||**||

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