Selling to 'Stans'

Referred to by some vendors as the 'Stans' and by others as the CIS, the markets of central Asia remain an enigma to many members of the IT channel community. Focused distributors are targeting the region. From Turkmenistan to Tajikistan, these markets are developing apace

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By  Stuart Wilson Published  October 27, 2004

Emerging markets|~|cisaytentall.gif|~|Ayten Polad, sales manager CIS at Empa Middle East|~|Referred to by some vendors as the 'Stans' and by others as the CIS, the markets of central Asia remain an enigma to many members of the IT channel community. While many people can talk at length about the structural differences between the IT channel in Saudi Arabia compared to Egypt, those that can explain the market differences between Turkmenistan and Tajikistan are few and far between. Nevertheless, the Middle East is playing a prime role in the movement of IT hardware into central Asia. Channel Middle East zoomed down to Jebel Ali to catch up with the distributors serving the 'Stans' to find out exactly what makes them tick. Kazakhstan, Uzbekistan, Turkmenistan, Kyrgyzstan, Tajikistan, Azerbaijan, Georgia and Armenia are emerging fast. Grab an atlas and take a look at the central Asian opportunity. Individually, the markets of central Asia are not large enough to merit attention from the biggest international vendors. Channel investment is frequently kept to a bare minimum by vendors with a couple of regional distributors put in place and little or no local back-up and vendor support unless supplied through the partners. “The channel structure in these countries is not always totally clear,” explains Rogovoy Vladislav, managing director at LightSpeed Distribution, a Jebel Ali-based distribution specialist supplying product to customers across central Asia. “Some of the markets are not very large and small local companies are trying to act as a distributor for a vendor. The size of the country they are in does not allow them to work effectively and meet the volume targets the vendor wants. Some will then be forced to try and push the product into other international markets.” On their own, the national markets in central Asia lack the critical mass that allows vendors to appoint focused in-country distributors and appoint their own local feet-on-the-street. The only exceptions are the very largest names in the industry. HP, Samsung and LG have already started investing in the region while Intel has already been out and about making sure that the local assemblers are all signed up to Intel channel programmes. With the market size growing at an estimated 20% per annum, the region will soon start appearing on more vendor radars. Although individually constrained in size, combining these markets together and looking at the total addressable market (TAM) for the region as a whole produces a much rosier picture. Vladislav at LightSpeed estimates that the IT market in central Asia is currently worth between US$300m and US$400m per annum. Other distributors point to total PC unit shipments that tally well with this valuation. “I think that these markets require approximately 400,000 PCs per year,” says Armagan Demir, sales and marketing manager at distributor Empa. “In total these countries have a population of approximately 80 million people. This is still very much an emerging region and demand will grow as spending power increases.” ||**||Complex sourcing|~|cislightspeedbig.gif|~|Rogovoy Vladislav, managing director at LightSpeed Distribution|~|The geographic location of Central Asia has created a complex web of product supply channels. While it makes sense for some product types to be shipped to the region from Dubai, other products come in direct from China with some being diverted down from the Russian market. “In terms of the products coming from Dubai, it is mainly hard drives, optical disk drives, floppy drives, mainboards and VGA cards — products that are not made in China,” says Vladislav. “Most of the bulky volume goods like printers, cases, keyboards and speakers are ordered directly from vendors in China because getting container shipments in is very cost-effective.” Besides sourcing product from Dubai, China and Moscow, enterprising distributors in central Asia have also forged direct links with manufacturers in Taiwan for products such as memory. Once this confused supply chain has been resolved, there is also the grey market issue to consider. “Product is not only coming in from Russia, it is also coming in from Amsterdam,” comments Demir. “But from a logistics point of view, supplying from Dubai makes a lot of sense. In terms of customs issues it is much easier and it is less costly from Dubai and that is why I believe 80% of the product is coming from Dubai. It is the main import route,” To take advantage of this trading route, a number of distribution specialists with experience of central Asia and the wider CIS region have now become firmly established in the Middle East channel landscape. Asbis, Empa and LightSpeed all have significant operations supplying these markets and other players such as Blue Sky and L&M spring to mind. New names such as Jel Corporation are also developing fast, looking to distribute everything from confectionery (including Camel Nuts and Tootsie Rolls) to PCs into central Asia. Jel was awarded Asian rights for Acer’s entire product range back in late July. Empa secured similar rights last month. The one factor all these companies have in common is their heritage. Invariably, the staff and owners of these distribution players have close links to central Asia. This is a region where the importance of local touch and an appreciation of the culture and business etiquette is a prerequisite for success. “Language and culture is very important,” said Ayten Polad, CIS sales manager at Empa. “Russia is understood as a second language. The actual language in all the central Asian countries, with the exception of Georgia and Armenia, is Turkic.” ||**||Moving in-country|~|cisempagroup.gif|~|Empa’s CIS dream team. Left to right: Armagan Demir, Ayten Polad and Nafiset Mami at Empa|~|Distributors serving the region at present are faced with a dilemma. Their desire to build up local in-country presence is tempered by their knowledge that the economies of scale to make it worthwhile do not yet exist. As such, many will have sales staff in-country but will actually supply sub-distributors and importers as opposed to genuine second tier resellers. This means that product destined for end-users in central Asia often goes through a three-tier channel. LightSpeed already has a presence in both Kyrgyzstan and Kazakhstan and plans to expand its regional network even further. “Our strategy is to open offices and have LightSpeed representatives in-country and work with local companies that can stock and service,” explains Vladislav. “Next year we plan to have stocking points in Kazakhstan and probably Tajikistan. We will choose between buying companies or setting these up organically.” “Empa is mainly working with sub-distributors at present,” says Demir. “There are importers in all these countries and we work with the large accounts. We cannot touch the smaller accounts because credit becomes an issue. Their capability in terms of customs clearance, logistics and economies of scale doesn’t work out.” Polad is keen to build up customer breadth in central Asia but stresses that this must be done in line with the overall market growth. Now that Empa has picked up Acer rights, the distributor plans to aggressively promote the brand in central Asia. “We will do a product launch probably starting next month in every country,” explains Polad. “We will do a different activity in each one. Each country has a different mentality so each launch is done in a unique way.” Branded PCs still lag behind locally assembled machines in central Asia. With many tenders specifying locally assembled machines, the desktop markets in central Asia remain a tough nut for A-brand desktop vendors to crack. Empa plans to initially focus on LCD monitors and notebooks as it begins driving Acer products into the region ||**||Brand awareness|~|cisempaacertall.gif|~| Rahb M Hamidaddin, general manager at Empa picks up distribution rights from Krishna Murthy, general manager at Acer Middle East|~|Brand awareness varies from country-to-country in central Asia. International names such as Samsung, HP and Intel have already built up significant brand equity. Distributors believe that second tier vendors need to allocate more resources to build up their brand in central Asia. “Some new vendors come into these markets and don’t invest any money,” explains Vladislav. “Vendors like Sapphire think their brand is known in Europe and the Middle East, so it will be known in central Asia. Buyers do not know this brand and marketing money needs to be spent.” The buying characteristics of central Asia are very different to the Middle East. “The Middle East is all about trading,” says Nafiset Mami, product leader for Acer and Biostar at Empa. “In contrast the CIS offers a chance to move high-end kit because the people are very technically minded. They are interested in the specification.” External distributors supplying into central Asia have a vital role to play. Anyone thinking tax, credit and import regulations are a complex affair in the Middle East region should take a close look at central Asia. Distributors in the Middle East have to work with sub-distributors, as these are the only players they can realistically extend credit to. Specialist freight forwarders are used to move IT product into central Asia from Dubai. Their ability to deal with cumbersome and complex VAT import procedures in the most cost-effective manner is a prized skill. The central Asian markets are opening up. Five years ago, Computer Street was jam-packed with traders from Central Asia looking to source product. Today, these same traders have set up distribution operations in their home country and deal with suppliers out of Jebel Ali. That is not to say that Computer Street’s role has been entirely eroded. They are still used by traders wanting a reseller that will consolidate a complex order involving multiple SKUs and dealing with different distributors. As the overall market size increases, vendors and distributors will pay even more attention to opportunities in Central Asia. ||**||

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