Open for business

Libya is emerging from the sanctions shadows and presents a intriguing opportunity for vendors and distributors. Adventurous channel players who persevere will find their patience rewarded.

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By  Alex Malouf Published  January 27, 2005

Virgin territory|~|SaranSumant.gif|~|Sumant Saran, Redington Africa general manager|~|Libya has finally come in from the cold after almost two decades of sanctions. The country is awash with oil and gas money coupled with a need to invest heavily in a non-existent IT infrastructure. All vendors and distributors have to deal with is rampant bureaucracy, an in-country channel with no focus, and an economy that is still very much run by the state. Channel Middle East spoke to people who have been to the country and seen firsthand the state of the Libyan IT market and its channel. Marino The Bull Pezzotti, Acer Libya country manager; Sumant Saran, Redington Africa general manager; Hani Salw, sales manager at PC International, and Pierre Farrugia, sales director at Maltese distributor Amatech discussed the opportunities lying in wait and the obstacles to overcome. CME: What presence do you have in Libya at the moment? What development plans do you have for establishing yourself in the country? MARINO PEZZOTTI: We have two distributors for the Libyan market, Amatech and NSR. Amatech is a Maltese distributor entering Libya, while NSR is a new Libyan-owned distributor. The perspectives are different, but what you have to understand about Libya is that it was a state-run economy. At the moment it is in the transition between a state-run and free economy. You will get people from both sides coming into the channel and they will address it totally differently to derive the benefits. SUMANT SARAN: We are in the process of setting up a company, which should be completed within a few weeks. It has proved to be a very long process, much longer than imagined, and we should open our Libyan service centre soon. You can’t operate as a foreign-owned direct buying company, but have to go through a local route instead. At the moment we are not taking that option, but are instead using the service centre as a foothold to support the channel through our RMA offerings, identify key business partners, and then build on that. We have been told by lawyers that the foreign ownership rules are expected to change, and we’ll then be able to engage directly in the Libyan market. If all goes to plan then we hope to be operating fully in Libya by the end of 2005. PIERRE FARRUGIA: We have just established a local company there together with a Libyan partner. We have a showroom, office and warehouse in Tripoli, and are setting up an Acer service centre. Amatech has been present in Libya for the past six years, but mainly in project work and not as a distributor. We have started with Acer, a well-known brand, and have plans to increase our portfolio to become a one-stop-shop for the Libyan channel. HANI SALW: We started operations in Libya in 1999, and have a string of retail shops across the country. PC International has an in-country wholesale office, showrooms in major cities, including the two most important areas, Benghazi and Tripoli. Our retail presence and reach is the most comprehensive found in the country itself. Cme: What are the major issues facing the Libyan market? SUMANT SARAN: Government machinery is very difficult to deal with — every step takes time. We were planning to set up this company in November, and it is now February. For travel, it takes two months to get a visa. So if I want to plan a visit for April I have to apply today. There is so much red tape that you have to deal with and get past in order to operate effectively as a business. PIERRE FARRUGIA: Vendors are looking at Libya with a good deal of interest but they are still very cautious as to how to approach the market. There are bureaucratic regulations American companies have to go through before they can sell into Libya. We understand that every product’s part number has to be approved by the American authorities before being shipped officially to Libya. There are some bureaucratic problems on the side of the Libyan authorities that make it difficult for foreign companies to go there and set up a Libyan operation. Vendors are saying that this is an interesting market, there is a lot of potential but let’s wait until somebody else does it and then we will make a move ourselves. On the distribution side, most distis we know prefer an out-of-country approach to Libya. The local IT shops are having to play the part of importers, wholesalers and retailers, which is not helping their cause. ||**||Creating channels|~|Immagini_marino.gif|~|Marino The Bull Pezzotti, Acer Libya country manager|~|Cme: What are the challenges in building channels-to-market? MARINO PEZZOTTI: You still have issues on how you are going to get paid. No one has a real channel and you have a very limited dealer base. So how to put the right supply chain model in place is going to be a real test for whoever goes into the market. You need a flexible approach and must work with a transient business model as the country moves from a state-run economy to free enterprise. It may be a very rapid change, or it could be a slow transformation. I am placing my bets on the latter. PIERRE FARRUGIA: Logistics is one hurdle we have to surmount, as there are few delivery operators in the country. We have had to invest heavily in our own logistics setup. Libya’s regulations and procedures, what is done and what is not, are also stumbling blocks in building channels-to-market. Cme: How difficult is it to find, assess and sign up Libyan partners? SUMANT SARAN: Locating partners is simple, as there are three geographical markets in Libya: Benghazi, Tripoli, and Al Bayda. The channel is there and visible, partners are keen, they want to talk and have a relationship with foreign companies. But there is a lack of clarity as to what partners want to do. You have to explain to them distribution classifications, but each company wants to be given top ranking. PIERRE FARRUGIA: First and foremost you need to know the Libyan landscape. Knowing who is who and who does what is imperative. The IT community is rather small there — they are a tight-knit group of people and everybody knows everybody. If you have some good past references it helps, whereas some bad past references will hinder your job. Cme: What is the size of the market opportunity in Libya? Which customer segments hold the most potential? MARINO PEZZOTTI: People think of oil and believe that there is going to be lots of money. Libya is different from other oil-based economies because not much oil revenue goes back into circulation due to the state’s role in running the economy. So don’t think there is a big marketplace because there is oil. Libya had a freeze on salaries for almost 20 years, so if you are looking at someone earning US$50 a month, then what is their ability to buy a PC? You will have key corporate accounts in the finance and oil sectors, but to develop the SMB and retail market will be more challenging. SUMANT SARAN: There is a total addressable market of 50,000 to 60,000 PCs a year. If the pace of growth continues then by this year’s end, it should be worth 60,000 to 70,000 PC units a year. But at the same time, the period for closing a deal can last up to 12 months. You have to keep rebuilding the bid every three months because every time the evaluation committee sits they demand fresh quotes. This adds to the cost and frustration. PIERRE FARRUGIA: This is the million-dollar question. No official statistics are available and everyone bandies around figures, but our own estimate for PCs is 80,000 a year. The biggest portion of spending is still the oil sector and the government. But the private market is growing, especially with the influx of foreign companies who yield considerable spending power. The government is also a driving force in IT demand and recent moves show clear signs of IT investment especially in the education and health care sectors. ||**||Long-term development|~|Showroom1d.gif|~|Formula 1 - even high-end kit such as Acer's Ferrari range is available in Libya|~|Cme: How do you build brand awareness? PIERRE FARRUGIA: Marketing is relatively new. Until recently billboards or a simple advert in the newspaper were illegal. This has changed, and we are now making use of billboards and leaflet mail-outs, The main effort goes into direct marketing. We have sales reps visiting oil companies and individual businesses to push the branding message. HANI SALW: It is like anywhere else in this region — you need a continuous stream of promotions and advertising. PC International and LG have been present at every exhibition held in Libya, and also market heavily in print as well. What is important when it comes to branding is the service. What helps us is our direct touch with end-users. We know what they want, and the most important consideration for Libyan customers is service. The Libyan market desperately needs after-sales service, and this is the yardstick by which we and others are measured. The level of service in Libya at present is very low, and LG is the only vendor with a service centre in the country. Libyans want quality products, and our service centre reinforces the LG brand. Cme: How easy is it to establish logistics infrastructure in Libya? PIERRE FARRUGIA: We have had to invest in a whole system, from delivery vans all the way up to warehousing. There are some international logistics operating here, including DHL, but their main customers will always be the oil sector and foreign companies who are willing to pay a premium for delivery. We don’t have that luxury in the IT sector. Cme: How do you see channel structures in Libya developing long-term? MARINO PEZZOTTI: Libya’s IT market doesn’t even compare to, say, Dubai’s Computer Street. Outside each store you will see pallets of 486s, reconditioned corporate machines from the UK. I see a market that is a microcosm of Nigeria, where you have a sector of the population that is educated, and the wider populous who don’t earn anything. If more money starts circulating within the country and general earnings go up, then the channel will develop and vendors will move in to encourage this process. You may get big tenders coming up and someone makes a lot of money, but if you are looking at the general run-rate business you need to take the long-term view. We appreciate that there are going to be a lot of trials and tribulations along the way to enable us to develop the channel. PIERRE FARRUGIA: We believe that the market will stabilise and become a standard market along the lines of other North African markets. From what we have seen with Acer, the resellers are willing to stop importing from Jebel Ali themselves and concentrate on sales. In the long-term we will see the channel developing along standard lines. Cme: What levels of IT skills currently exist in the Libyan channel? SUMANT SARAN: The level of skills is very impressive. There are plenty of technically gifted graduates from Libya’s universities. Don’t forget that with so many years of sanctions Libya’s channel has had to be innovative in repairing old IT kit. The skills are there in the country. Cme: Which solutions and technologies will be most in demand in Libya? PIERRE FARRUGIA: Definitely wide area communication. The big gap in the country’s infrastructure is communication between the peripherals of the country and its metropolitan centres. The authorities are driving the adoption of the latest communication technology, such as DSL and VoIP. ||**||In-country issues|~|Workshop1.gif|~|Amatech's Tripoli workshop: servicing the needs of the local channel|~|Cme: How important will first-mover advantage be in Libya? SUMANT SARAN: The channel appreciates a distributor willing to be on the ground supporting them, providing marketing funds and a proper service. A basic problem the Libyan market faces is lack of international warranties on products.The channel needs a service centre, to provide warranty support. Through providing a highly sought after service, we’ll win over the channel before competition arrives on the scene. PIERRE FARRUGIA: It is imperative. In the long-term the Libyan customer is very loyal to products they like. However vendors and distis who do want to enter must be committed to invest, and understand what the requirements of the country are. It is not just a question of pushing your products in the market. Cme: How clearly defined is the Libyan channel structure at present? SUMANT SARAN: There is a channel in place, but it is very fragmented. Most of the channel is not focused — they will sell anything and everything. A lot of education is required in terms of how to handle IT projects with large requirements. After a period of time, the channel will settle down and resellers will begin to specialise in certain verticals. It is difficult for us to know whom to support. If a tender is issued, a retailer will approach you, a trader and also a reseller with the necessary skills for the job. We always want to support the right person but the channel is so confused it is hard to know whom to support. Cme: How do you see competition levels developing in Libya? PIERRE FARRUGIA: I have no doubt that IT vendors will eventually be present in the Libyan market one way or another. It is just a question of time before everyone realises that this country is entering the international IT arena. A lot of vendors are eyeing the country with interest at present, and many have spoken to us. But it is that commitment to invest in the country and actually put marketing funds into an emerging market which is needed. Libya is like a cake which nobody has yet tasted but everybody is looking at. Cme: How is product flowing into Libya at present? PIERRE FARRUGIA: Most products come in from Dubai. I would say at least 80% of product comes in from Jebel Ali. Small pockets come in from Europe and the rest is from the Far East. Most goes direct to Libya, although a few shipments do go via Malta. SUMANT SARAN: It takes 18 days to ship the goods by sea from Jebel Ali to Libya. Another popular route is for cargo to be dropped off at Malta, and then from Malta stock is shipped via smaller boats to Benghazi or Tripoli. There are challenges in clearing shipments. It can take up three weeks to clear a shipment. I’ve heard that Libyan customs have been told to be proactive with importers. If that happens then it will be a big step forward. Cme: How developed is the Libyan retail market? SUMANT SARAN: There is nothing along the lines of Jacky’s here in Dubai, but I have seen one or two showrooms that have a retail feel and trained staff. But by and large you will not see many professional retail outlets. Most retailers in Libya resemble street traders as found in Dubai’s Computer Street. PIERRE FARRUGIA: Very poorly. There are numerous shops all over the major cities, but unfortunately they are fulfilling multiple roles: retailers, solution providers, and everything else in between. They are trying to do too much with too few resources and in most cases failing to focus on their main role of end-user sales. It will take time before they realise the benefits of a structured channel and offering services such as warranties. HANI SALW: The retail market is full of dealers with limited spending power. They import directly from Dubai but only in small quantities. Retail is underdeveloped, and PC International is the only company that offers a retail experience which is comparable to what you would find in Dubai. The government is driving demand, much more than consumers. But we are strengthening our retail operations in Libya and are taking a high market share for LG in a number of product segments. Cme: What other issues are there in Libya for IT companies to deal with? SUMANT SARAN: One is streamlining the channel and telling resellers that this job may not be their cup of tea. The second is that many vendors do not see Libya as a serious market, possibly due to the US embargo and its effects. You may win a deal for a high-end piece of IT kit, but it takes time to receive approval for shipping. There are a lot of one-deal operators in the Libyan market who deliver anything on demand. This will change once the embargo is fully lifted and product begins to flow. We can then structure the channel, but with present limitations on trade there is only so we can do. PIERRE FARRUGIA: It is definitely after-sales service. This is what customers are looking for. They want a product that is reliable. The authorities are pushing this concept, as they want to avoid what has happened during the past when a lot of product was dumped in Libya. The government wants to avoid this, and have companies in-country that can offer warranties and a quality after-sales service. ||**||

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