Skirting round the big deals

By Segun Oruame

Leo Stan Ekeh is not getting as popular as the Zinox brand these days. At least not in the computer hardware business. Now, you see Leo Stan Ekeh within a steadily rising profile of a financial player since he became chairman of Assurance Bank that has now merged with other banks to become Astral Bank. Ekeh had become synonymous with the vending of the big names like Apple, Compaq and HP.

Nowadays, you see him on the pages of newspapers more as a banker and an insurer. One October morning in his office at Victoria Island, where you could get a view of the rough patchy roads on the Island, Leo was telling IT Edge that his pains are not that Zinox does not sell as much as he would have desired but that the sales margins just do not add up to all the energy and investment put into building the brand.

Leo should know, as he is fondly called in business circle. About two years ago when he veered into local production of PCs and notebooks, he created a bomb with the brand name Zinox. The Nigerian company had struck partnership with Mercer of South Africa, considered a technical coup in the hardware business; Mercer is a South African success story for local manufacture of computers.

A Zinox/Mercer partnership had all the ingredients to turn the tide in Nigeria’s fast growing IT market against the foreign brands Leo had promoted through Technology Distribution Limited, a company he formed years ago. The new Zinox brand was not underestimated by the big brands and they have been proved right. Months later, an aggressive sales drive and several road shows had helped stamped Zinox in the mind of corporate Nigeria.

But Leo would say not much patronage has matched the high degree of acceptance of the brand. If brand acceptance could mean high purchasing power of an average Nigerian, high-level infrastructure business climate and heavy public-sector patronage, then Zinox would be riding a horse. “There is no money in the economy,” says Leo in his office as he flips through the papers. “Those driving indigenous production are doing it out of patriotism and nothing more” he added. Zinox has become a Nigerian identity for the triumph of indigenous entrepreneurship in the face of a turbulent economy. If GDP were higher, most Nigerians would have a Zinox for keep. The economy is under-nourished with a GDP that is under $400 (about N5, 200) and it would take most Nigerians about 12 years to acquire the cheapest PC model on the Zinox stable. The IT market still remains extremely small for the country of over 130 million people with yearly sales of all local and foreign brands combined not exceeding 150,000.

In spite of this, there have been exciting developments in the IT sector. Indeed, the entire sub-region and not just Nigeria, is undergoing rapid changes in the national telecom sector. There is an impressive growth in the uptake of mobile telephones just as there has been a significant, though still unimpressive, Internet (notably via wireless links), penetration. This, undoubtedly, is having substantial impact on the ability of the ICT marketplace to make demand for PCs and notebooks in both the private and public sectors. Large population means a critical mass good for any business. Although a large percentage of this is impoverished, the potential for volume purchase of PCs is not completely eroded since government remains the greatest spender. A public sector re-structuring tied to IT would mean high demand for PCs and notebooks just as similar policy thrust in other areas such as education would mean setting aside huge funds for hardware and software deployment.

But the ability of local PC makers to tap into these opportunities is hindered by a mix of factors that makes rival foreign brands more attractive in an increasingly sensitive market. Nearly 60% of consumers in the current market of less than 200,000 systems need more than just boxes. The telecom and banking environments, for in stance, need high grade, intelligent systems that can execute mission-critical tasks in real-time.

Only the foreign brands appear to be positioned to meet this needs in terms of volume and the inherent cost-impact on a unit of a system. HP global production is in excess of millions as is Dell. Demands in Nigeria and the entire West African sub-region for a year is still lower than what Dell produces in a single day. But the big brands are here because green markets have the potential to explode demand for computer hardware. Besides, they have the global stamp, a good market-weapon to push competition flat to the wall.

While Zinox, Omatek, Unitec and Beta Computers are pushing only thousands and struggling with building a formidable market image, Dell and other foreign brands have capacity to push millions and are only being slowed down by the size of the market. The cost-advantage is that it is far more cheaper to produce a unit of Dell PC than to produce a Zinox or Omatek and even more costlier to produce one unit of Unitec or Beta systems. Zinox and Omatek are the most successful local brands and naturally, incur lower cost on a unit since they have higher volume than other local PC makers. It is a game of volume.

Like Zinox, Omatek has enjoyed much market favour and a publicly celebrated Federal Government endorsement that has helped to sour its brand visibility. But the strength of the two brands (Zinox and Omatek) combined is grossly insignificant to withstand the grip of HP and others in a market that lusts after foreign labels. Both companies are led by strong-willed personalities with intimidating streaks of successes in the IT sector. But selling own-brands in an environment with eyes for things branded abroad is a different challenge. Every knows Leo, he has dictated the pace of IT marketing in the last few years. Florence Seriki is almost becoming an icon in the mould of Carly Fiona of HP.  But the brands they sell still have miles to cover to leverage against the advantages enjoyed by their foreign rivals. People will not keep personalities in their homes or offices, they will keep brands. Brands reflect complex market dynamics and not just the personalities associated with them.

HP does not manufacture PC or laptops. It has long outsourced such tasks to some factories in Asia. Dell and others do the same thing. They do not bear the overheads that go with running a factory and are less bother with the job scouting for partners for motherboards, keyboards, processors and the likes. For Omatek and the rest, a typical business day starts with discussions on supply of motherboards from some Asian partners. “There are numerous challenges you face in this business. One important challenge is volume. The demand is not sufficient for the kind of price concession the older brands get from those factories in Asia,” says Seriki, or Flo, as she is fondly referred to in the industry

Dell and others are concentrating energy on selling their logos while the heirs to the local market have to contend with both the production and marketing ends of the business. It is a distraction that is unhealthy and would prove too costly in the long run. Should things remain as they are, the local promoters would only be skirting round major deals in any competitive bids. Zinox thinks indigenous promoters stand a better chance in the competition if all local PC makers invest in a single factory to churn out systems to allow them concentrate on building their brands. 

It is a good proposition to all local PC makers but they doubt its practicability. Not much good has been made of this in telecom, where the dynamics of the industry makes it compelling for players to be more pre-dispose to sharing infrastructures. “It would be good for such a thing to happen but you know Nigeria,” says Managing Director of Unitec Davies Mirila. Unitec’s history shares some traits with the idea of a common homegrown factory. There are over five promoters behind Unitec and even Leo was part of the initial arrangements. At the time, the promoters were keen about building a Nigerian PC. Perhaps, a bit of elasticity in the original vision would have helped to re-design Unitec into a single factory for different brands and not one brand.

All that is now history as Mirila puts it. The market is bound to explode as the experience in mobile telephony has shown. The price of PC is crashing globally and in the green markets, there are bound to be fresh orders. Price and ability to drive volume are as crucial as the price of talk in telecom. Public funding for IT related activities is growing even if at a slow pace, there are more private-sector led initiatives with high IT consumption rate across the entire sub-region just as there are increasing number of donor-funded projects on IT. All these mean one thing: More orders for computer systems. How well the local logos would play depends on how well they harness their potentials and overcome their challenges.

Even Leo and Flo agree that the market could be persuaded by an appeal to sense of nationalism but long-time patronage is not a function of patriotism but of price and quality. The Japanese proved this point in the US. They taught Ford and other US auto-manufacturers that market acceptability is not always about national pride but about individuals’ taste and the companies able to meet their needs. Americans turned their backs on US cars and went for the small and stylishly designed Japanese cars. Now, the Americans auto-companies are aping the Japanese to beat the Red Men from the East.

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