Armenia: Departing Phone Giant Claims Unfair Competition

Russian firm’s pull-out reignites debate on extent of illegal imports.

Armenia: Departing Phone Giant Claims Unfair Competition

Russian firm’s pull-out reignites debate on extent of illegal imports.

Unfair competition is being blamed by Russia’s largest mobile handset retailer for its decision to quit the Armenian market.

Euroset, which emerged in Armenia in 2006, cornered a stake of between 10 and 20 per cent of the mobile phone market in the country.

Alexander Malis, president of Euroset, told IWPR that he had closed all 12 Armenian branches after concluding the playing field was far from even.

As a major dealer, Euroset had been able to set low prices for its appliances, Malis said.

“In spite of that, we still couldn’t compete with the local players in price terms because only a few of them imported the goods legally,” he added.

“Our company policy is to obey the laws of the country in which we are working. Unfortunately, not all other market players take this seriously.”

Malis insisted the company would re-enter the Armenian market only if its rivals obeyed the law so that everyone operated in a fair, open environment, Malis said.

The company’s withdrawal from Armenia comes as the country is being especially hard hit by recession.

Between January and May 2009, gross domestic product, GDP, fell by 15.7 per cent compared to the same period last year.

Budgets have been revised downwards as tax revenues for the first quarter of 2009 tumbled by 16 per cent compared to this time last year.

Like many other companies, Euroset was finding its operations in Armenia increasingly unprofitable.

But the state revenue committee rejected the company’s claims of unfair competition. It said a total of 44 firms imported mobile phones into Armenia and “each..pays the taxes prescribed by law”.

However, Euroset is not alone in complaining about the alleged inequity of the Armenian mobile phone market.

One local representative of a small business said illegal imports of cell phones were common.

A popular way to import phones without paying import taxes on them, he said, was to have the new devices registered by airport customs as “accessories” to existing phones.

The dealer said he sometimes used this method himself in order not to pay duties and taxes on his imports. In this way, he felt able to compete with larger companies operating in the market.

Other companies have reportedly tried to escape duties by concealing imported phones. The only risk with this strategy was losing the phones to vigilant customs officials.

“There is a big risk in importing mobile phones illegally because customs officials can detect the goods at any time and confiscate them,” the dealer said.

Armenia’s customs service does periodically clamp down on such illegal imports.

In February 2009, for example, officials mounting an on-the-spot inspection of passengers on a flight from Dubai uncovered 54 phones on one passenger.

But another businessman working in the same field said the mobile phone market in Armenia was so competitive that small businessmen stood no chance of competing if they paid customs on imported handsets.

“If small-scale importers don’t use illegal methods, they just can’t compete in the local price field,” he said.

Few outside experts or international watchdogs doubt that corruption in general remains a major problem in the Armenian economy – as it does throughout the Caucasus.

The Global Corruption Barometer for 2009 published by the watchdog Transparency International also revealed growing public distrust of business throughout the region.

“Businessmen use bribes to influence social policy, laws and rules, in other words they are invading the state,” the survey said.

Transparency International said 38 per cent of respondents to a survey conducted throughout the region viewed their governments’ efforts to fight corruption as ineffective.

Armenak Chatinian is a reporter with Capital daily in Yerevan.
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