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 user 2009-01-05 at 10:51:53 am Views: 81
  • #21223
    HP-Redington furore is misplaced
    only way to prevent volume products under embargo from reaching Iran
    would be to require end-user verification for every product sold

    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.

    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.

    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

    Websites such as 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

    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.