**UPDATES ON COMPUTER HARDWARE AND**

**SOFTWARE MARKETS IN UKRAINE**

** **

21 JAN 00 

FM AMEMBASSY KIEV

 

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INTERNATIONAL COPYRIGHT, U.S. AND FOREIGN

COMMERCIAL SERVICE AND U.S. DEPARTMENT OFSTATE, 1999

ALL RIGHTS RESERVED OUTSIDE OF THE UNITEDSTATES.

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1. SUMMARY. ONLY 10-15 PERCENT OF UKRAINE'SPOTENTIAL

COMPUTER HARDWARE MARKET HAS BEEN TAPPED,ACCORDING TO

INDUSTRY EXPERTS. THE MAIN PROBLEM IS THELACK OF

FINANCING, A SITUATION WHICH IS NOT LIKELYTO IMPROVE

TILL AT LEAST 2001. THERE IS GROWINGINTEREST ON THE

MARKET IN UNITS WITH LIMITED MEMORY (64 MBITOR LOWER)

AND AMD PROCESSORS. A MORE LEGITIMATE ANDTRANSPARENT

MARKET FOR COMPUTER SOFTWARE IS SLOWLY TAKINGSHAPE.

HOWEVER, THE POOR ENFORCEMENT OFINTELLECTUAL PROPERTY

RIGHTS IN UKRAINE IS A FACTOR TO BE NOTEDAND PAID

ATTENTION TO BY U.S. COMPANIES INTERESTED INENTERING

THE MARKET. MAJOR PROBLEMS FOR IMPORTERS OFCOMPUTERS

ARE THE CERTIFICATION AND CUSTOMS CLEARANCE

PROCEDURES.

 

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COMPUTER HARDWARE

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2. ONLY 10-15 PERCENT OF UKRAINE'S POTENTIAL COMPUTER

HARDWARE MARKET HAS BEEN TAPPED, ACCORDINGTO INDUSTRY

EXPERTS.  THE ECONOMIC/FINANCIAL PROBLEMS IN UKRAINE

HAVE KEPT SALES OF COMPUTERS AND SOFTWARE ATTHE SAME

RELATIVELY LOW LEVEL (130,000-160,000 UNITS)FOR THE

LAST THREE YEARS.  PRICES AND SALES HAVE INCREASED BY

10-20 PERCENT OVER THE PERIOD SEP.-NOV.1999.

INCREASED SALES DURING THIS PERIODCOMPENSATED FOR

LOSSES AT THE BEGINNING OF 1999. DEMAND IN2000-2001

IS EXPECTED TO INCREASE AS BOTH STATEAGENCIES AND

PRIVATE ENTERPRISES SEEK TO UPGRADE THEIRPCSS

NUMBERING MORE THAN 350,000 UNITS.  BUT THE MAIN

PROBLEM IS THE LACK OF FINANCING, ASITUATION WHICH IS

NOT LIKELY TO IMPROVE TILL AT LEAST 2001.

 

3. APPROXIMATELY 20-25 PERCENT OF THE COMPUTER MARKET

BELONGS TO BRAND NAMES INCLUDING: IBM,HEWLETT

PACKARD, DELL, COMPAQ, ETC.  ANOTHER 30 PERCENT OF THE

MARKET IS CONTROLLED BY 5-7 LOCALMANUFACTURERS:

QUAZAR-MICRO, ICS, NOOS UKRAINE, ETC.  ABOUT 40-50

PERCENT OF ALL PC SOLD IN UKRAINE ARE EITHERIMPORTED

BY SMALL LOCAL COMPANIES OR MANUFACTUREDFROM A

COMBINATION OF IMPORTED AND LOCALCOMPONENTS.  LOCAL

COMPANIES SELL FROM 10,000-20,000 PC'SANNUALLY.

THE TRENDS ARE AS FOLLOWS:

A. UNEVEN DEMAND;

B. FALLING PRICES FOR EXPENSIVE HARDWARE, VERSUS 10-

20 PERCENT INCREASE IN PRICES FOR LOW-ENDEQUIPMENT;

C. A GROWING INTEREST IN UNITS WITH LIMITED MEMORY

(64 MBIT OR LOWER);

D. GROWING INTEREST AND SHARE OF AMD PROCESSORS;

E.  A CHANGE IN SALES AND MARKETING IS NOTICEABLE:

MOST LOCAL COMPUTER MANUFACTURERS ARESTARTING TO

FOCUS ON COMPUTER SOLUTIONS RATHER THAN ONHARDWARE

SALES;

F. VERY LIMITED RESERVES OF COMPUTER COMPONENTS DUE

TO POOR FINANCIAL SITUATION OF MAINDISTRIBUTORS.

THIS FACTOR MOTIVATED SHORT SUPPLY OFCOMPONENTS AND

40-50 PERCENT INCREASE IN DEMAND FOR THEM INSEP.-NOV.

FOLLOWING TO NATURAL DISASTERS IN ASIA ANDIN

ANTICIPATION OF Y2K RELATED PROBLEMS.

 

4. MAJOR PROBLEMS FOR IMPORTERS OF COMPUTERS ARE THE

CERTIFICATI0N AND CUSTOMS CLEARANCEPROCEDURES.

CORRUPTION IS VERY HIGH, TENDER PROCEDURESLACK

TRANSPARENCY, AND COURT DECISIONS ARE NOTENFORCED.

DISTRIBUTORS LACK FINANCING DUE TO EXPENSIVELOCAL

CREDIT RATES AND THE RESTRICTIVE CURRENCYEXCHANGE

POLICY OF THE GOVERNMENT.

 

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COMPUTER SOFTWARE MARKET

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5. UKRAINE'S EXPANDING PRIVATE SECTOR REQUIRES

SOFTWARE SOLUTIONS AND PACKAGES.  HOWEVER, THE POOR

ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTSIN UKRAINE

IS A FACTOR TO BE NOTED AND PAID ATTENTIONTO BY U.S.

COMPANIES INTERESTED IN ENTERING THEMARKET.  FOREIGN

SOFTWARE DOMINATES THE MARKET OF LEGITIMATESOFTWARE.

AMONG CORPORATE CUSTOMERS ITS SHARE MAYREACH 95

PERCENT, WHILE THE SHARE OF LOCAL SOFTWAREPRODUCTS

DOES NOT EXCEED 5 PERCENT OF THEMARKET.  MICROSOFT'S

DOS- AND WINDOWS-BASED PROGRAMS ARECURRENTLY THE MOST

WIDELY-USED WORD PROCESSING AND SPREADSHEETSOFTWARE

PACKAGES IN UKRAINE.  THIS SOFTWARE IS INSTALLED IN

APPROXIMATELY 98 PERCENT OF ALL PC'S OPERATINGIN THE

COUNTRY.  A MORE LEGITIMATE AND TRANSPARENT MARKET FOR

COMPUTER SOFTWARE IS SLOWLY TAKING SHAPE,LARGELY DUE

TO DEALERS SELLING COMPUTER HARDWARE WITH

PREINSTALLED, LEGALLY- ACQUIREDSOFTWARE.  IN APRIL OF

1999, THE GOVERNMENT OF UKRAINE TOOK A MAJORSTEP TO

LEGALIZE THE SOFTWARE MARKET BY ALLOCATING$13.8

MILLION TO REPLACE PIRATED SOFTWARE IN54,000 PC'S

USED BY THE GOVERNMENT, WITH LEGAL MICROSOFTPRODUCTS.

HOWEVER, THE MARKET AT THE PRESENT TIME ISLIMITED BY

THE INCOME LEVEL OF THE AVERAGE UKRAINIANS.

 

6. OF PRIMARY CONCERN FOR THE SOFTWARE MARKET IS THE

WIDE SPREAD AVAILABILITY AND USE OF ILLEGALSOFTWARE.

ILLEGAL SOFTWARE MAY COMPRISE 10 PERCENT OFTHE

SOFTWARE USED BY THE GOVERNMENT, 10-30PERCENT USED BY

CORPORATE CUSTOMERS, AND 50-100 PERCENT BYSMALL AND

MEDIUM SIZED BUSINESSES.  THE EXISTING LAWS IN UKRAINE

DO NOT REGULATE THE COPYING OF SOFTWAREPRODUCTS.

LEGITIMATE LOCALIZATION OF FOREIGN SOFTWAREIS ALMOST

NON-EXISTENT, WHICH IS PARTIALLY DUE TOCOMPETITION

FROM PRODUCTS PRODUCED IN RUSSIA.  THE LEVEL OF

CORRUPTION IS HIGH, TENDER PROCEDURES LACK

TRANSPARENCY, AND COURT DECISIONS ARE NOTENFORCED.

LOCAL DISTRIBUTORS GENERALLY LACK FINANCINGDUE TO

EXPENSIVE LOCAL CREDIT RATES AND RESTRICTIVECURRENCY

EXCHANGE POLICY OF THE GOVERNMENT.

 

7. UKRAINE IS SLOWLY EMERGING AS A LOW COST SITE FOR

HIGH QUALITY SOFTWARE DEVELOPMENT.  THE PRODUCERS WORK

MOSTLY ALONE OR IN SMALL GROUPS ON PROJECTSORDERED

FROM ABROAD.  THERE IS A GROWING INTEREST IN UKRAINIAN

COMPUTER COMPANIES TO ORGANIZE SOFTWAREPRODUCTION

CENTERS THAT COULD PARTICIPATE ININTERNATIONAL

SOFTWARE DEVELOPMENT PROJECTS.

 

8. U.S. INVESTORS AND EQUIPMENT SUPPLIERSARE URGED TO

EXERCISE CAUTION BEFORE CONCLUDINGINVESTMENTS IN

UKRAINE.  POST SUGGESTS CONSULTING THE COUNTRY

COMMERCIAL GUIDE AVAILABLE AT: http://WWW.USATRADE.GOV

AND TO DISCUSS PROSPECTIVE INVESTMENTS WITHEMBASSY

STAFF, AMERICAN CHAMBER OF COMMERCE,ACCOUNTING FIRMS,

LEGAL COUNSEL AND OTHER SOURCES.

 

9. FOR DETAILED INFORMATION, PLEASE CONTACTYOUR

NEAREST USDOC EXPORT ASSISTANCE CENTER, WITHCOPY TO:

DAVID HUNTER, CS KIEV SENIOR COMMERCIALOFFICER; AND

RUBEN BELIAEV, CS KIEV COMMERCIALSPECIALIST,

E-MAIL: RUBEN [email protected];THE COMMERCIAL

SERVICE, U.S. EMBASSY KIEV, 7, KUDRIAVSKYUZVIZ, KIEV

254053, UKRAINE, TEL: (380-44) 417-1413,417-2669;

FAX: (380-44) 417-1419

 

10. ANOTHER VALUABLE SOURCE OF INFORMATIONON ALL CIS

COUNTRIES, INCLUDING TRADE LEADS ANDBUSINESS

CONTACTS, IS BISNIS, THE OFFICIAL USGCLEARING HOUSE

OF TRADE INFORMATION IN NIS. PLEASE CONTACTTREVOR

GUNN, DEPUTY DIRECTOR OR JULIANA KINAL,INTERNATIONAL

TRADE SPECIALIST BUSINESS INFORMATIONSERVICE FOR THE

NEWLY INDEPENDENT STATES (BISNIS) INWASHINGTON D.C.

(202) 482-4655 OR BY WRITING TO BISNIS, U.S.

DEPARTMENT OF COMMERCE, ROOM 7413,WASHINGTON, D.C.

20230, OR FAX (202) 482-2293,1-800/USA-TRADE

E-MAIL: [email protected]

http://WWW.BISNIS.DOC.GOV