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. Last Updated: 07/27/2016

IVK Will Update Kvant, Invest in PCs

Recently the financial and industrial group IVK announced that it had bought a controlling stake in the Kvant Enterprise in Zelenograd. The group said it plans to invest around $10 million on updating the plant in 1994. IVK says it plans to use Kvant to assemble 5,000 personal computers per month by the end of this year. Most companies, in any country, assemble rather than manufacture PCs. They differ, however, in the degree of sophistication with which they integrate, tune and test these components to produce something that works faster or more reliably than the competition. Traditionally in Russia, assembled PCs have been at the low-quality end of the market. Companies scoured the catalogues of the world to find the cheapest components, imported them and built computers. Last year was the year of the "fast buck" assembly firm. Local companies with sufficient capital plowed money into PC components, set up very rudimentary assembly lines (often purely on table tops) and sold PCs at the lowest possible prices. The biggest operation by volume of sales in 1993 was that of the assembly firm Land, which dominated the cheaper end of the market. Deputy General Director Vladislav Slesachuk said Land was assembling between 5,000 and 6,000 PCs per month last year. Yet this year things seem to be changing. Alexander Kann, the Russia representative for Compaq Computers, told Computer Business Russia recently that Compaq had turned down requests from Land and several other assembly companies that had been asking to become Compaq dealers. "They all now realize that margins are tighter, profits lower and that people realize that within a few months these computers stop working," he said. The difference is very pronounced. Moscow computer maintenance company Technoserv says the proportion of imported computers delivered to it for repair where there has been a failure on the motherboard (the location of the microprocessor and the "heart" of a PC) during the guarantee period is around 0.2 percent. On computers assembled in Russia from a hodgepodge of cheap components the company says this can be as high as 62 percent. Many Russian assembly companies are realizing that customers are now willing to pay a premium for a higher quality product. The trend began with Stins Coman (which was assembling an average of 2,000 PCs per month at a plant in Yekaterinburg and recently opened another plant in the Moscow region). In late 1993 Stins became an IBM dealer and now sells IBM PCs alongside its own product. Kapeco, one of the bigger assembly firms in the Russian Far East, also sells IBM computers. There are very few foreign firms involved in assembly in Russia. In countries where taxes or import duties are high, there are usually favorable conditions for local assemblers. In Russia this is not the case -- there is no tax advantage in importing components rather than complete systems. For this reason the main means of creating profit margins in this country is finding ways around these payments. It is no coincidence that the average Russian price for monitors was relatively higher than processor boxes or motherboards during last year. It is easier to bring a suitcase full of microprocessors into the country without paying duty than it is to transport a truckload of bulky monitors. IBM now also assembles PCs at Kvant in Zelenograd. Guenter Struck, IBM Russia's Director of General Business Sector and Personal Systems, says the main advantage of IBM's Zelenograd operation is not that it creates any obvious price advantage but that it greatly increases the company's ability to get a product to its customers. Delivery from IBM's European assembly operation in Scotland is around one working week. Delivery from Kvant can be one day in Moscow and only a few days to most locations in the former Soviet Union. Struck says it is not only quicker but there is far less chance of there being transport-related breakages from its Kvant operation -- and customers can even come and pick the computers up themselves. It is now too late, however, for anyone else to use Kvant. IVK has now bought the right to use the rest of the plant itself, and it if so chooses, the chance to build 1 million PCs per year there. Robert Farish is the editor of Computer Business Russia: 275-2542