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Technology / AI and automation

RUSSIAN REGRET: THE MISERY OF TRYING TO DO BUSINESS WITH A WORTHLESS CURRENCY

Given the dire state of the rouble, computer sales in Russia now tend to be mostly to those pockets of the economy still generating hard currency. Russia’s main source of dollars is sales of oil and other raw materials from Siberia. Yet despite the amount of money generated in the region, it has remained largely impervious to the attempts of local companies to establish computer retail operations. As evidence that money is to be made in Russia’s Wild East, last month Hewlett-Packard Co and Swedish software firm CMA AB sealed a $3m contract with ASUNEFT in Nizhniy Vartosk, North West Siberia to supply a Unix system to automate oil field data acquisition in the region. Much of the computer business in Siberia is still done direct with Moscow. Though the money is being spent, local vendors are having a tough time coping with the increasingly erratic nature of demand and worsening financial instability. This paradox is nowhere more evident that in Novosibirsk – Russia’s third largest city, in Western Siberia. The city’s economy is heavily weighted towards large manufacturing enterprises, most of which were established to supply the Soviet military. All are now severely hamstrung by the economic chaos in Russia. Under conditions of hyper-inflation no factory manager has either capital or financial stability to invest in any kind of serious modernisation. As a result, little real automation is taking place. In most cases when computers are purchased by enterprises, it is to run administrative systems like bookkeeping. Anatoly Guljaev, managing director of Novosibirsk-based Utilex CT, says the economic vitality of the Novosibirsk region has noticeably declined in the last three years. Many of the large military enterprises which formed the backbone of the city’s economy have suffered serious reductions in income.

Lucrative orders

In 1988, when the company was established, it sold 1,200 personal computers. At the end of 1992 it had sold just 250. He says the most lucrative orders are now done outside the city: If a customer buys seven or more personal computers they are usually planning to resell them. More often now we get requests for an individual hard disk or a board, he says. Utilex CT has itself won contracts in the Chita region, Kazakstan and Nizhniyvartosk in the last 12 months. Given the sluggish progress of economic restructuring in the region the size of the hardware market is relatively constant. Most hard currency comes from state grants, from exporting raw materials or manufactured goods. Since no mines, oil wells nor factories have invested in significant modernisation few are making appreciably more convertible currency than they were two years ago. The structure of demand, however, is far from constant. Vendors say organisations will usually buy immediately they have state credits to avoid losing out on the plunging value of the rouble. The rouble-dollar rate is calculated in twice-weekly exchange sessions in Moscow. During November 1992 and January 1993, its value sometimes slumped by over 10% in a week. There have also been several periods of panic buying triggered by rumours of taxation or currency reforms. Mainly for reasons of security, firms cannot afford to keep stock in warehouses so that confronted with sudden large requests, most cannot compete with their better-connected rivals in the Russian capital. The key to success (or survival) as a reseller in the region is firstly a question of capital. With the Russian currency so weak, the developing fragile tier of rouble resellers – sourcing and reselling for roubles – has all but disappeared. The number of firms selling computers in the region has dropped markedly since January 1992. Customers still buy for local currency but vendors cannot operate without their own reserves of US dollars or Deutschmarks. To compete with Moscow they must also be able to deal direct with foreign suppliers. For local vendors, finding good suppliers is crucial.

By Our Moscow Correspondent

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There are about eight companies based in Novosibirsk that are selling in sign

ificant and consistent volumes. All have some kind of special supply arrangement. This can take various forms. JV Dialogue Siberia executive director Sergy Korchanov says his company sells on average 100 personal computers per month though volumes can vary enormously. Dialogue sources from Minsk-based Summit Systems. Summit Systems was set up by Chips & Technologies Inc and several local partners in December 1990. Assembling in Belarus, the company is much better able to cater for the fluctuations in demand in Russia than operations sourcing from Germany the US or the Far East. Summit machines, made from US components, tend to be relatively expensive. The larger market is undoubtedly for cheap Far Eastern clone machines. Due to an anachronism inherited from the days of the Soviet Union, Taiwan is classified as Third World for customs purposes. Tariffs on Taiwanese goods are all lower than those on Western European or US imports, giving the so-called white personal computer a in-built premium over yellow machines. In December 1992 the tax on Taiwanese imports was 7.5% compared with 15% for the US and Europe. One of the city’s most dynamic resellers is Fort – unashamedly a vendor of Far Eastern clone machines. Fort is a two-and-a-half year old enterprise established by a team of engineers from Novosibirsk University and the Novosibirsk Electro-technical Institute. General manager Jury Vereschagin says the company’s dollar turnover hit six figures in 1992 and he expects it to treble in 1993. You can forget trying to sell something like IBM PS/1s or PS/2s here there is no adequate argument to a customer if he can buy an identical configuration for half or two-thirds of the price he says. Again Fort’s success has been dependent on its suppliers. Since only a handful of Russian organisations can raise letters of credit, most have to pay foreign vendors 100% payment in advance. With the value of the rouble falling weekly, arranging credit is almost impossible. In Novosibirsk, commercial banks offer around 1,000%. Given the margins on most personal computer deals and the time it takes to organise shipment, this will bankrupt most companies. Fort, however, has become one of the region’s largest resellers because it has a Taiwanese supplier willing to accept payment on delivery. Without this arrangement, Vereschagin says he would probably not even be in the business of selling computers. Though the demand for computers is eccentric, there are patterns. Korchanov says half of Dialogue’s income comes from about a dozen large orders each year and the rest is made up of single office contracts (one to three personal computers). He says almost all orders come from large organisations and he is yet to see any evidence of a small business sector emerging.

Huge enterprises

Large orders come from huge enterprises (often with over 10,000 employees) small orders come from medium-sized organisations research institutes or small factories. Vereschagin says his principal customers are banks, which are now virtually the only organisations generating funds big enough for significant investment. His largest clients are Vneshtorgbank, Centralny Bank, Barnaulbank and the Savings Bank of Novosibirsk. He also has regular, albeit small, contracts from factories for Russian AutoCAD, plotters and digitisers. Back in 1988 JV Dialogue was originally set up to sell software – though this never really happened to the extent its founders had hoped. Dialogue Siberia sold several hundred packages in 1992 – which made little impact on the company’s real – dollar – balance sheet. Korchanov says there is constant demand for Clipper, Microsoft Word and Works and Lotus 1-2-3. At the close of 1992 there was a significant growth in demand. This can be interpreted in a number of ways but the most likely reason is that customers were cashing in on relatively good prices as software vendors failed to keep pace with the rouble’s sudden plunge. The city’s only specialist packaged software vendor is Novintech Express, first and foremost a Borland dealer – Borla

nd products account for 80% of its turnover. But Novintech Express also sells Word, Wordperfect and Symantec products. Deputy director Sergey Braiko maintains that selling packaged software is still realistically not a viable business in Western Siberia. In 1992, the company sold about 500 copies of each of its most popular products – C++, Paradox and Turbo Pascal – volumes that he says need to increase by a factor of 10 to make the business work. Large state organisations are still not buying software – or if they do, then it’s only one copy. Most of our sales are to new structures and most buy programming products, he says.
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CBR Staff Writer

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