LATEST ON HP SELLING PRINTERS TO IRAN
LATEST ON HP SELLING PRINTERS TO IRAN
2009-01-05 at 10:51:23 am #20938
HP-Redington furore is misplaced
The only way to prevent volume products under embargo from reaching Iran would be to require end-user verification for every product sold
HP Middle East and Redington Gulf have found themselves at the centre of some unwanted and undeserved media attention, after the publication of a report in the Boston Globe newspaper earlier this week, which centred on a distribution deal between the two parties to sell kit from the vendor’s imaging and printing group (IPG) into Iran.
The report, which can be found here and is light on detail and heavy on hyperbole, appears more interested in stoking up anti-HP sentiment and pointing a finger of blame at Redington than pursuing the actual facts. Anyone that has ever operated in the Middle East IT channel – especially in Dubai – will probably read the article with a growing sense of incredulity, and also wonder why it has been published at this precise point in time.
The basis of the article is that Redington signed a distribution deal with HP in 1997 to push printing products into Iran and from there has grown into the number one IT distributor in the Middle East region serving a wide range of A-brand vendors. It also contends that HP now holds an approximate 40% market share in the Iranian printer market. The article then claims that this trade would violate an embargo on the sale of certain IT products into Iran.
Outside observers need to understand that A-brand vendors and their first-tier authorised distribution partners are acutely aware of the sanctions that are in place on the supply of certain products to Iran. It is something that the Dubai-based channel lives and deals with on a daily basis. I worked in Dubai for five years as a journalist covering routes-to-market and the fact that much of the IT product sold into this market is eventually destined for Iran is hardly the world’s best-kept secret.
I remember speaking to one Dubai-based HP distributor (not Redington) several years ago about its IPG business in Iran and how it operated in the context of the embargoes that were in place. The distributor explained that low-end and midrange products were allowed into Iran and that there was an HP website where they could verify what is allowed and what is not.
The misconception from many US commentators is that all technology products are banned from Iran, when in fact this was not the case. While distributors follow the guidelines set down by their vendor partners, everyone in the IT channel — below the vendor level at least — accepts that there is very little that can be done to enforce embargoes on volume products.
The only way to prevent volume products under embargo from reaching Iran would be to require end-user verification for every product sold. This is something that is already done in the high-end hardware space but it remains unworkable and prohibitively expensive as you move down towards the volume space.
Why the Boston Globe article focused specifically on HP and its relationship with Redington remains a mystery – they could have picked any major US vendor to be perfectly honest. The Iranian PC market is worth some one million units a year and these machines will undoubtedly utilise components produced by US vendors.
Websites such as http://www.notebookiran.com still exist, showcasing a wide portfolio of products from a number of US vendors. Shopping centres dedicated to mainstream IT products can still be found in Tehran.
The structure of the Dubai channel has evolved into a highly complex spider’s web of companies that makes it virtually impossible to track products to their final destination. It is not unusual for product to be sold from a vendor to an authorised distributor to a sub-distributor to a re-exporter and then to a reseller before finally reaching an end-user. This ‘washing machine’ of trade whereby the product is spun between multiple companies is practically impossible to monitor.
The US vendors and their first-tier authorised distributors are fully aware of the need for corporate compliance and the trade restrictions that exist. This is why products under embargo are legally sold into the Dubai channel first. If at some point, several companies down the line, they are eventually re-exported into Iran, is that the fault of the vendor and the authorised distributor?
That’s the fundamental question here. In today’s interconnected global economy, product will find its way from point A to point B if the demand exists, irrespective of the trade barriers that a government may attempt to put up. The Dubai IT market is massive in relation to the size of the population and the ultimate reason for this is because a significant proportion of the product is re-exported to other countries including Iran.
I recall listening to a presentation to UAE-based resellers from an A-brand networking vendor’s export control executive several years ago. When a map was displayed on the projector showing the countries that they were not allowed to deal with or sell to (including Iran), the laughter from the audience was audible.
In fact, even in cases where vendors rigorously enforce end-user verification, which is often the case with complex technologies, the channel still finds ways to overcome this obstacle. There are several stories relating to high-end kit being discovered in use in Iran. When the serial numbers were eventually checked against the vendor’s verified end-user database, the kit was typically registered to an upstanding organisation in a different country.
Why has the Boston Globe focused specifically on the HP-Redington relationship? Redington has enjoyed a fantastic period of growth in recent years, recently secured a major financial investment and is now looking to expand into new geographies.
Nothing in the Boston Globe report is new. None of what has been mentioned above should come as a surprise to anyone that understands how the channel actually works and the fact that it is primarily governed by supply and demand. HP and Redington have followed the rules as much as they can. The problem is that the embargo itself is unenforceable and unworkable.