Baghdad Buyers

The Iraqi IT channel has come a long way in the last year. Volumes are growing and major resellers are staking their claims in this fast-emerging market

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By  Stuart Wilson Published  September 19, 2005

Vendor interest|~|baktash200z.jpg|~|Omar Baktash, channel sales manager 3C group at Almasa|~|The Iraqi IT channel continues to grow at a rapid pace. Despite the difficult situation that still exists on the ground, the first signs of a channel structure are starting to become clear within Iraq as distributors, resellers and retailers refine their business models and select their areas of focus. Many of these players continue to source product from Dubai but their commitment to in-country Iraqi reseller development remains strong. One year on from its last Iraqi survey, Channel Middle East catches up with some familiar faces plying their trade on Sinaa Street in Baghdad. The Iraqi IT market is developing fast and despite the challenges that exist, the volume of kit being moved into the country continues to show solid growth. While the picture on the ground in terms of channel landscape remains murky, this has not stopped forward thinking vendors from reaching out and making contact with the resellers that they believe can truly establish their brand in the minds of the Iraqi customer base. “There are quite a few vendors that have invested significant resources in Iraq building up their brand reputation,” explained Mohammed A. Sunba, general manager at Baghdad-based Arradhi Computers and Data Systems. “HP, IBM, LG, Samsung and D-Link have all capitalised on their international reputations and used advertising as a way to build up their brand even further in Iraq.” While vendors are already pushing hard in terms of establishing their brand in Iraq, their ability to deploy in-country channel programmes and build up a strong support network for their resellers remains limited. “There is no real support for resellers in Iraq at the moment,” agreed Firas Albanna, managing director and CEO at Iraqi IT group Alsharq Telecom and IT. “But we are starting to see signs that it is changing and the process is being led by vendors such as HP.” ||**||Local assemblers|~|albanna200z.jpg|~|Firas Albanna, managing director and CEO at Iraqi IT group Alsharq Telecom and IT|~|At present, many vendors request Iraqi resellers to travel to Jordan or Dubai to receive training and certification courses. While this scenario is far from ideal, it is generally agreed that this remains the best possible option available at present. The progress that has been made during the last two years in terms of the development of the Iraqi IT channel is impressive. Many of the channel players that had been addressing the market before embargoes and trade restrictions were put in place have spent this period making up for lost time, revitalising and reawakening their Iraqi activities. Distributors such as Dubai-based Almasa, which has a strong Iraqi pedigree, have invested time and resources securing sales rights for major vendors such as HP while simultaneously recruiting a strong base of in-country resellers. “The Iraq market has changed a great deal during the last two years,” commented Omar Baktash, channel sales manager 3C group at Almasa. “Iraq represented an empty market that needed to be filled with IT products in a short time, in terms of the ministries and institutes. The situation created a great demand for all kinds of IT products as the economy went through revolutionary changes. During the last 12 months, business in Iraq has become more stable and structured and the Iraqi channel players have become more familiar with the nature of international markets and more educated in terms of the best methods of doing business.” One year on since Channel Middle East’s last in-depth feature looking at the development of the Iraqi IT channel, it is interesting to note many of the same companies cropping up as players driving the development of the market. This consistency is indicative of a market finding its feet and a sure sign that channel segmentation is starting to occur. In the local assembly space, companies such as Arradhi, Al-Fiker, Al-Naba’a, Al-Seera, Al-Ain, Addaleel and Al-Asriay are starting to produce PCs in significant volumes with the specifications and price points that appeal to Iraq’s cost-conscious customer base. Local assemblers are producing significant volumes as well — even if the overall market landscape remains fragmented — according to distributors supplying key components into the market. Al-Naba’a is working closely with Dubai-based Golden Systems to develop Gigabyte’s business in Iraq, and the results are now there for everyone to see regarding the strength of the local assembly market. ||**||Fake fears|~|mansour200.jpg|~|Mansour Ali Akbar Flamarz, general manager at Al-Naba’a|~|With 60 staff and a brand new multi-purpose showroom, office and stocking facility located on Sinaa Street, Baghdad, Al-Naba’a Group is fast establishing itself as a major player in the Iraqi IT channel. The Al-Naba’a team specialises in a variety of different fields reflecting the company’s expansion into several new areas. Its new facility, which Al-Naba’a moved into just two months ago, will also play a key role in the company’s plans to establish itself as a distributor capable of providing in-country post-sales service and RMA for components. Al-Naba’a is already in discussions with Dubai-based regional Gigabyte distributor Golden Systems concerning the potential for setting up just such a service centre within Iraq. “We are selling Gigabyte motherboards to resellers and small assemblers as well at to end-users that may wish to upgrade their systems,” said Mansour Ali Akbar Flamarz, general manager at Al-Naba’a. “We typically sell somewhere between 5,000 and 7,000 Gigabyte motherboards per month in Iraq, but that figure can be as high as 11,000. We are investing heavily in building up after-sales service and RMA facilities for Gigabyte products in Iraq and believe this will be a real value-add in the local market.” While local assembly is building up fast, the Iraqi IT channel is still struggling to get to grips with the glut of fake products still flooding into the market. With many customers still unaware of how to spot the difference between fake and genuine kit, the channel and the major IT vendors have a major role to play in educating the market. “There was a problem with fake Gigabyte motherboards a year ago and we have seen some fake Samsung monitors recently as well as some fake LG CD drives,” added Flamarz. “For those in the industry it is quite clear that these products are fakes because the price points are frequently less than they actually are in Dubai.” Even in large tenders, fake products can be included in the deal if the customer selects an unscrupulous supplier. A recent university PC tender for 1,000 units, which was won by a supplier with no qualms over building systems that included fake components, highlighted the ongoing problem regarding fake products. Typically, it is only a few months after the PCs have been installed that the customer realises that the few dollars they saved on each machine by picking the cheaper supplier may not have been the best course of action. “Fake and grey products are one of the major problems that we face in the Iraq market,” said Baktash. “Iraq is a huge market and it has become a target for anyone involved in this side of the business. However, this sort of trade will gradually be eroded as a greater emphasis is placed on the importance of product quality and after-sales service.” ||**||Getting credit|~|nabaateam200.jpg|~|The Baghdad dream team at Al-Naba'a|~|To ensure that they are purchasing genuine authorised products, a number of the larger Iraqi IT channel players have set up purchasing operations in Dubai. This enables them to talk to the vendors on an ongoing basis and secure credit lines from distributors in a way that would not be possible for companies only operating in Iraq itself. Sunba at Arradhi explained: “We do take credit facilities from suppliers based in the UAE, but this is not done directly. We take these facilities only through UAE-based companies and for this reason we have established an IT company with UAE nationality based in Dubai.” Authorised distributors are doing their best to set up specific credit programmes to address the requirements of in-country Iraqi resellers, but the lack of financial transparency and financial security in the country has made this a difficult task. At present, the predominant business model remains Iraqi distributors with purchasing arms in Dubai supplying their operations in Iraq. “Credit is one of the tools for making business easier and keeping the channel happy. This is especially true for the Iraqi channel because the shipments take a long time to reach the destination,” explained Baktash. “Almasa has established a special programme to offer credit in Iraq. This has been done in co-operation with our local office in Iraq and enables us to support the local channel much better.” Almasa is one of the first regional distribution powerhouses to actually have dedicated staff on the ground in Iraq, but more are expected to follow suit as the market matures. As this process occurs — and vendors also feel confident enough to deploy in-country resources — many of the Iraqi channel players with operations in Dubai will have another purchasing option available. “The majority of stock is still being sourced from Dubai,” added Albanna at Alsharq. “There is also product coming in from China, Europe and even the US. If you sell product cheap then everyone will buy it. The real skill is bringing in product that is unique and not widely available in the market. Then you need to make sure that you sell it quickly to avoid making a loss.” ||**||Moving kit|~|alain200.jpg|~|Branding activity by major components vendors such as Asus is well underway in Iraq|~|The supply chain involved in moving product to Iraq remains lengthy — especially for kit purchased in Dubai. Collectively, the Iraqi resellers reckon that close to 80% of all IT products available in Iraq are being sourced from Dubai. “80% to 90% of products going into Iraq go through Umm Qasr port in the south. Typically a shipment takes one week to move from Dubai to Baghdad and there is not much in the way of local stocking in Iraq because of the risks involved. Most of the channels are careful when they are placing orders and do so according to the demand outlook and situation on the ground,” added Baktash. Holding and transporting IT stock in Iraq remains fraught with risk. Once product has landed at Umm Qasr, the road journey to Baghdad presents a security headache. Because of this risk, many of the Iraqi resellers look to consolidate their shipments and products are frequently moved in convoy during the day with armed guards. It is not unheard of for shipments to disappear in transit, and without the protection afforded by insurance, this is a situation that distributors will do their utmost to avoid. “Shipping the product by boat from Dubai to Umm Qasr or Basra takes two days. There is also some product moving into Iraq through Saudi Arabia and Jordan, but this takes a long time. For urgent shipments there is the possibility of flying the product in but this is an expensive option,” said Flamarz. The delivery dates are scheduled carefully so that the difficult points in the transit process take place at the best possible time. For example, Al-Naba’a typically moves two shipments from Dubai to Iraq per week. One shipment leaves Dubai on Monday, arriving in Basra on Wednesday. The product is offloaded on Thursday and put on trucks ready to make the journey to Baghdad during Friday. Stocking product on the ground is risky but distributors such as Almasa are now carefully examining the potential for doing this. The resellers on the ground are also investing in new showroom facilities and offices. Al-Naba’a is taking security seriously at its flagship facility in Baghdad, purchasing inch-thick glass to front their showroom. In many ways, these facilities are now comparable to what can be seen around the region, with in-store branding and point-of-sales materials one of the areas where vendors can work with resellers to develop their in-country branding. ||**||Building scale|~|nabaaoffice200.jpg|~|Al-Naba'a's gleaming new premises in the heart of Baghdad's IT district|~|Some forward-thinking companies are also now looking at covering the entire country as opposed to focusing their business activities in just one city. Al-Naba’a has introduced an innovative franchise model to develop its brand in cities across Iraq. By entering into 50:50 joint ventures with small resellers, the two companies work hand-in-hand to launch showrooms in a specific city. “The IT sales used to be concentrated in Baghdad,” explained Flamarz. “Now we are starting to see significant volume in other cities such as Basra and Mosul. A few years ago resellers would have been lucky to sell two or three PCs a week in these cities and now it’s not unusual for them to shift 20 a day.” This increase in volume has been reflected in the amount of business that the established players now serving Iraq are witnessing. A few years ago, major players were shipping just US$100,000 worth of kit per month. Today, according to Flamarz, there are at least five distributors working in Iraq that ship in US$1m of product every month. As the market grows, so too does the pressure on resellers and distributors to focus their activities and build up specific skill sets. Areas such as networking are booming as Iraqi companies large and small look to deploy IT infrastructure. “There is great demand for networking product in Iraq, especially wireless products. Most government and military institutions are now connected by wireless networking,” said Baktash. “Internet access recently became available and this has meant that more and more people in home and office environments are driving the demand for networking products.” At present, many channel companies operating in Iraq focus on a broad range of business activities. Alsharq is one such example, operating as a distributor, retailer and also a provider of end-to-end telecoms and IT solutions. These companies are now putting in business plans to develop each arm of the business as a separate entity in a way that reflects the growing maturity of the overall market. For Albanna at Alsharq, the priorities for the year ahead are clear. ||**||Best of breed|~|sinaa200.jpg|~|Sinaa Street has come a long way during the last two years and the pace of change shows no signs of slacking off|~|“We will look to expand the IT sales department even further, focus on developing specific brands and open more showrooms,” he said. “In conjunction with this we will launch an advertising campaign to raise awareness and I will look to travel to Iraq more often.” Sunba at Arradhi is also keen to expand the distribution product portfolio carried in the year ahead, while Al-Naba’a is already in talks with major vendors such as Maxtor and Acer to add their product lines. “We want to select the best vendors in each product category,” said Flamarz. “So, in the motherboard space we are committed to Gigabyte and in printers we focus on HP. Al-Naba’a has a reputation for selling quality products and our customers trust us to continue doing this.” Margins are already an issue for the major channel players in Iraq, but the general feeling remains that the market is still in its infancy and is poised to enter a period of rapid and sustained growth. Let’s make no bones about it: doing business in Iraq remains a tough and risky choice for any company involved in the IT channel. Nevertheless, the appetite for products and solutions is there and for vendors prepared to take the time and make the effort, there are a growing number of resellers and solution providers to work with. Iraq will become one of the major IT markets in the wider region. Those that fail to address the opportunity now and plan for the future could be left behind as Iraq comes of age. ||**||

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