Tariffs stall foreign PC trade

The international PC market is lined with massive opportunities, as well as major potholes.

Michael Kanellos
Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
3 min read
The international PC market is lined with massive opportunities, as well as high tariffs, arbitrary bureaucrats, bad roads, cultural gaps, and severe credit shortages.

Behind the glowing market projections of PC growth overseas, analysts and experts who study the flow of overseas good warn that the commercial impediments that Americans read are very real indeed. Overcoming them requires persistence as well as a long-term strategies.

"Vietnam has certainly been a little disappointing. It's turning out to be extremely difficult to do business there," said Dick Snyder, senior vice president and general manager, worldwide sales, marketing, service and support at Compaq (CPQ). Not only does Vietnam impose import tariffs, it also imposes restrictions on how and where computers can be marketed.

Tariffs are one of the more tangible hurdles in overseas trade. Although declining, taxes on imported goods remain one sure method for nations to build up their revenues. Further, bureaucratic actions can mask a deceptively low tariffs.

Compaq, for instance, pays two different tariffs totaling up to 25 percent to the People's Republic of China (PRC) on computers assembled in the company's Shenzhen factory. Why? First, Compaq pays a 5 to 10 percent tariff on components imported to the Shenzhen plant. Then, when complete, Compaq ships the computers to Hong Kong "because that's where most of the resellers do their [software] configuration." When returned to the mainland, the machines get slapped with a 15 percent finished goods tariff.

"The problem with China is not only the high tariffs but the reported uneven implementation," said Cherry Velarde, an international analyst with Dataquest. "Although the tariffs are published, these are mere estimates."

Distribution remains a problem as well. "There are two stages to this problem. The first is how do you logistically get products to somewhere like China, " said Phil Rueppel, an analyst at Alex Brown. That can be tackled by either shipping complete systems or shipping components for assembly locally. But then there's the second problem. "How do you get them from one place to another?" he asked.

In a similar vein, little credit or excess capital exists. "The free cash flow that can be spent on computers is pretty minimal," he said.

Nevertheless, according to Dane Anderson, an analyst with International Data Corporation a hypercompetitive dynamic will likely continue to dominate all of the Asia Pacific market. The market's growth rate is too high to ignore, he said.

Of course, life on the other side of the trade coin remains difficult as well. A Senegalese businessman, who maintains industrial operations--and country houses--in Germany and France, said that fulfilling a contract to sell $300,000 worth of desktops to the Senegalese government has been difficult. Most distributors don't have regular operation in Dakar, limiting how and when computers can be obtained, and won't provide much in the way of credit terms. He requested anonymity.

Despite these problems, trade will continue to grow. Economic growth and trade pacts have worked to lower tariffs. Latin American tariffs are lower on average than those found in Asia. Within the region, more developed countries like Argentina have lower tariffs than Brazil, for example.

Overseas operations are also becoming ingrained in the local business picture, hiring local employees and learning the nuances of indigenous conditions, which will smooth over potholes. Compaq, for instance, created a new division to focus on sales and support on the PRC, Hong Kong, and Taiwan out of its Asia-Pacific group. Most other manufacturers are doing the same.

"We will double the number of sales people within a year" in China, said Snyder.