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. Last Updated: 07/27/2016

PC Dealers' War Has Begun

It will not be long before many of Moscow's computer dealers will have to take a hard look at their businesses to decide what they are good at and why they sell computers at all. Those that see their strengths and reorganize their businesses accordingly will continue to make very respectable profits. Those that do not will simply disappear. During the last six months the price of brand-name PCs has fallen noticeably in Moscow. For the first time prices for Dell, Compaq and IBM PCs are coming into line with those in Western Europe. This is good news for buyers, but for dealers it indicates that competition is becoming more cut-throat by the month. For many years, sales here have depended largely on getting the product into the market. Trade restrictions, taxes, shipment problems and a general lack of market maturity have meant that if a company could promptly supply computers of reasonable quality it could run a successful business. Since this was quite easy, the country found itself with a disproportionate number of computer dealers. Today the trade restrictions have all but gone, shipment problems have eased, more customers have money to spend and there are no problems in simply getting good computers into Moscow. During the last year, several Moscow companies have entered the business of high-volume, low-margin distribution and are beginning to put the squeeze on the competition. Lamport (and sister company Steepler) and R-Style, for example, are both now offering prices on brand-name imported equipment which other Moscow dealers have found difficult to match. These low prices are also the result of the major PC manufacturers trying to buy a market share in Russia by offering low prices to establish their brands here. Russian dealers probably have many lessons in store on working with the major Western vendors. One is the ability of largecorporations to make a 180-degree change in strategy without warning. There was a time that all of the major vendors sold through dealers rather than to end users in Europe. As their customers, these dealers were treated like gold dust. Since then, several vendors have begun to sell either to very large distributors or direct to end users. From being cherished "business partners," "authorized dealers" and "value-added resellers," dealers very quickly became history. In Russia the same situation is bound to be repeated. Today the world's major PC manufacturers only survive by shifting large amounts of products quickly. Offered large-volume sales to large distributors, they will inevitably take them and price their existing dealers out of business. What will probably happen here is that Moscow's serious PC resellers will be reduced to a core of a few well-capitalized companies, and smaller dealers will become a mechanism for getting products to customers in other parts of the country. This process has already begun. Companies like Steepler and R-Style are currently trying to bring their own dealers closer to them by offering them franchise deals. Computerland already has a network of regional franchises and this spring launched a program to try and increase their number. But the biggest threat to Moscow's computer dealers is the prospect that one of the world's large distributors will eventually decide to make a serious attack on the Russian market. The effect when this happened in Europe was devastating. Buying in huge bulk, these companies were able to command the best manufacturer discounts and ruthlessly bought market share at the expense of smaller rivals. Thousands of European dealers went out of business. As relentless price wars continue in the West, the number of these high-volume, low-margin distributors is also falling as they too are forced into bankruptcy or out of the market. Now operating on wafer-thin margins in Western Europe, their very survival will soon drive these companies into the Russian market. When they come, a price war is inevitable, and the city's computer firms will learn that computer distribution is mostly about survival. Robert Farish is the editor of Computer Business Russia. Tel. 265 4214. e-mail: farish@glas.apc.org