Putting together a PC is not difficult. Many computer enthusiasts assemble their own PCs at home, using parts from different suppliers. So why are so few foreign companies doing this in Russia?
Sergy Anisimov, president of Stins Coman, one of Russia's largest PC assembly companies, says foreign companies are yet to become a real threat as, with the exception of IBM, they are all still hesitating. 'They seem to need a very long time to research and understand the Russian market. They also have their prestige and money to lose.'
Russia lacks one thing that executives in the world's top PC companies live and breathe: figures. The problem is serious because investment decisions are now rarely made on hunches. Market statistics form the basis of business plans and act as a scale against which levels of investment are measured.
These companies are having to ask the question: realistically, how big is the Russian market? The Russian Federation may have a population of 150 million, but what proportion is able to buy a PC? The answer is that no one knows.
Most of the world's larger computer companies have little to go on in Russia, other than their own sales figures - and those can be dangerously distorted. Sales could be just the tip of an iceberg. Maybe an overwhelming number of customers are just waiting to buy your product, but most have not heard of you. Alternatively, you may have surprisingly good market coverage.
Computer assembly operations in Russia flourished during 1993 without the benefit of market intelligence. Today more PCs are assembled in Russia than are imported from abroad. There are hundreds of local companies with some involvement in computer assembly in the Moscow area. About a dozen have a monthly output of 200-300, only a handful are producing more than 1,000 each month.
One important reason for the lack of foreign interest is the size and unpredictability of import tariffs. Russian authorities seem to believe that computers are commodities that can be sold for high profits and are thus fair game for big taxes. This makes computers imported from the US and Europe - as well as spare parts, components and consumables - outrageously expensive in Moscow. A new popular brand- name PC in Moscow typically costs at least 30 per cent more than an identical model in the US.
Outside the Russian capital, prices are considerably higher. Customs duties are also extraordinarily high: for goods from the US and Europe, the import tariff is 15 per cent of the declared value of the equipment. All commercial importers must also pay a 20 per cent VAT on imports of computers or components. There are no duty or tax advantages in importing parts for assembly instead of complete systems.
There is also a quirk in Russian import regulations. Taiwan and China are subject to only half the import tariff applying to the US and Europe. Most Russian assembly companies will source parts from Taiwan. (Taiwan makes more than 30 per cent of all PCs and 60 per cent of all motherboards.)
Western companies have found it difficult to compete with the Taiwanese parts manufacturers under these conditions. Until 1993, Taiwanese and Hong Kong computers were considerably cheaper than anything imported from Europe and the US. Although their quality was often poor, they won more than 90 per cent of the Russian market. Previous attempts at assembly by Western companies have had to be in specialised niches in order to compete.
IBM Russia, however, has done its sums. Guenter Struck, director of General Business Sector and Personal Systems, says the price difference between brand-name products and Taiwanese computers has been closing and the price of an IBM PC has now reached a level acceptable to the majority of Russian buyers.
He says most customers will pay the equivalent of dollars 1,000-dollars 1,150 ( pounds 665- pounds 765) for a PC. Last year, this brought Russians into the bottom end of the IBM PC range. It also sees them move further up the product range every quarter.
Brand names, however, are still relatively unimportant to Russians. Most customers still look to buy the highest product specifications for their money. 'This is a market that does not think in terms of brand names, but in terms of technology. What you need is a strategic technology point and a strategic price point,' Mr Struck says.
Assembly operations are also a logistical challenge. Getting imported, finished products to customers in Russia on time is tough. Buying components from a selection of foreign suppliers, getting them all to Moscow at the same time, assembling and delivering them stretches even the most experienced of companies.
Foreigners are still relatively new to the challenge of making something work here. The approach of Stins Coman is to follow a tested Soviet maxim in their production operation. The company has tried to insulate itself from the inefficiency and unpredictability of the country around it. It has been sure to choose flexible foreign suppliers who are prepared to go out of their way to accommodate Russian conditions. It has found a building where its workers don't have the usual problems of a lack of working space and telephone lines. To make sure parts arrive and customers get their orders, it has even set up its own transportation company.
Mr Anisimov says the curse of most successful Russian businesses is that this drive for self-sufficiency quickly gives rise to an unwieldy company employing far too many people. Expanding Russian companies then split up or collapse under the weight of their own workforce.
When Stins Coman was established in January 1992, it had 57 staff members and 2 million roubles (about dollars 10,000) starting capital, according to Mr Anisimov. Two years later, (with the exception of extra security and support staff) the head count is the same, although the turnover is now dollars 2m per month.
Mr Anisimov is well aware that the PC business is rapidly becoming just a question of capital and that Stins Coman is no IBM. Although foreign companies have yet to make a serious impact in Russia, he knows that they could. For that reason, if a visiting customer would like to buy an IBM PC instead of one of its own, Stins Coman is happy to oblige.
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