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. Last Updated: 07/27/2016

Compaq, IBS Lock Heads in Media War

World No. 1 PC maker Compaq has deprived its local partner IBS of its franchise to sell Compaq products.

An ordinary business development has escalated into a media war, which, analysts say, is providing both companies with free publicity.

"We expect the distributor to consider us a strategic partner," Svyatoslav Sorokin, marketing manager in Compaq's Moscow office, said of IBS's practice of selling and promoting Compaq's major competitor and world No. 2 Dell Systems.

But IBS accused Compaq of unprofessionalism, bureacratization and even jealousy, saying the PC maker was unable to tolerate growing sales by Dell.

"I thought Western companies were more pragmatic in making business decisions," said Anatoly Karachinsky, president of the IBS group, which has annual revenues of $185 million.

Compaq forwarded a letter to IBS late last year, saying the distribution agreement with its subsidiary Deline would be declared null and void within three months.

Compaq officials said IBS tilted the balance of sales in favor of its competitors and its promotions favored Dell, Compaq's arch-rival both globally and in the local market.

IBS officials said Compaq's decision would cost them lost profits and a large share of sunk costs, but refused to provide any financial data, citing the obscure nature of the Russian market and intrigue on part of the competitors.

But they admitted that business with Compaq had gone smoothly until the end of last year, when Compaq decided to terminate its agreement with Deline.

Compaq accounted for 15.3 percent of Deline's turnover last year but generally the Russian market remains a mere blip on the radars of big PC makers.

"Russian figures are so small that nobody cares about them," Karachinsky said.

IBS's decision to make the scandal public came after Compaq officials commented on the situation in public. But Compaq staffers say their reaction was not aimed to hit the newspaper stands.

However, analysts said both companies intentionally made their disagreement public to raise their profile in the highly competitive market.

"There is so much noise precisely because it benefits all parties involved," said Dmitry Lyudmirsky, head of research with Algorithm consulting company. "If I were in their shoes, I would use every possibility to remind consumers about myself."

According to Algorithm, there are no reliable statistics on market shares in Russia, but it is clear that Compaq is a top brand with a share of less than 50 percent and Hewlett-Packard is the runner-up, while the rest - Dell, Taiwanese brands and IBM - are at the bottom of the sales list.

Sales of personal computers in Russia surged 25 percent to 1.19 million units in 1999, according to research company International Data Corporation. This was below the 1.4 million units sold in 1997 before the 1998 ruble devaluation.

This is about 1 percent of global sales of 112.7 million units last year, up 23.3 percent from 1998.