Interview IT and electronics

We may endlessly speak about the potential of Ukraine, and at the same time, we may endlessly speak what risks it has

Taras Dzhamalov, the General manager of Lenovo Ukraine, told about how the customers’ preferences changed, the company’s responsibility for the users’ security, the peculiarities of Ukrainian electronics market and the acquired flexibility of the government relative the enterprises.

: Recently, Lenovo presented a new platform for brain functions research. What other innovations should we expect from you?

T. Dzhamalov: First of all, I would like to clarify that these innovations are common. We provided scientists with supercomputers, provided them with capacities to implement this project. We provide such capacities not only for projects related to neuro interfaces and brain functions. We offer the same capacities to other branches and knowledge directions, for example, we provide climatologists with them. If we talk about breakthrough things in science, they can happen at any time, because scientists constantly apply, and we constantly supply the necessary capacities.

As for innovations in the computer technologies field, which relate to us more as a manufacturer, as an IT company, it is difficult to say, what groundbreaking technologies will appear in the near future. The reason is that a separate part of our company’s activity is purchasing prospect startups all over the world. They can be from all kind of industries. Some of them are focused on neuro interfaces, some – on the blockchain, some are focused on something absolutely unusual for the present day. I cannot say for sure which technology will get quick and massive distribution. As for the Internet and computers’ artificial intelligence in general – all these are interesting for us, and we make huge efforts and put resources to advance humanity to the better tomorrow.

: How quickly do consumer needs change and how do you respond to them?

T. Dzhamalov: They change not so quickly. If we talk about the Ukrainian consumer, their response to global trends is somewhat slower than habitants of Western Europe have. As for our reaction, I would like to note that we do not take a passive position and do not wait when consumers’ preferences change, and then say: “Oh, we did not guess – we have to change something urgently.” We conduct various research both in Ukraine and the world to predict what consumers will want through a certain time.

We try to work in such a way that if customers start to massively look for something, we will already be offering this on the market. Sometimes, we are even ‘steering’ our consumer on how they should change preferences, attitude to technologies and equipment, providing them with advanced goods.

: What market share does Lenovo occupy in Ukraine?

T. Dzhamalov: We have several businesses in the IT equipment segment. More of them are represeted in the world. As for Ukraine, these are tablet and laptop sales. We finished in the first place on tablets, with a share of over 26% last year. In fairness, according to the March result, we have lost rates in the share – we now have 18%. Concerning laptops, there is another situation. We are a confident leader with the share of more than 30% with a large margin from the closest competitor. The beginning of the year just confirms it.

Besides, if we look at different price segments, we are the number one in all the price segments, except for the cheapest. We do not want to offer such equipment, where a manufacturer knowingly removed something to reduce the price. We are not the number one in the segment of over 30,000.00 UAH, and I hope this is so not for a long time. The fact is that we are only starting to deliver equipment in Ukraine within this price. We simply have not been represented in many segments of the upper price range.

Also, I would like to point out a fast-moving segment in Ukraine, which is gaming computers, where we are in the first place according to the last year results. We are the youngest among the players of this market, while other manufacturers have already been producing this kind of equipment for many years. We only start doing that. I am sure we will keep our first place in 2019. I’d like to draw your attention to the commercial devices’ business, in particular, ThinkPad. It is difficult to assess the share as there are few analytical companies which can provide reliable data. However, I can assure you that in 2017, compared with 2016, we doubled this business. In 2018, in relation to 2017, we increased it for another 50%. We are swiftly growing in the niche of commercial devices.

: What is the difference between the Ukrainian market of electronics and foreign markets? What are the tendencies today?

T. Dzhamalov: The market differs by several key parameters. One of them is the average selling price of a device. Ukrainians buy a little bit cheaper at average than habitants of Europe or North America. The reason is obvious, it’s different average income per capita. The second significant difference is credit penetration in sales in the Ukrainian market. The share of equipment sales on credit is quite substantial. Concerning trends, a Ukrainian consumer became more responsible for buying. If we look at sales in 2015 – the first half of 2016, the cheapest devices took half of the market. Consumers wanted to buy cheap things, no matter what was inside a laptop or a tablet.

People used such devices and either understood that they did not fully meet their requirements, or became scrupulous to purchase – in any case, they became more responsible. Now, they pay attention not only to the price, but to the brand image, technical specifications, to how parameters of the device they buy will meet their needs today, tomorrow, and in a year. They assess the total value of the device ownership and become more responsible for their choice. We hope that this will not change.

: How do you work on data protection?

T. Dzhamalov: This question can be divided into several sub-questions, and I can answer each of them in details. First of all, if we talk about the data given by users, we save it according to the law that came into force in Europe a year ago. This is a very stringent law which obligates to apply many measures on protecting confidential customer data. We have many trainings and processes in the company organized in such a way so to exclude accidental or intentional information disclosure, which relates to personal data of users or our internal information. I cannot recall a situation when we were caught somewhere in Ukraine or in the world on unauthorized access to our data. This relates to data provided by our users or our intra-corporate data.

Now, a separate question is about how we work with the data of users who use our devices and the data they trust our devices. This question should be also divided into two parts. The first part is the physical security of information, that helps users not to lose it. The second part is the protection against hacking. If we talk about the physical data storage, we use the best high-quality components available on the market. I will make a compliment to many of our competitors as they are not lagging behind us. We also understand how data storage is essentially important for a customer who uses laptops for commercial activities. That is why we apply many physical protection technologies so that a client, even if he or she accidentally drops the device, will not lose this data and this accident would not interrupt work with the device. Many ThinkPad laptops are protected from spilling liquid on a keyboard, etc.

As for the protection from hacking, that is more interesting. The ThinkPad brand was an ancestor of many security technologies which are now widely used. These are the scanner for finger-prints and the encryption module. We are actively using and implementing the latest technologies. That’s why our devices are used by many state services of different countries, in particular, the USA Intelligence Division, and armies of many states. This is to say that we devote a lot of time for the quality of protection from hacking. Lately, we do not neglect the webcam protection. We have noticed this tendency and decided to implement it in our devices for users’ comfort. Our webcams are protected enough anyway, so it’s impossible to get remote access for video record. We now equip cameras with almost invisible shutter for users not to use tape. We take seriously to data users provide us with, and we take seriously to data storage and its protection.

: How does Lenovo promote innovation in blockchain?

T. Dzhamalov: Blockchain is a very good technology which, unfortunately, is purely conceived by many users from the cryptocurrency position, that is not right. Cryptocurrency is a good consequence of blockchain technologies, however, it is not single. We see the future of blockchain technologies in smart contracts, not in cryptocurrency or open distributed databases. Concerning our contribution to this, there is one of the first large-scale projects implemented on the basis of blockchain technologies, but it is not related to cryptocurrency, and it’s our project in Azerbaijan. We have provided the Central Bank of the country with the servers with the support of blockchain technology to safely store data of all financial transactions. It was quite a big event for the country in general, not only for us and our partners all over the world. In Azerbaijan, together with the government of the country, we have gathered a big forum to present how it will work.

We have a quite positive attitude towards this technology and do a lot for developing it. In particular, in Azerbaijan, we have also implemented the Blockchain As A Service project. This is a kind of service that provides blockchain on lease. For example, if someone needs to get and implement the technology in their business project connected with blockchain, we can lease server capacities which will safely realize this function. We already have one client in Azerbaijan, one of the blockchain startups using this service.

: Are there any former USSR countries, which want to introduce the same technologies in Azerbaijan?

T. Dzhamalov: There are a lot of those who declare that they want – and Ukraine is not an exception. However, Azerbaijan is the only country which has actually implemented this.

: In your opinion, what aspects are waiting for blockchain technology in the nearest 5-10 years?

T. Dzhamalov: As for cryptocurrency, this is the only industry I hesitate to make any forecasts about — whether it will be massively used or implemented in any country. What I see now is that together with our vendors and our partners, we are trying to implement smart contracts impossible to break. If to simplify, there is a blockchain technology used in the solution, it “remembers” how contracts are implemented – and that is where we see one of the main directions in the future. The more companies implement smart contracts in their relations, the more efficient and protected their business will be.

: How do you deal with the black market of electronics?

T. Dzhamalov: To answer this question objectively, we have to ask many counter questions. What is the black electronics market? If we talk about the equipment which is imported into the territory of Ukraine without paying taxes, obviously, we don’t have to and cannot fight against such supply. It doesn’t refer to our products supplying. This is a “headache” of the state authorities or manufacturers who allow that. What can we do as a company to reduce such products’ import — without paying or paying fewer taxes?First of all, all distributor companies which supply Lenovo equipment to Ukraine, have agreements with the legal entity which is a resident of Ukraine and pays taxes in this country. Secondly, we supply equipment through our vendors, under our terms and conditions, on the bonded warehouse in Ukraine, and only from this warehouse each distributor takes the equipment. Accordingly, when the equipment arrives at the bonded warehouse with original invoices, a distributor has no chance to reduce the price or say that they did not receive the products and take the goods from the warehouse without paying taxes. This is our contribution to exclude the possibility to supply such equipment by our partners.

We also tightly cooperate with the State Fiscal Service of Ukraine, in particular, to prevent importation of the equipment from other countries – for example, from the Arab Emirates – not simply without paying taxes, but also which is not intended to be used on Ukrainian market. Together with the Fiscal Service, we have created a list of so-called trusted importers, and when any equipment arrives at the bonded warehouses under our trademark, SFS checks the names of the companies which want to import goods, as well as a list of the companies which have the right to do this in Ukraine. If something does not match, problems appear. I would like to acknowledge, that besides our cooperation with the state authorities, besides the work with our distributors and partners, we try not only to ban something, fight against something, we also try to stimulate Ukrainian clients to pay attention to what the difference between the purchase of officially imported, legal products intended for sale in Ukraine, and nonofficial ones is.We also offer many additional services, extra pleasant surprises for clients, if they use our equipment. For example, when buying our commercial devices if these are official laptops, we offer quick warranty service.

: Are there any issues at the customs with electronics import?

T. Dzhamalov: Over the last five years, this notion has changed very much. Earlier, it was a common practice to supply equipment to Ukraine without signing a shore agreement. The equipment arrived to Europe to people, who then weirdly imported it to Ukraine at a not very incomprehensible price – sometimes, it was even the wrong equipment. Problems appeared frequently. However, over five years, we as manufacturers and our distributors as equipment importers convinced the state in how honest we are, how transparent and convenient our schemes are for the state, so we do not have serious problems with the supply. Sometimes, unfortunately, there is abuse use of our equipment. Representatives of fiscal service abuse one of the points of the rights they are empowered with. They can keep cargo during up to five days at a customs terminal for conducting some additional investigation of that cargo or documents. Sometimes, they take advantage of it. If we talk about whether there are problems with import, it is a negligible percentage. We do not notice other kinds of problems.

I would like to point out how the state has changed over these five years. “Common sense” has now become more than words. Over the last years, only twice we have faced with the fact when the equipment was received either untimely or due to a not quite correct formulation of a number of legislative acts related to testing and regulations presented in the equipment. And in both cases, the state gave a way to big business and acknowledged their mistake and took a step towards us. In particular, it was in December 2017 – January 2018, when a law similar to European one was issued, on reducing the harmful metals in the devices. And officially starting from January 2018, all devices are imported into Ukraine had to meet these new requirements. Ukraine has introduced this law, referring to the same – word for word – European document, but forgot to add the last small line. In Europe, carrying the law into effect set a moratorium until 2023. In Ukraine, there was a decision to introduce it since 2018, that would make the official import of laptops, computers, smartphones, and electronics in general impossible. The legislative regulations are quite harsh. As manufacturers, we drew the attention of the state to the fact they made a mistake, so this was quickly corrected. However, there would not have been such understanding five years ago though.

The second case is more recent. Since April 1, a new regulation has come into force for the certification of radio equipment in Ukraine. These technical regulations demanded the unsold equipment which has been on the territory of Ukraine for a year to be re-certified, despite the fact that it meets all norms and regulations at the moment of importation. Imagine the amount of equipment with radio modules in retail networks imported quite a long time ago! The state officially demanded to seize these devices from the market and re-send for certification just because it was decided to test it a slightly another way. However, after quite lengthy negotiations, literally at the end of last week, the state authorities informed that they acknowledge their mistake. Everything that was imported with the valid certificate at the moment of import can be sold in retail networks without any barriers.

: Do you have a plan to build a plant in Ukraine?

T. Dzhamalov: As an employee of this office and as a citizen of Ukraine, I would really want this, however, there are a lot of obstacles. The biggest one is that equipment made here needs to be sold somewhere. The market capacity of Ukraine of any equipment – whether these are smartphones, laptops, tablets, etc. – does not allow to keep the plant which will work to meet the demands of the Ukrainian market only. It is natural that a plant should be oriented towards export to other countries. For this export to be simple, there have to be light and transparent rules, and, if possible, duty-free trade with the countries, which are going to import this equipment. We have no duty-free trade with Europe yet – the borders are not open yet. Thus, producing equipment here and having problems in terms of spending both time and money to sell this equipment to European countries – this scheme of work is irrational.

The second obstacle to invest into plant construction is a need to more or less precisely forecast, what will be happening with the economy, with the legislative framework in this country for at least 10-12 years. Unfortunately, Ukraine cannot boast the reputation of the country which guarantees that during 12 years, the stability of the legislative framework will be followed, and the course in one direction, will be saved. So, we are not ready for that so far. However, I do not lose hope that sooner or later, a day will come when Ukraine, having a reputation of the country with many IT talents and hardworking people, unlocks the potential with the help of some technological productions.

: How many people are working at Lenovo Ukraine?

T. Dzhamalov: There are about 40 people in the back office, and some of them work to assure the market not only in Ukraine but in several other countries as well. We also have a network of regional representatives and promoters. They work for Lenovo, but they are not fully our employees. There are about 70 of them. We support the business with the help of 100-110 people.

: What risks do you face operating in Ukraine and how do you minimize them?

T. Dzhamalov: Ukraine is a very interesting country, because we may endlessly speak about its potential, and at the same time, we may endlessly speak what risksit has. If we talk about risks, the most significant is constant unpredictable changes, what is more, they can relate to anything – macroeconomic indexes, currency rates, consumer attitudes, GDP figures, changes of laws… This is both a risk and a characteristic of our country. The second is that the country, where the war is taking place, is also an essential risk, which we also must work with.

: What social projects do you support?

T. Dzhamalov: Each year, we find more and more time and funds for corporate social responsibility in Ukraine. We have grants for talented schoolchildren and students. There are educational programs. This year, we conducted a global social program to support people devoid of access to quality education; we have even changed the sign for one day at our head office in Beijing from Lenovo to Love On to support this.

There is also a month of volunteering. Each country has its own volunteer groups which every employee can join. As for Ukraine, if we take into account the retrospective of several years, we have several responsible projects – starting with the fact that in 2016, we made the biggest one-off contribution in the history of the ‘Tabletochki’ fund. We also had many projects on technical help for children from Okhmatdyt and supported little family-type orphanages. Over recent years, we have focused on the educational sphere and participate in all possible competitions and festivals where schoolchildren and students represent their works. We support these events with gifts and funds. We contribute so that education of innovative specialties of the future could be available in Ukraine. That is why we support Sensorama Academy – the place where you can learn to program a virtual reality. In April, we took part and financed one of the clinics in Kyiv. As a company, we are the founders and participants of the Chinese Trade Association, and through the members of this organization, including ours, we have collected a very large sum of money for buying facilities for this medical establishment.

Please read: Risk management and asset protection is a top priority for any business in Ukraine

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