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 OF STATE, 1999

ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES.

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1. SUMMARY. ONLY 10-15 PERCENT OF UKRAINE'S POTENTIAL

COMPUTER HARDWARE MARKET HAS BEEN TAPPED, ACCORDING TO

INDUSTRY EXPERTS. THE MAIN PROBLEM IS THE LACK OF

FINANCING, A SITUATION WHICH IS NOT LIKELY TO IMPROVE

TILL AT LEAST 2001. THERE IS GROWING INTEREST ON THE

MARKET IN UNITS WITH LIMITED MEMORY (64 MBIT OR LOWER)

AND AMD PROCESSORS. A MORE LEGITIMATE AND TRANSPARENT

MARKET FOR COMPUTER SOFTWARE IS SLOWLY TAKING SHAPE.

HOWEVER, THE POOR ENFORCEMENT OF INTELLECTUAL PROPERTY

RIGHTS IN UKRAINE IS A FACTOR TO BE NOTED AND PAID

ATTENTION TO BY U.S. COMPANIES INTERESTED IN ENTERING

THE MARKET. MAJOR PROBLEMS FOR IMPORTERS OF COMPUTERS

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, ACCORDING TO INDUSTRY

EXPERTS.  THE ECONOMIC/FINANCIAL PROBLEMS IN UKRAINE

HAVE KEPT SALES OF COMPUTERS AND SOFTWARE AT THE 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 PERIOD COMPENSATED FOR

LOSSES AT THE BEGINNING OF 1999. DEMAND IN 2000-2001

IS EXPECTED TO INCREASE AS BOTH STATE AGENCIES AND

PRIVATE ENTERPRISES SEEK TO UPGRADE THEIR PCSS

NUMBERING MORE THAN 350,000 UNITS.  BUT THE MAIN

PROBLEM IS THE LACK OF FINANCING, A SITUATION 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 LOCAL MANUFACTURERS:

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

PERCENT OF ALL PC SOLD IN UKRAINE ARE EITHER IMPORTED

BY SMALL LOCAL COMPANIES OR MANUFACTURED FROM A

COMBINATION OF IMPORTED AND LOCAL COMPONENTS.  LOCAL

COMPANIES SELL FROM 10,000-20,000 PC'S ANNUALLY.

THE TRENDS ARE AS FOLLOWS:

A.  UNEVEN DEMAND;

B.  FALLING PRICES FOR EXPENSIVE HARDWARE, VERSUS 10-

20 PERCENT INCREASE IN PRICES FOR LOW-END EQUIPMENT;

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 ARE STARTING TO

FOCUS ON COMPUTER SOLUTIONS RATHER THAN ON HARDWARE

SALES;

F.  VERY LIMITED RESERVES OF COMPUTER COMPONENTS DUE

TO POOR FINANCIAL SITUATION OF MAIN DISTRIBUTORS.

THIS FACTOR MOTIVATED SHORT SUPPLY OF COMPONENTS AND

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

FOLLOWING TO NATURAL DISASTERS IN ASIA AND IN

ANTICIPATION OF Y2K RELATED PROBLEMS.

 

4.  MAJOR PROBLEMS FOR IMPORTERS OF COMPUTERS ARE THE

CERTIFICATI0N AND CUSTOMS CLEARANCE PROCEDURES.

CORRUPTION IS VERY HIGH, TENDER PROCEDURES LACK

TRANSPARENCY, AND COURT DECISIONS ARE NOT ENFORCED.

DISTRIBUTORS LACK FINANCING DUE TO EXPENSIVE LOCAL

CREDIT RATES AND THE RESTRICTIVE CURRENCY EXCHANGE

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 RIGHTS IN UKRAINE

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

COMPANIES INTERESTED IN ENTERING THE MARKET.  FOREIGN

SOFTWARE DOMINATES THE MARKET OF LEGITIMATE SOFTWARE.

AMONG CORPORATE CUSTOMERS ITS SHARE MAY REACH 95

PERCENT, WHILE THE SHARE OF LOCAL SOFTWARE PRODUCTS

DOES NOT EXCEED 5 PERCENT OF THE MARKET.  MICROSOFT'S

DOS- AND WINDOWS-BASED PROGRAMS ARE CURRENTLY THE MOST

WIDELY-USED WORD PROCESSING AND SPREADSHEET SOFTWARE

PACKAGES IN UKRAINE.  THIS SOFTWARE IS INSTALLED IN

APPROXIMATELY 98 PERCENT OF ALL PC'S OPERATING IN 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- ACQUIRED SOFTWARE.  IN APRIL OF

1999, THE GOVERNMENT OF UKRAINE TOOK A MAJOR STEP TO

LEGALIZE THE SOFTWARE MARKET BY ALLOCATING $13.8

MILLION TO REPLACE PIRATED SOFTWARE IN 54,000 PC'S

USED BY THE GOVERNMENT, WITH LEGAL MICROSOFT PRODUCTS.

HOWEVER, THE MARKET AT THE PRESENT TIME IS LIMITED BY

THE INCOME LEVEL OF THE AVERAGE UKRAINIANS.

 

6.  OF PRIMARY CONCERN FOR THE SOFTWARE MARKET IS THE

WIDE SPREAD AVAILABILITY AND USE OF ILLEGAL SOFTWARE.

ILLEGAL SOFTWARE MAY COMPRISE 10 PERCENT OF THE

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

CORPORATE CUSTOMERS, AND 50-100 PERCENT BY SMALL AND

MEDIUM SIZED BUSINESSES.  THE EXISTING LAWS IN UKRAINE

DO NOT REGULATE THE COPYING OF SOFTWARE PRODUCTS.

LEGITIMATE LOCALIZATION OF FOREIGN SOFTWARE IS ALMOST

NON-EXISTENT, WHICH IS PARTIALLY DUE TO COMPETITION

FROM PRODUCTS PRODUCED IN RUSSIA.  THE LEVEL OF

CORRUPTION IS HIGH, TENDER PROCEDURES LACK

TRANSPARENCY, AND COURT DECISIONS ARE NOT ENFORCED.

LOCAL DISTRIBUTORS GENERALLY LACK FINANCING DUE TO

EXPENSIVE LOCAL CREDIT RATES AND RESTRICTIVE CURRENCY

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 PROJECTS ORDERED

FROM ABROAD.  THERE IS A GROWING INTEREST IN UKRAINIAN

COMPUTER COMPANIES TO ORGANIZE SOFTWARE PRODUCTION

CENTERS THAT COULD PARTICIPATE IN INTERNATIONAL

SOFTWARE DEVELOPMENT PROJECTS.

 

8. U.S. INVESTORS AND EQUIPMENT SUPPLIERS ARE URGED TO

EXERCISE CAUTION BEFORE CONCLUDING INVESTMENTS IN

UKRAINE.  POST SUGGESTS CONSULTING THE COUNTRY

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

AND TO DISCUSS PROSPECTIVE INVESTMENTS WITH EMBASSY

STAFF, AMERICAN CHAMBER OF COMMERCE, ACCOUNTING FIRMS,

LEGAL COUNSEL AND OTHER SOURCES.

 

9. FOR DETAILED INFORMATION, PLEASE CONTACT YOUR

NEAREST USDOC EXPORT ASSISTANCE CENTER, WITH COPY TO:

DAVID HUNTER, CS KIEV SENIOR COMMERCIAL OFFICER; AND

RUBEN BELIAEV, CS KIEV COMMERCIAL SPECIALIST,

E-MAIL: RUBEN BELIAEV@MAIL.DOC.GOV; THE COMMERCIAL

SERVICE, U.S. EMBASSY KIEV, 7, KUDRIAVSKY UZVIZ, KIEV

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

FAX: (380-44) 417-1419

 

10. ANOTHER VALUABLE SOURCE OF INFORMATION ON ALL CIS

COUNTRIES, INCLUDING TRADE LEADS AND BUSINESS

CONTACTS, IS BISNIS, THE OFFICIAL USG CLEARING HOUSE

OF TRADE INFORMATION IN NIS. PLEASE CONTACT TREVOR

GUNN, DEPUTY DIRECTOR OR JULIANA KINAL, INTERNATIONAL

TRADE SPECIALIST BUSINESS INFORMATION SERVICE FOR THE

NEWLY INDEPENDENT STATES (BISNIS) IN WASHINGTON 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: BISNIS@ITA.DOC.GOV

http://WWW.BISNIS.DOC.GOV