Destination Iran

Iran remains the largest IT market in the region. With massive spending power, a technology savvy population and a hunger for the very latest in IT products and solutions, the country has all the right ingredients for sustained growth. However, building a channel-to-market in Iran and understanding the demand dynamics remains a challenge for vendors.

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By  Stuart Wilson Published  November 26, 2005

Re-export role|~|iranbb200.jpg|~|Bagher Bahri, CEO at 55-strong Tehran-based after-sales service and RMA specialist Avajang System|~|Iran remains the largest IT market in the region. With massive spending power, a technology savvy population and a hunger for the very latest in IT products and solutions, the country has all the right ingredients for sustained growth. However, building a channel-to-market in Iran and understanding the demand dynamics remains a challenge for vendors. A significant percentage of IT product sold into the UAE channel eventually finds its way into Iran — despite the continued presence of trade embargos for US vendors that typically covers a large proportion of their product portfolio. Websites such as www.amdiran.com and www.notebookiran.com provide solid examples of exactly how futile current trade restrictions have been in achieving their goal to date. By dhow, by container, by air or even by land, the supply of embargoed IT products into Iran is a classic example of supply and demand forces at work in this new era of globalisation. Admittedly, the embargos are having some impact in terms of slowing the overall market growth rate in Iran, but for many distributors and resellers the ongoing situation is nothing more than a minor irritation in terms of the day-to-day running of their business. “I think almost 80% of IT business comes from Dubai,” explained Mansour Jalilian, CEO at Iranian IT group Avajang’s components distribution business. Representing a range of vendors including Gigabyte, Leadtek and Kingmax, Avajang’s components distribution expects to post annual sales of US$30m in 2005, underlining the opportunities that exist in the Iranian IT channel. “There are no certain rules when it comes to product flow into Iran,” added Jalilian. “There are even [Iranian] dealers that come to Dubai and import a small quantity of goods into Iran. But it’s going to shift towards the regular international rule of vendor to distributor to regional reseller to main retailer to dealer to shop.” The problem that continues to exist is the fact that legal product flow and legal channels continue to exist alongside the movement of goods that are under embargo. This creates many issues on the ground in Iran in terms of setting up channel programmes and also providing adequate warranty and RMA services to customers. ||**||Channel structure|~|iranservice200.jpg|~|Providing quality after-sales service on the ground in Iran is something that components vendors must get right|~|“Many major products are not readily available in Iran,” said Mehrdad M. Raad, branch manager at solution provider Pro Technology’s recently opened Tehran office. “They cannot come in through the door so people bring them in through the window instead. The extra, time, cost and effort involved are sometimes intolerable and service and support is the main issue in this regards. Obviously we would prefer it if there were no embargos in place, but it now seems very likely that the embargos will be in place for another five or six years at least.” Bagher Bahri, CEO at 55-strong Tehran-based after-sales service and RMA specialist Avajang System, added: “Because of the problems that embargos create for business, solutions such as e-commerce and e-banking are almost impossible to provide. We still find that the main requests are focused on hardware solutions. The embargos slow down the pace of IT improvement in Iran.” “Although the embargo has created some problems for the Iranian economy, it is not going to stop our business — it is just making it slower. Even with all the embargo-related problems, you can see a very healthy improvement in Iran’s IT industry in the last three years,” he added. Iran has developed into a unique IT market with annual PC sales now running at between 1.2 million and 1.4 million units per annum according to distributors operating in-country. With many US vendors unable to sell into Iran or invest in building up their brands in the same way that they have elsewhere in the world, vendors from the Far East have seized the opportunity to take advantage of this lack of vendor competition. To sidestep heavy import taxes on finished goods major monitor vendors such as LG, Samsung and BenQ have all formed partnerships to set up SKD facilities in Iran, ensuring that their final assembly processes take place in-country. They have also taken the opportunity to roll out channel programmes in Iran and find partners in all the major cities. However, rolling out sophisticated channel programmes in Iran is far from easy. The chaotic nature of the product flow into Iran, and the inability of some vendors to work effectively on the ground, has resulted in a highly unstructured channel still looking for some form of segmentation. “It is still not a very structured channel compared to other markets in the Middle East,” said Sumeet Bhandari, business development manager HP imaging and printing group (IPG) at Emitac Distribution. “If a reseller sees a good product or offer available in the market they will stock it up but they have not yet really segmented into specific areas of the channel.” ||**||Product flow|~|iranemitac200.jpg|~|Sumeet Bhandari, business development manager HP imaging and printing group (IPG) at Emitac Distribution|~|Emitac’s main activities in Iran are focused on selling HP IPG products to a select range of channel partners in-country and also providing post-sales support and service where required. As a distributor of HP products into Iran, Emitac has to pay careful attention to the embargos that are in place. “Emitac Persia offers service and support for all the authorised HP products that we are allowed to sell into Iran,” added Bhandari. “Basically, on the IPG side of the business, low-end and midrange products are allowed and there is an HP website where we can verify what is allowed and what is not. There is no getting away from the fact that the current situation does restrict our ability to grow our business in Iran.” While the distributors follow the guidelines set down by their vendor partners, everyone in the IT channel — below the vendor level at least — accepts that there is very little that can be done to enforce embargos on volume products. Major US hardware vendors acknowledge that the only way to prevent volume products under embargo from reaching Iran would be to require end-user verification for every product sold. This is something that they already do in the high-end hardware space but it remains unworkable and prohibitively expensive as you move down towards the volume space. At present, both the vendors and the authorised distributors follow the guidelines put in place to restrict the flow of product into Iran. However, Dubai is now famous as a re-export hub and there are plenty of sub-distributors, resellers and freight forwarders more than happy to fulfil product demand, wherever the eventual end-user is located. Within Iran itself a few names such as Digital, Avajang and Sazgar Argham have started to achieve some prominence, but looking down into the retail sector, the fragmented nature of the Iranian channel becomes clear once again. “There is not a power retailer in Iran,” added Jalilian. “Dealers are traditionally working as retailers and you cannot find a chain of IT stores in Iran. Even if people have six or seven shops they will prefer not to be recognised as one chain store because of the tax laws. If the government feels that you are big then your tax bill will be big as well.” ||**||Future outlook|~|iranjalilian200.jpg|~|Mansour Jalilian, CEO at Iranian IT group Avajang’s components distribution business|~|Despite the difficulties that many IT companies face in terms of doing business in Iran, the one common factor linking distributors and resellers operating in the country is there unbridled enthusiasm for the market and belief in the opportunities that exist for long-term growth. “The Iranian market is developing fast and there are many young people interested in IT and the ICT sector. There is huge potential in the market and strong management and wisdom is needed to achieve results,” added Raad at Pro Technology. “I think the Iranian market would enjoy great development if the embargos were removed,” concurred Bahri. “Some of the smaller companies might face problems, but for old reputable organisations like Avajang, there would be good conditions for growth.” If trade embargos were ever lifted in terms of supplying specific IT products into Iran, it would immediately reshape the regional Middle East channel dynamic. “Iran is a huge market with a population in excess of 80 million and it is developing very fast,” continued Jalilian. “I’m so optimistic about the future. The great thing is that Iranians are brand-oriented and they are not willing to buy the cheapest products all the time. This is Avajang’s winning point — offering excellent quality products with the best service and warranty possible at reasonable price points.” There are many distributors and resellers doing excellent work in terms of channel development in Iran. On Computer Street in Dubai everyone knows the companies that have access to the Iranian channel and these companies are in strong demand. “The embargo not only affects high-end technology, but also normal products that you can buy from other countries anyway,” concluded Jalilian. “So I feel that in a lot of cases we are not losing out. It is an embargo for US companies more than it is a pressure on Iran. The US is losing out, not Iran. The demand is still there for US products and this embargo helps some small smugglers to make a good margin trading US products illegally.” The Iranian IT market is buzzing and the channel can only hope that the business impediments they face will soon come to an end. ||**||

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