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A QUALITATIVE DIFFERENCE FOR COMPUTERS

by Tanya Shuster    

Growing demand for quality, service and innovation are giving U.S. computer
companies the edge in the Newly Independent States (NIS) of the former Soviet
Union.  This is a big change for NIS computer markets-- due in large part to the
increasing sophistication of private-sector end-users and the gradual stabilization of
the Russian economy.  NIS end-users are demanding higher-end technology and
better support for the products they buy.  The biggest markets in the next few
years will be the major cities outside of Moscow. 

U.S. companies do particularly well in the computer, peripheral, and software
markets.  They leading the markets in a number of subsectors, and indications are
that this trend will continue.  These markets are substantial and growing.  In
Russia alone, the value of computers imported since 1990 has been estimated at
nearly $18 billion dollars, and estimates on the number of computers imported into
the country last year range from 500,000 to 800,000.  The continued
improvement of the Russian economy will undoubtedly spur increased growth in
sales of computers and related products. 

Unlike the early 1990s, when NIS computer buyers were largely motivated by cost,
today quality, service, and improved technology increasingly drive NIS markets. 
With the growth of the private sector and the stabilization of the economy, the
consumer base for technology products is expanding rapidly, particularly outside
Moscow and St. Petersburg.

Growing Demand For Higher-End Technology

One of the leading trends in the NIS computer and peripherals market has been the
shift toward higher-end technology.  While 286 computers were the overwhelming
choice four to five years ago, when the 386 was widely available, today end-users
are targeting 486s, laptops, and even Pentiums.  This trend also extends to
peripherals, with sales increasing for LAN equipment, scanners, and support
systems for 486s and portables. 

Limited NIS production of many types of hardware combines with widespread
consumer bias against the poor quality of local technology to enable U.S.
companies to capture  strong positions in markets for many computer products. 
With a few exceptions (such as 9-pin printers and monitors), U.S. products
currently dominate sales of computer peripherals in the NIS, holding up to 80
percent of the market for such products as laser printers and high-capacity
modems.  Although American manufacturers generally hold more modest market
shares for most types of peripherals, a number of U.S. firms selling hardware in the
NIS saw their sales double or better in 1994.

A changing end-user base is also having a major impact.  In the early '90s,
purchases of computers and related products were often limited to large,
state-owned companies that were able to generate foreign exchange from the
export of commodities, such as petroleum or forest products.  Today, enterprises
and organizations throughout the NIS, in virtually every industry, want or need to
update their technologies and automate operations.  Increasingly, they have the
means to do so.  The market for computer products is also expanding beyond
major cities like Moscow and St. Petersburg, where activity has been the
strongest, but where the market is showing signs of saturation.

From Distribution to Production 

Finding or building a reliable local distribution network is by far the most common
approach for U.S. firms entering NIS computer markets.  There are currently
thousands of distributors in Russia alone, and new ones appear every day. As
foreign manufacturers gain confidence in their distributors, they are expanding their
relationships to include servicing.  For a number of reasons--a relatively favorable
import regime for components compared to assembled computers for one, and the
improving reputation of NIS manufacturers for another--U.S. companies such as
IBM are also establishing joint ventures to produce and sell on the domestic
market. 

Competition is increasing among foreign manufacturers for the allegiance of NIS
end-users.  As prices have dropped for computers and peripherals, sellers and
distributors have introduced other enticements to attract customers.  'Intangibles'
such as warranties and servicing play a greater role in consumer choices than ever
before, and many companies are establishing warranty centers throughout the NIS. 
Computer firms are also developing new tactics for capturing a greater share of the
gray market, such as offering service and warranties for all computers, regardless
of where or under what conditions they were purchased.  Aggressive advertising
campaigns are taking advantage of the increasing preference in the NIS for
recognized and reputable brand names.

The NIS market for information technology products promises to remain dynamic
over the next few years.  Competition will shift more and more to outlying regions
of Russia and to other NIS countries as economic and technological change
penetrates more deeply into these areas.  Similarly, potential for joint production in
the region has yet to be fully realized, especially in technology centers, such as
Belarus, Ukraine, and  Eastern Siberia.  U.S. companies not familiar with some of
the other major NIS cities can make use of the American Business Centers
throughout the NIS, which are designed to support the U.S. business person in
cities outside of Moscow.  For a full listing of these centers, call BISNIS Flashfax at
(202) 482-3145, and order document # 7022, or visit the BISNIS home page on
the Internet, at "http://www.itaiep.doc.gov." 

Tanya Shuster covers information technology for BISNIS.
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