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Sun 2 May 2004 04:00 AM

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Inside Iraq

Devoid of an established IT channel, Iraq is a country which represents a huge opportunity for the first distributors who can get into the country, develop partnerships with local sub-distributors and resellers, and build a channel-to-market.

Into Iraq|~|iraq-side1Amjad.gif|~|Mehdi Amjad, group managing director at Almasa IT Distribution|~|Devoid of an established IT channel, Iraq is a country which represents a huge opportunity for the first distributors who can get into the country, develop partnerships with local sub-distributors and resellers, and build a channel-to-market. Channel Middle East spoke to several big distributors based in Dubai to learn more about what is happening in a place where everyone wants to be. Eliot Shepherd, marketing manager at Tech Data; Sunil Dandawate, managing director for Kobian Distribution; Ahmad Qasem, sales manager at Al Yousuf Digital, and Mehdi Amjad, group managing director for Almasa IT Distribution explain their current position on Iraq and how they intend to do business in this emerging market.

CME: As a distributor what presence do you have in Iraq at this moment in time?

MEHDI AMJAD: Almasa IT Distribution (Almasa) has major shareholders originally from Iraq. This has been an important asset in terms of our ability to build market reach in the country. It means that Almasa has a solid understanding of the market landscape, the culture and the history. Almasa also has good links to the government sector in Iraq.

SUNIL DANDAWATE: Three years ago we signed up Al Arabi, an Iraqi distributor based in Baghdad. Al Arabi also has a buying office in Dubai and all transactions are done through the Dubai buying office. In turn Al Arabi distributes Mercury products throughout Iraq with the help of resellers based in Arbil, Basra, Mosul, Najaf, Fallujah, Kirkut, Kut and Hilla. Baghdad sales are covered by Al Arabi itself.

AHMAD QASEM: We are not present in Iraq as Al Yousuf Digital, but over the past two years we have been doing business in Iraq through some local partners.

Cme: What development plans do you have for business in Iraq?

ELIOT SHEPHERD: After sending one of our senior managers to Iraq on a field trip — and with the latest security developments there — we have suspended plans to set up formal in-country engagement plans. Until such time as the socio-economic and political climate improves we will continue to progress business from Jordan, Kuwait and the UAE.

MEHDI AMJAD: We have had five employees looking closely at the Iraqi market, evaluating its potential over the past few years and putting together a strategy. Almasa was one of the first distributors to start working in the country. We were able to ship products, implement solutions, undertake sales training and have people on the ground.

SUNIL DANDAWATE: For the last three years Al Arabi has focused on resellers selling to end users. Now that our Mercury brand is established, Kobian and Al Arabi are planning to enter the government sector in a big way. We have also set up a service centre, so our distributor can give excellent after sales support to resellers.

Cme: How difficult is it to locate, assess and sign up channel partners in Iraq to work with and through?

SHEPHERD: Having conducted a very extensive visit and in-country evaluation there are significant issues in signing up partners in Iraq. We are concerned about the ability to establish trading terms with these potential partners due to lack of trade licenses and other legitimate trading paperwork. Locating resellers is an easier task since there are several souqs in Iraq’s major cities which are well known to be the main selling places of IT and electrical products.

DANDAWATE: It is not difficult at all as once you have an inroad into the market, the channel will automatically come to you if your product is correctly priced. With regards to signing up new partners it is advisable to do business through a known partner.

QASEM: There is still no access to Iraq, and the infrastructure is not yet ready. You do not know the key Iraqi players unless they are here in Dubai. This is the one major difficulty we are facing in allocating and assigning partners in Iraq.

AMJAD: It is definitely not an easy task to find strong players you feel confident giving credit to and who will be there for the long-term. But if you have knowledge of the historically strong players it helps. They may have lost shops and infrastructure but they maintain the financial capability to rebuild. Almasa knows these players from years back.||**||Sales possibilities|~|iraq-side2Kobian.gif|~|Sunil Dandawate, managing director at Kobian Distribution|~|Cme: What is the size of the market opportunity in Iraq?

DANDAWATE: We estimate that our target area, the clone market, is worth about US$3m per month.

SHEPHERD: Initial estimations suggest a market size similar to that of KSA. However the initial amount needed for SMB infrastructure development may well have skewed the numbers we have.

AMJAD: I believe the market opportunity is huge in Iraq across all IT areas — hardware, software and networking. This is an interesting market for everyone and research has already been done pointing to a large market value. I believe these targets are feasible and we are looking forward to them being met.

QASEM: Iraq is a huge market, as it used to be for us. After several years of sanctions Iraq has become virgin territory. I see big opportunities there. But information about market size is misleading, and not realistic. All the statistics are confused because no one takes into account all the differing trade routes into Iraq, only thinking about a few routes and neglecting others. There is no sole indicator for the opportunities found in the Iraqi market.

Cme: How much brand awareness is there in Iraq? How are you trying to develop brand awareness?

DANDAWATE: We are doing a great deal of work to market Mercury in Iraq, such as by conducting quarterly reseller meets. When any new product is introduced, a sales kit is given to the distributor for onward circulation with resellers. Periodically we print advertising, and distribute giveaways, such as Mercury merchandise.

AMJAD: It is very much a virgin market in many senses and there is little brand awareness. Having said that, many people remember the brands they used to buy before restrictions and will probably buy them again. Some products were still finding their way through to Iraq when embargoes were in place. The problem was that there was not enough information, service provision, training or marketing to accompany these shipments. This can all now be provided.

SHEPHERD: At this time we are not conducting any brand awareness campaigns.

Cme: What customer segments represent the most attractive market opportunity?

AMJAD: There is opportunity across all segments including the government, corporate and home user space. The consumer market will be strong as spending power increases in Iraq and cash flow improves. During the next two to five years there will be significant government investment as it looks to build up an IT infrastructure.

SHEPHERD: In the short term, infrastructure and enterprise type installations look attractive. Longer term the key growth area is most likely to come from the SMB space — of course this is all subject to economic and political stability.

DANDAWATE: Currently the government sector represents the most attractive market segment.

Cme: How easy is it to establish a logistics infrastructure in Iraq?

QASEM: To be frank, not easy at all in the current climate. For any supplier to be successful they will have to find a solution to this distribution problem.

AMJAD: Almasa already uses its warehouse facility in Jebel Ali to feed the Kuwaiti hub which links into the Iraqi channel. We are either shipping goods from that warehouse into Iraq through Kuwait or the customers can actually come and pick products up from Kuwait.

SHEPHERD: That is a question for which I think an answer is very difficult to ascertain and establish.

DANDAWATE: Once the security risk is eliminated and there is law and order logistics infrastructure should not be a problem. Our distributor already has three warehouses in Baghdad each with a large storage capacity, enough for several containers of products. Goods get shipped from the capital to the rest of the country.||**||Permanent prospects|~|iraq-side3Eliot.gif|~|Eliot Shepherd, marketing manager at Tech Data|~|Cme: How do you see channel structures and operations in Iraq developing long-term?

SHEPHERD: I think it has the potential to structure itself in a similar way to many of the key Middle East markets. It is likely that there will be high proliferations of traders, sub-distributors, brokers and assembler companies with only a few VAR and enterprise companies being established.

DANDAWATE: Iraq is now the most lucrative market in the Middle East and will remain so for many years. Once the country has a stable government the channel will automatically come into force, as business will then become more controlled. Once you have planned and structured business the channel will have to be ordered in a manner which will give good results in the long run.

Cme: What levels of IT skills currently exist in the Iraqi channel?

QASEM: IT skills are not at the level that they should be, and definitely not like those seen in other markets in the Middle East.

DANDAWATE: The skill level is quite strong especially in the PC segment, although we at Kobian always give training to our distributor personnel to ensure good after sales support.

SHEPHERD: IT skills are fine. From our visit the education that is required is more around channel models than technology itself.

Cme: Which solutions and technologies do you expect to be most in demand in Iraq?

SHEPHERD: Standalone PC or small network clusters with shared analogue internet connections.

QASEM: High tech products for the government and corporate sector. On the consumer side there will be demand for all-in-one solutions, printers and systems, where customers can cut more cost.

DANDAWATE: With regards to the clone market demand will shift to the latest in hardware technology. Even PIII motherboards are selling in Iraq today but this will not last for long. Iraq buyers are smart, well informed and know the difference between a cheap product and a good product.||**||Market moves|~|iraq-side4Ahmad.gif|~|Ahmad Qasem, sales manager at Al Yousuf Digital|~|Cme: How important will first-mover advantage be in Iraq for vendors and channel players?

DANDAWATE: The first mover advantage will play a significant role in surviving in the Iraqi market as once a brand is established and accepted by customers in Iraq it will be extremely difficult to make them change to another brand.

SHEPHERD: Make or break. We had a first mover strategy that could have been fateful — for now it is a time to watch and see whilst addressing demand or opportunity from the periphery.

QASEM: It is very important, especially for vendors. We say market maker and market taker. Usually the market makers get better benefits, because when market takers move in, competition is becoming tougher and margins are shrinking. Market makers will take the market benefit. There is a big chance in Iraq for market makers because the market requires much more than is currently being supplied.

Cme: How clearly defined is the Iraqi channel structure at present? SHEPHERD: Iraqi channel structures are not defined at present.

DANDAWATE: At the moment the channel is not defined clearly and there are a lot of small time buyers who depend on their associates in Dubai to ship goods.

Cme: Are you planning any events or roadshows in Iraq?

AMJAD: Yes. As soon as it is feasible to do so, Almasa will look to run road shows and events to promote our business and recruit resellers in Iraq.

QASEM: For sure. Today Iraq is one of the important markets. There is a plan for events and roadshows, but this is frozen at the moment because of security concerns. If there is not enough protection for our staff and those attending, then we won't do a roadshow in Iraq.

SHEPHERD: No, we are not planning any events for Iraq.

DANDAWATE: Yes , we are planning a training programme for resellers on product knowledge, education for resellers' technical personnel and we are also participating in Iraqi IT events.

Cme: How do you see competition levels developing in Iraq?

SHEPHERD: From our visit it was obvious that Tech Data just like other distributors from the region are non-existent.

DANDAWATE: Competition will certainly intensify, particularly as the situation stabilizes. Once the situation stabilizes the first two years will see the fiercest competition followed by a shake out of brands that are not able to withstand the market demand and the customer preference.

QASEM: It will be tough as Iraq is one of the best markets in terms of margin. Competition has already started to increase, but the real fight will begin after some time, when there is security. Then all the players will take advantage of that market and move into Iraq. Resellers and retailers have a big chance now in the Iraqi market, but this will not last for long, as competition will soon heat up.

AMJAD: Everybody is interested in the opportunities that exist within Iraq and would love to build a strong operation there. Iraq is a core part of the wider Middle East market.||**||

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