Restoring power

It's no secret that businesses across Lebanon have been ravaged by political turmoil over the past 18 months, creating a period of instability that severely hindered the growth of the IT market. Dawinderpal Sahota takes an in-depth look at what the future holds for the Lebanese channel as full power begins to get restored.

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By  Dawinderpal Sahota Published  September 13, 2007

Lebanon has traditionally prided itself as one of the more tech-savvy markets in the Middle East, with consumers demonstrating a healthy appetite for cutting-edge technology products. The recent troubles that have plagued the country have, understandably, tarnished that image however, leaving the Lebanese IT channel facing plenty of rebuilding work ahead.

"Everybody in Lebanon takes into consideration that they need to have a level of literacy of IT, and they know they need to have a PC or notebook for themselves," said Moustafa Batrouni, general manager at Lebanese IT reseller Apex. "Unfortunately now you don't see new companies opening and they think twice before getting an upgrade or acquiring a new solution. It's not a necessity now, it's becoming a luxury to have a notebook or PC, or if they already have a PC they won't upgrade it," he added.

If we have a requirement that is not in our stock, we can pay to get it. For instance, we only bring low-level and entry-level servers. We don’t stock mid-range and high-range servers.

Given the chaos that has reigned over the country, it's hardly surprising that demand for IT products has been sluggish. The effects of last summer's troubles were severe, with over one million Lebanese civilians displaced from their houses and market reports suggesting the Lebanese economy shrank by 5%. Material damage from the war, meanwhile, has been billed at a staggering US$3.6 billion.

Although businesses have strived to minimise the effects of the political environment, Fadi Mubarak, general manager Levant at networking giant Cisco admits there is still a massive amount of work to do. "Under the current economic and security situation we can say demand is stagnant," he said. "It has a lot of potential, but in general the market is a bit outdated and many infrastructures are due for upgrades. But because of the current uncertainty, economically and security-wise, companies are investing in the immediate requirements," he revealed.

Quite understandably in the current climate, neither companies nor consumers are opting to prioritise IT expenditure. The value of the Lebanese market reached just US$217m last year, rendering it one of the region's smallest IT sectors. Stephan Raymond, owner and general manager at Lebanese retailer Viatek, reckons this puts them in a quandary since although the country's economy has slowed down, the speed of technological advancement has not. "Continuous and very fast development of new models is faster than what the market can currently afford. It is confusing for the consumer and end user," he said.

Raymond adds that the deficiency in demand is causing prices to fall, which has made the retail channel a perilous place to operate. "Unfortunately the IT business in Lebanon has become very high risk and it's now a very saturated market," he conceded.

The hazardous environment has also deterred IT resellers from ploughing funds into IT stock, which in turn has made life difficult for distributors. Lebanon-based Toni Azzi, business development manager Middle East at Cisco distributor Logicom, insists both resellers and end-users are taking a cautious and short-sighted approach towards investment in IT, resulting in the entire market being squeezed. "There is no consistency in sales and demand, everyone is afraid of risky investments," he commented. "Nobody is buying in volumes, people who used to take 500 CPUs every month, are now taking 50 or 60 instead. There is no stocking at resellers, and both end-users and resellers are afraid of risky investments."

While this period of uncertainty has clearly done little to boost the confidence of the market, resellers insist they have no choice. Batrouni admits that the political situation has forced Apex's hand in adopting such a cautious approach as it simply cannot afford to keep stock that might not sell easily. "We only import things we are sure we're going to sell or implement," he confessed. "If we have a requirement that is not in our stock, we can pay to get it. For instance, we only bring low-level and entry-level servers. We don't keep mid-range and high-range servers in stock, we get them only in orders," he said.

As a result of this inconsistent, unpredictable and modest demand for IT products, distributors are electing to keep their stock in markets that provide a quicker turnover, preventing resellers from gaining access to local product. "That's the cost of operating in Lebanon," conceded Batrouni. "Sometimes we have to buy from Dubai - not even distributors in Dubai, but resellers in Dubai - in order to satisfy the requirements of our customers."

Resellers admit that this places them in an unenviable situation as companies and consumers in Lebanon are familiar with IT pricing. According to one source in Lebanon: "If you can buy something in Dubai for US$1,000, you can't sell it in Lebanon for US$1,500. Distributors price products the same in Lebanon and Dubai, so if you can't get it from Lebanon, you have to buy from a reseller in Dubai, and then take into account his margin and shipping costs."

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