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Mon 2 Oct 2006 04:00 AM

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Back to Baghdad

Channel business in Iraq takes a back seat behind ongoing security concerns as vendors take a ‘wait and see’ approach to the market.

Security concerns|~|iraqcom200.jpg|~|Delair Adib, business development manager at Iraqcom|~|There is no getting away from the fact that physical security remains the top priority for everyone associated with the Iraqi IT channel. Yes, the market has immense potential but during the last year ongoing security issues inside the country have sated any vendor appetite for channel investment. For now, Iraq remains a 'wait and see' market in the wider Middle East context.

Many vendors and distributors would love to commit more resources to the Iraqi market and towards the development and education of in-country channel partners. This is after all one of the most populated countries in the region with high levels of education. Couple this with a pent up demand for the latest technology after years of sanctions and you have some of the core ingredients for a growth market. Unfortunately, despite all these positive factors, security concerns remain the number one issue for any company attempting to work in Iraq, and as such, the development of the local channel has been severely hampered during the last year.

Firas Alfanney, regional channel marketing manager at Intel, explained: “The Iraq market is very important to Intel as it is to many other vendors. The literacy rate is high and the purchasing power is there in the market so there is clear potential. What many vendors are waiting for now is for the security concerns to stop.”

Talk to vendors about their strategy for Iraq and it soon becomes clear that the first wave of IT spending and investment in this nascent market is expected to focus predominantly on hardware. Only once a reasonable level of infrastructure and networking capability is developed is the focus expected to turn towards software and services spending in Iraq.

Justin Doo, managing director at software vendor Trend Micro, explained: “What I believe is that our technology tends to deploy at a much later stage in the cycle of development of a country’s IT infrastructure. At the moment, it is more about physical security inside Iraq than digital security.”

Despite the constraints and limitations holding back the development of IT channels in Iraq, some insiders believe that the foundations of structured routes-to-market are now starting to occur. At present, many of these channels are focused on meeting the basic hardware requirements of customers within Iraq.

“There are IT channels inside Iraq,” said Delair Adib, business development manager at Iraqcom. “These are IT companies that are either authorised by the vendors or resellers that are purchasing from distributors and other sources and selling the product on within the country. There are resellers focused on components selling and there are also a number of players actively involved in PC assembly.”||**||Supply chains|~|iraqintel200.jpg|~|Firas Alfanney, regional channel marketing manager at Intel|~|The physical supply chain used to route product into Iraq remains in a state of flux. Talk to one channel player and they will tout Kuwait as the major staging post for product destined for Baghdad and other major conurbations inside Iraq; talk to another company and they will emphasise the role of Jordan as a hub used for forwarding product onto Iraq, talk to a third player and Dubai will be mentioned as the intermediary city linking in-country Iraqi resellers with the international vendor community.

What is clear is that some of the extra product that has been shipped into all three of these markets is ultimately destined for Iraq. Quite how much remains an unanswered question as vendors and distributors struggle to size the Iraqi market and work out precisely how much product is flowing into the country.

The challenges of doing business in Iraq has resulted in the emergence of specialist players that have honed their skill sets to deal with the unique challenges that exist in the country. Companies such as Al-Naba’a, Orient Technology and MTC continue to carve out a reputation as powerful players in terms of the development of the in-country channel. MTC has struck a distribution deal with Acer covering Iraq and is forecasting strong growth within the country.

Houssam Mobied, CEO at MTC, said: “We have agreements in place with vendors such as Acer and Fujitsu Siemens giving us the ability to supply a wide range of products into Iraq, which is a fast and rapidly growing market. Iraq is now considered as the third largest market for MTC. Despite the political uncertainty in the country, the strength of our portfolio for Iraq is helping us to boost our position and we are confident that we can actually double our turnover [in Iraq] during the next few months.”

While hardware vendors such as HP and Acer have already started taking positive steps in terms of the appointment of distributors and in-country partners to specifically serve the Iraqi market, the same cannot be said about many of the software vendors operating in the Middle East. Projects are thin on the ground in Iraq and many vendors prefer instead to concentrate their market development efforts on other territories where they believe they can achieve a greater return on their investment.

In recent months the opening up of the Libyan market and the comparative lack of security concerns has stimulated a wave of vendor interest and investment in channel development as vendors move en masse to build up their market presence. This is the sort of process that many had envisaged would occur in Iraq.

“There are actually a couple of projects that we have quoted for inside Iraq in the banking and government sectors,” added Doo. “There was a much vaunted education project but that has not yet got off the ground. We are looking at the second quarter of 2007 for some of these projects to really get up and running now.”||**||Internet growth|~|iraqmtc200.jpg|~|Houssam Mobied, CEO at MTC|~|For Trend Micro, most of the business opportunities emerging in Iraq are occurring through one reseller with operations in the UAE and reach into Iraq. This is a model that other vendors are also using. Rather than the vendor leaving Dubai and going into the country to stimulate the market development the opposite is currently true for Iraq: resellers from inside Iraq are coming to Dubai to build the relationships with the vendors that will form the foundations of future channel growth and development in Baghdad, Basra and beyond.

“We would love to develop the same routes-to-market in Iraq as we have in other countries,” concluded Doo. “What we are doing now is identifying the resellers that have reach in Iraq and have representation in the UAE, Kuwait or even Jordan. We are building these relationships now and this will allow us to evolve them into fully-fledged partnerships when the Iraqi market is ready.”

Talk to enough people about the Iraqi market and it is fairly common to hear conflicting messages on the country’s potential. Mohammed Omed Ali, CEO of United Consultants and Impulse, has worked in Iraq on remote access projects for a number of years. A native Iraqi, he has had to leave the country for Jordan, due to the instability there — he is now working to establish his business throughout the region, including the UAE.

“People in Iraq cannot reach the technology very easily — they don’t know what’s going on outside, just as many people in the rest of the world don’t know what’s going on inside,” says Ali. “Technically, we are going down - this is one of the most important problems. Getting visas to go to an exhibition in the United States, this is not easy for Iraqis. Even in Arab countries, sometimes, it is hard. And no one can come into Iraq either.”

Ali makes no apology for being pessimistic about the future of the country. He claimed that any technically able people, especially English speakers, leave Iraq as soon as they can - they can make more money, in a safer environment elsewhere, so they have little reason to stay. At the same time, vendors are unable and unwilling to send trained personnel to assist with implementations in Iraq.

This is a key issue, according to Ali, because of the lack of options for Iraqis to communicate with the outside world. The internet is a vital link for both business and personal reasons — and, in the absence of any meaningful communications infrastructure, the only way to access it is via satellite link.

Many may see the absence of an up to date wired infrastructure in Iraq as a clear disadvantage. However, for those that believe this provides the perfect opportunity for Iraq to leapfrog ahead of other countries and move to the latest in wireless infrastructure this is clearly not the case. For Alfanney at Intel, the prospect of increased internet penetration in Iraq - and the opportunities this represents for the vendor — is fast becoming a reality. ||**||Future prospects|~|iraqnme200.jpg|~|Mohammed Omed Ali, CEO of United Consultants and Impulse|~|“What is happening now in Iraq is that the internet usage and penetration is growing very quickly,” added Alfanney at Intel. “We have conducted some surveys and marketing campaigns and noticed a growing number of internet cafes in Baghdad. This observation leads us to the conclusion that there are a growing number of literate users who now need personal computers (PCs) in Iraq.”

Intel is one of the few vendors to have actively launched its channel programme inside Iraq. The company already has a number of in-country resellers and assemblers signed up and is currently managing these relationships remotely through online tools and phone contact.

“What we have witnessed in terms of certain projects for the major cities is that locally assembled PCs is still a big portion of the pie, but we are still unsure about the exact breakdown of the numbers,” he added.

Mobied at MTC estimates that some 70% of the total addressable PC market in Iraq is currently the preserve of locally assembled machines because of the favourable price points compared to A-brand units. While price is undoubtedly a factor — especially in the consumer market — there remains considerable potential for A-brand vendors and their favoured distributors to stake a clear first mover advantage inside Iraq. MTC is determined to continue developing its Iraqi business.

“We are discussing with some of our vendors the potential of opening up an in-country service centre,” said Mobied. “We also have a future plan to set up an in-country logistics facility once the political situation improves. At present, the margins for doing business in Iraq are probably higher than elsewhere in the region — but this is a reflection of the risks involved.”

There are no easy answers when it comes to channel development in Iraq. Moving product from point ‘A’ to point ‘B’ remains a real challenge and there is no real consistency in terms of market demand at present. However, some channel players thrive on uncertainty, turning it into improved margin potential.

Vendors, distributors and resellers will continue to do their utmost to develop the Iraqi IT market and they are united in hoping that the in-country security situation improves soon.||**||

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