Introduction of SAF Tehnika products to Argentinean market.

The heads of rich and powerful families command widespread respect, but this respect carries with it the responsibility to care for others and maintain personal and family honor. As a result, Argentine men, like other Latin American males, are much concerned not only about their ability to provide and protect, but also with their honor. Honor is as important as business success; it routinely affects day-to-day life at home, in the community, and in business. Females must protect their reputation and that of their family in the same way that males protect honor.

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3. Business culture

Argentines combine a unique mixture of European efficiency and Latin American flexibility in their business style. Most industries are modernized or modernizing and in many-though not all-sectors, plant and equipment are up-to-date. Business is well within the range of international standards, and managers employ the latest techniques, operate using reliable accounting and reporting standards, and conduct sophisticated transactions. Many executives speak English or some other European language. Despite a liking for leisure, Argentines have a reputation for hard work.

Enormously competitive in the marketplace, Argentines do not subscribe to the cutthroat, win-at-any-cost competition prevalent in North America and some other business venues. Competition in business is like competition in sports-you play the best you can, and the victor's spoils go to those who put forth the best effort. At the same time, Argentines have a generally healthy, relatively relaxed approach to their jobs.

4. Business style

Argentines adhere to the traditional Latin American tenet that one works to live rather than lives to work, although they are at the same time intensely competitive and profit-driven. Although it is changing in response to the internationalization of Argentine markets, the perception currently remains that someone who is too eager to spend long hours at work or is overly preoccupied with a career is a bit odd and outside the accepted norm. Although organizational structures are sophisticated and business dress formal, Argentines approach business with a relaxed and friendly attitude. Argentines tend to create alliances in order to get the job done; they work well together in pursuit of common goals and readily share credit for achievements. Although argumentative, they avoid open conflict and direct opposition to viewpoints, especially those of their superiors.

Business strategies are often dominated by short-term considerations. The long years of hyperinflation have left a general tendency to give high consideration to cash flow management and to the achievement of rapid results in investments and business in general. Business is often opportunistic and decisions will be expected to be fast.

It is common that Argentine businesspeople will not reply promptly to e-mail, faxes, letters or phone calls. Acknowledging messages is not a common habit. Many businesspeople might not respond until there is an opportunity or something concrete to answer.

Over-promising and under-delivering are frequent. Arrangements should be carefully checked and double-checked.,

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4. Economic and financial factors

1. Economic development

In January 2002, after three years of recession, a prolonged bank run, and a sovereign debt default, Argentina abandoned the quasi-currency board system ("convertibility") that had pegged the peso to the dollar at a one to one rate for over ten years. While convertibility had brought the country macroeconomic and price stability, and provided the framework for a broad based deregulation, privatization and market liberalization in the 1990s, it had proved unable to withstand the combined effects of external economic shocks and persistent fiscal deficits at home. The Mexican "Tequila" crisis of 1995, the East Asian crisis of 1997, the Russian default of 1998, and the Brazilian devaluation of 1999 combined to raise the cost of external borrowing and make Argentine exports and production uncompetitive in world markets. Meanwhile, the national and provincial governments continued to run fiscal deficits even in boom years, and the debt service burden eventually became unsustainable.

While most observers recognized by late 2001 that a devaluation and default had become almost inevitable, the manner in which the devaluation was implemented has significantly increased the damage done to the banking system, and to the economy. Strict limitations on cash withdrawals from bank accounts (the "corralito") imposed in December 2001 after a prolonged bank run were followed in January 2002 by the freezing of almost all dollar-denominated bank accounts and their conversion to pesos at an artificial rate of 1.4 pesos to the dollar. Subsequent floating of the peso in February 2002 increased depositors' sense of expropriation. Meanwhile, almost all dollar-denominated loans within Argentina were converted to pesos at 1 to 1. This "asymmetric specification" has destroyed banks' balance sheets as well as their reputations. The banking system, once one of the strongest in Latin America, has been hollowed out. In the near future, the number of banks and the scale of banking operations will undoubtedly shrink, with most domestic banking limited to transactional operations.

By the start of 2003, however, the Argentinean economy was showing signs of having been through the worst. According to figures from the Ministry of Economy industrial production rose in the twelve months to November 2002 for the first time in 27 months. Recovery started in the second quarter of 2002, and there have been four consecutive quarters of growth for the first time since 1997.,

2. International trade

During much of its modern history, Argentina has exported low-value-added commodity products and then imported high-value-added manufactured goods. During the 1940s and 1950s Argentina imposed tariff and no-tariff barriers to protect the development of domestic import substitution industries, while from the 1960s through the 1980s, policy fluctuated between more open and less open trade. After running large trade surpluses for most of the 1980s-largely because of official limits-policymakers shifted to an open-market approach, allowing the economy to run up substantial trade deficits in the early 1990s as the country imported capital goods and other inputs to strengthen production.

In 1988 import tariff levels were a maximum of 50 percent plus a 15 percent surcharge, with a minimum charge of 15 percent, and an average rate of 39 percent. As of March 2000, tariffs were established between 0 (for capital goods) and 35 percent (for some consumer products). Discretionary import licensing was also dropped. Most export tariffs have also been eliminated. Total foreign trade doubled between 1991 (US$ 20.3 billion) and 1995 (US$ 41.1 billion), and continued to grow substantially in 1997 (US$ 56.6 billion) and 1998 (US$ 57.8 billion). In 2000 total trade declined to US$ 51.4 billion, influenced by the recession in Brazil and the declines in export prices.

Mercosur

A customs union including Argentina, Brazil, Paraguay, and Uruguay, Mercosur is altering the trade picture in Argentina substantially. The country's trade with neighboring Brazil represented roughly a modest 11 percent of total Argentine foreign trade from 1975 through 1989. By 1998 this figure had nearly tripled, 30 percent, and reached 32 percent in 2000. Argentine exports to Mercosur have grown at very high rates since 1994, particularly for those of nontraditional higher value-added products.

Trade Balance

During the 1970's and the 1980's, Argentina has maintained a balance of merchandise trade surplus in all the period except in 1981. Prior to 1991, Argentina had managed its trade to promote import substitution. The situation changed in the last decade, when deficits were registered in 1992, 1993, 1994, 1997, 1998 and 1999. Commercial surplus returned in 2000. Improved export performance in 1995 and 1996 resulted in a trade surplus (US$ 840 million in 1995, and US$ 49 million in 1996); the development of exports, especially of nontraditional, higher-value-added merchandise exports, was the driving force in improved export performance in 1994 and 1995.

However 1997, 1998 and 1999 registered trade deficits of US$ 4.0 billion, 5.6 billion, and 2.2 billion respectively; during such years imports grew at higher rates than exports. In 2000 the commercial imbalance turned again positive.

Exports

Argentina continues to be known primarily for its agricultural exports (grain, oilseeds, and meat products), although exports of fuels and manufactured goods have seen a boom in recent years. From 1980 through 1989 Argentina's exports averaged 38 percent for primary products, 37 percent for agricultural manufactures (processed products), 21 percent for industrial manufactures, and 4 percent fuels. However, by 2000 these positions had been altered, with primary products accounting for 20.6 percent of exports, agricultural manufactures for 30.1 percent, higher earning industrial products for 31 percent, and fuels for 18 percent.

Imports

Argentina has allowed imports to grow rapidly in recent years after an extended period during which it erected barriers to outside products. Much of this increased influx has represented capital goods and intermediate inputs, which are accorded low- to no-tariff treatment, but open markets entail the import of consumer goods, which have also grown. In 1999 intermediate goods accounted for 33 percent of imports, and capital goods represented 30 percent of imports (when parts and accessories for capital equipment are added, these two categories account for 44 percent of all imports). Consumer goods represented 16 percent of imports and vehicles 4 percent. Machinery and equipment represents the largest single category-33 percent-of imports. Chemicals is second (16 percent), and transportation equipment in third place (15 percent). Together these three categories account for 64 percent of imports. ,

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5. Politics

1. Political structure

After years of post-World War II instability, Republic of Argentina is today a fully functioning democracy. Form of the state: federal republic.

The Executive: The president is head of state and commander-in-chief of the armed forces; elected for a four-year term; can be re-elected for one consecutive term; appoints a cabinet and a chief of cabinet, who can be removed by a majority vote in each chamber.

National legislature: Bicameral Congress: 257-member Chamber of Deputies, directly elected for a four-year term; one-half of the lower house stands for re-election every two years; 72-member Senate; directly elected for a six-year term; three senators are elected per state, two from the leading party and one from the runner up; one-third of the Senate stands for re-election every two years.

Legal system: Federal judges appointed by a Council of Magistrates; Supreme Court system both nationally and in the provinces; national Supreme Court members require the endorsement of two-thirds of the Senate.

2. Current president

The current president is Nestor Kirchner of the Partido Justicialista (PJ, or Peronist party), who was sworn in as president on May 25th 2003. Newly elected resident Nestor Kirchner is asserting his authority with widespread, aggressive reforms that have left many people feeling both reassured and a bit overwhelmed. Argentine voters, battle-weary after 18 months of economic crisis, five transitional Presidents and five years without growth, are desperate for leadership.

Polls (June 2003) indicate that 80 percent of Argentines approve of Kirchner's performance, compared with a popularity rating of about 38 percent in the weeks leading up to his inauguration on May 25.

The IMF's managing director, Horst Kohler, was in Buenos Aires in June 2003 and said he favored negotiations on rescheduling overdue portions of Argentina's foreign debt. "I was particularly impressed by President Kirchner," Kohler said at a news conference. "He obviously has a vision. I do think that this vision should be implemented. And this will lead this country to strong growth and social cohesion.",

3. Corruption

According to last survey done by Transparency International (July 3, 2003), political parties were revealed in 33 of the countries surveyed to be the institution from which citizens would most like to eliminate corruption. This preference was most acutely expressed in Argentina. The following are tables that show respondents’ (surveyed by Transparency International) beliefs about how corruption affects political life and business environment:

Respondent's beliefs about how corruption affects political life:

A very significant impact

Overall

Respondent's beliefs about how corruption affects the business environment:

A very significant impact

Overall

Business and political environment in Argentina is very, very corrupted, if not the most corrupted comparing to other countries in the world.

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6. Infrastructure    

1. Banking sector

Banking sector is badly suffering from the current economic crisis. Due to this, access to credit by local and foreign companies is practically impossible or at extremely high rates. Because of the lack of a solid financial sector, sales on 30, 60, 90 or 180 days terms of payment (which was a common practice) are practically forgotten. In Argentina there are two types of cheques: normal ones and special “ post-dated” cheques in which it is possible to specify the date of the transaction and the date of payment of the cheque. However, since January 2002, most companies will not accept “post-dated” cheques, payment terms have also been reduced and most companies request no more than 30 days. This will change with time and it could be recommended to enquire close to the date of the operation.

All these factors, the lack of bank credit, the limitation on money transfer abroad, the high exchange rate, have contributed to the massive drop of imports to Argentina.

2. Transportation and communications

These sectors accounted for 8.9 percent of GDP in 2000, up from 4.5 percent in 1980. During the first half of the nineties both sectors grew substantially: cumulative growth for the period 1991-1995 was 26.5 percent in the transportation sector and 61.1 percent in communications. In 1998 transportation grew 2.3 percent and communication grew 20.4 percent. In 1997 these sectors together employed 799,000 workers, or 5.0 percent of the workforce. Prior to 1990, Argentina's communications and transportation systems were largely inadequate and service was generally considered to be poor. Privatization has done very much to change this historical situation.

Mail service is considered adequate, but slow, after the privatization and foreign and domestic courier services have done inroads into the business market. As of August, 1997 the government had completed privatization of the post.

Most of the nation's rail systems have been privatized on condition that investors improve and maintain them. Privatization of part of the air transport infrastructure-navigation systems, ground structures, and the largest airports is responsible for improving operations and injecting new capital. Similarly, privatization of the ports-an essential channel for Argentine foreign trade-has increased capacity and efficiency, resulting in additional ship traffic.

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7. Telecommunications, Internet, and utility companies

Now in its fifth year of recession, Argentina's declining economy has had a devastating effect on the industries. One of the principal causes of the predicament was the government's decision - taken in January 2002 - to stop the pegging of the peso to the dollar, ending eleven years of exchange rate stability. The move, a bid to avoid hyperinflation, caused the Argentinean currency to fall in value in real terms by up to 70%. Because companies in the industries generate revenues in local currency, while most of their debts must be serviced in dollars, unsustainable pressures have been put on their balance sheets. Many ventures have been faced with little choice but to default on their dollar-denominated loans, to limit capital expenditure where ever possible and streamline operations to cut costs.

3. Telecommunications business

1. Wireline

General environment

Attempts by the country's two largest telcos - Telecom Argentina and Telefónica de Argentina - to compensate for the falling value of the peso by raising tariffs have been effectively removed as an option by the government. In January 2002 it issued an emergency law which froze prices of public services - of which telephony is one - and prohibited the indexation of tariffs. So at the beginning of 2003 the telcos were still operating under their old pricing structure. With their hands effectively tied in terms of price increases, the best they can do is to modify customer discounts and amend service packages.

Main players

Telefónica de Argentina - largest fixed line operator by subscribers.

Telecom Argentina – another fixed lines giant.

Movicom BellSouth – company that is offering mobile services in Argentina since 1989 and in January 1999 was one of two companies awarded a license to compete in the fixed line.

Compañía de Telefonos del Interior (CTI) - mobile operator that was awarded a national fixed line license early in 1999 and launched long-distance services in March 2000.

AT&T Latin America - a subsidiary of the US telco, entered the Argentinean fixed line market in mid-2000 after purchasing competitive local exchange carrier (CLEC) Keytech LD.

Operators and lines:

2. Wireless

General environment

All four cellcos spent much of 2002 re-evaluating their business plans and marketing strategies as they attempted to adapt to the new business environment in the wake of the devaluation of the peso at the beginning of the year. In June it was announced that they would be raising call and subscription rates by up to 15% and prices were due to increase again in mid-October 2002, although by the end of the year no further rises had materialized. It was reported that the cellcos were seeking to increase rates by up to 30%, although the government is unlikely to approve anything above 10%.

The macroeconomic environment has already caused disconnections and uncollectibles to rise at a dramatic rate and the number of mobile subscribers dropped from 7.16 million to 5.89 million in the first nine months of 2002. By the end of the year mobile operators were together disconnecting around 1,400 subscribers a day. As profits are highest from post-paid customers, cellcos are seeking to retain subscribers who can afford to pay by contract, and at the same time trying to hold on to less wealthy customers by switching them to the pre-paid option. 

Main players

Telecom Personal - Telecom Persona, a wholly owned subsidiary of Telecom Argentina.

Movicom BellSouth - Argentina's second smallest operator in terms of subscribers.

Telefónica Comunicaciones Personales (TCP) - A subsidiary of fixed line incumbent Telefónica de Argentina.

CTI Movil - Argentina's smallest mobile operator.

Operators and subscribers:

4. Utility companies

Utility rates were converted from dollars into devalued pesos early last year, soon after the government ended the 1:1 peg between the peso and the dollar. Rates have been frozen since then. The "pesification" of contracts meant it was necessary to formally renegotiate and sign new contracts.

However, utility companies and the International Monetary Fund have been pressing the government to lift rates since then, arguing that service quality will suffer if the current rates are maintained. The government has twice tried to increase gas and electricity rates but both efforts have been blocked by the courts.

3. Oil and Gas

The industry flourished during the 1990s, in large part due to de-regulation. The state oil company, YPF, was privatized in the early 1990’s and has now been taken over by the Spanish company Repsol. Gas del Estado, the state gas organization, was also privatized – split into smaller utility companies and sold to the private sector. Most exploration and production is on shore rather than off shore and there are more than 30 international operators in the country.

Since the economic and political crisis in Argentina in January 2002, and the devaluation of the Argentine peso, the industry has had mixed fortunes. Gas production is in crisis because tariffs have been frozen at pre-devaluation peso rates making it uneconomical to produce and invest. Oil production has fared better as its downstream industry is not regulated and so some price increases have been possible locally and exports are doing well. With a relatively high oil price, the devalued upstream production costs have made the industry competitive in their exports, even with a 5-20% export tax introduced by the Government in January 2002.

4. Electricity

Argentina relies mostly on hydropower and natural gas to fuel its electricity sector. In 2000, the country had 24 gig watts (GW) of installed generation capacity, of which about 54% was fossil fuel-based (primarily natural gas), 42% hydroelectric, and about 4% nuclear. Electric generation in 2000, which totaled 82.8 billion kilowatt-hours (bkwh), was 52% thermal, 41% hydropower, and 7% nuclear. Argentina has the third-largest power market in Latin America, behind Brazil and Mexico.

Main players:

• Capex S.A. produces and distributes electric power, refines crude oil and extracts natural gas.
• Central Costanera SA. Produces, transmits, distributes, and sells electric power; performs technical jobs; and provides technical and engineering services.
• Central Puerto Sociedad Anonima. Generation, transportation, distribution, production, marketing, commercialization, import and in block sale of electric energy and provision of technical and consultancy services.,,

1. Internet

Although the birthplace of nearly half of all Latin American-based e-businesses, Argentina experienced a shakeout in Internet ventures over 2001 comparable to the one that occurred in the United States. The firms that filed for bankruptcy and closed were businesses that were unable to find additional rounds of financing and to survive the sharp decline in advertising revenues they relied on for the majority of their income base. By contrast, local survivors were generally the online subsidiaries of larger established companies and those able to attract foreign investment or partners. Internet Service Providers (ISPs) were especially hard hit and many of the more attractive of the local independent ISPs were bought up by better capitalized foreign firms eager to gain market share in Argentina. Despite this difficult climate, the prospects for customer and revenue growth among the remaining ISPs and other Internet businesses should be favorable in the future when the country recovers from its current economic woes. Argentina has one of the best educated populations in the region and the highest PC penetration rate, and should see growth once again in disposable income.

The only sub-sector still experiencing growth in Argentina is the Internet and e-commerce market. In Argentina, 8% of total trade takes place online. Argentina is a very lucrative market for information technology and the end of 2002 saw 4.1 million users of the Internet. Internet penetration has more than doubled since March 2000, when there were only 1 million users. Penetration is among the highest in Latin America at around 11.2%.

With the economic demise of the country, ISPs have gone from around 170 at the end of 2000 to only 27 in operation by August 2001. Three major companies hold 54% of the subscriber base in 2001, they are:

• Ciudad Internet (owned by Groupo Clarin);
• Telecom Soluciones (owned by Telecom Argentina);
• Advance (Telefonica de Argentina).

Major ISPs - 2001

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8. Regulatory issues

Anti-damping restrictions

Argentina has filed numerous anti-dumping cases at the WTO as the Government has tried to use anti-dumping actions to counter-balance the liberalization of trade and the reduction in import duties. Most cases have been filed against cheap imports of textiles, footwear and steel products from the Far East and Brazil.

Currency Restrictions.

In January 2002, the Government of Argentina placed serious restrictions on money transferred to and from Argentina. However, the government put an end to these foreign exchange restrictions in January 2003. The peso is no longer fixed to the USD and its value fluctuates. The daily rate is easily obtainable at any bank or exchange shop ( banks and exchange shops offer different rates of exchange, and some banks only change money for clients. Additionally, transfers may be subject to withholding tax.

Import barriers

In general, Argentina doesn’t have any import barriers outside ad-valorem import duties. However, the country has identified a number of products that are protected and/or prohibited from imports, such as some animals, dangerous chemicals, etc.

Basic tariff rates-applied to the CIF (cost, insurance, and freight) value of imports for most of the tariff lines range from 0% to 35%. Raw materials and agricultural products have the lower rates, and they increase for products with added value. There is no tariff on capital goods, computers, and telecommunications goods.

State Regulations

There are no restriction on foreign investments, and profits may be freely transferred. All previously existing requirements concerning prior government approval have been abolished. Only in some special cases such as mass media, banking, airlines, etc. do specific regulations exist with respect to foreign investments.

Taxation

• Argentina doesn’t have a double taxation agreement with Latvia.
• Argentina is a Federal Republic and taxes are levied on three levels ( national, provincial and municipal).
• The major sources of revenue for the Central Government are VAT (21%), import duties, fuel tax, excise taxes and income tax.

In principle, any income or gain (other than dividends from an Argentine source) obtained by a non-resident individual of a foreign legal entity without a permanent establishment in Argentina is subject to withholding tax. The effective rates of withholding tax vary from 3.3% to more than 30% depending on the source of income or transaction.,

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9. Labor

About a quarter of Argentines are unemployed. The economy shrank 10.9 percent in 2002 -- the biggest fall in a century -- but is seen growing by around four percent in 2003. Jobless numbers soared after last year's debt default snuffed out credit and closed hundreds of businesses.

The maximum workday is 8 hours, and the maximum workweek is 48 hours. Overtime payment is required for hours worked in excess of these limits. The Labor Law provides that normal hours of work shall not exceed eight (8) hours in a day, seven (7) hours at night, or 48 hours per week. Workers are not allowed to work from Saturdays at 1:00 p.m. to Sundays at 12:00 p.m. except in cases which are provided for by pertinent rules and regulations.

Annual Leave: Minimum 14 days paid vacation leave each year. Annual leave is based on years of service. After 20 years on the job, an employee receives 35 days annual leave each year.

Maternity Leave: 90 days – 100% of pay (paid for by social security).

The monthly national minimum wage is approximately 200 pesos, which is not sufficient to provide a decent standard of living for a worker and family. It is determined by a tripartite committee and has not been changed for at least 7 years. According to informal communications with Argentineans, the estimated average income of a labor is roughly 600 pesos per month. Although average salary (in pesos) has not changes much in the last couple of years, Argentines' purchasing power was savaged by inflation that hit 40 percent last year. Last year's devaluation sent the peso down 70 percent against the dollar.,,

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BUSINESS PLAN

10. Company description.

SAF Tehnika is a member of the  group, the leading IT holding company in the Baltics. Group's generated turnover exceeds 63 million EUR in FY 2000/01 with human resources of more than 600 people in Estonia, Latvia and Lithuania.

The major benefit of the company and potential for the future business lies in its human resources; this is what insures constant development and ongoing product quality.

The success of SAF Tehnika can be explained by its well balanced team, where the expertise and competence of the experienced staff is supplemented by the energy and enthusiasm of new specialists

SAF Tehnika's research & development department is complemented by the personal interest shown by it's employees and this in turn leads to an extremely effective performance from each employee. Many of the staff has invaluable experience in the field of wireless communication equipment design, the beginnings of which can be traced back to the time when Latvia was one of republics incorporated in USSR within which was great number of scientific institutes that were fully funded both in terms of resources and equipment

SAF Tehnika is a small company within the context of World's wireless data transmission equipment manufacturers. However, this is what gives the company and its customers a number of advantages over its larger rivals. Customer requirements are one of the major priorities of SAF Tehnika and therefore, to insure that the solutions we offer are the most cost effective and efficient, we constantly work on designing new products and improving the existing product range.

SAF Tehnika distributors and partners work in the Baltic States, Eastern Europe, the former USSR, Scandinavia, Great Britain and part of the EU. SAF Tehnika offers a wide range of distribution services - providing ongoing technical information and training for our partners which allows them to be fully conversed in the benefits of our product range and up to date in all technical aspects.
SAF also provides an in depth technical support facility

Company works on its product identity, taking part in both regional and international exhibitions.

SAF Tehnika supplies products to a wide range of companies in both the state and private sectors, all of whom appreciate a quality product.

Origins of SAF Tehnika AS can be traced back in early 90’s when present technical director was looking for possibility to get voice connection to his private house. At that time Lattelekom was not able to provide it on shorter connection terms as couple of years. To solve problem he applied knowledge learned during study at radio engineering faculty for building very simple solution in 10,5GHz frequency carrying 1xE1 interface. With this equipment he was able to transmit voice signal to the closest village where it was possible to connect to Lattelekom network.

Some of his friends had similar problems so his was asked to build some more systems to cover his friend’s needs. After some while the “garage business” grew to small company which in cooperation with other two companies was able to solve problem for connection to local PTT network.

In late 90’th SAF made agreement with Fortech (nowadays MicroLink) for distributing microwave systems on Latvia territory. Since business was growing, Fortech wanted to have more assurance of quality and control of smaller scale supplier. In result Fortech acquired company as majority share holder in 1999 making new company SAF Tehnika.

Since establishment in 1999, SAF Tehnika is increasing sales level by approximately 50% each year. However, last FY2002 it experienced growth of 70%. Present sales volumes and commitments from customers allow estimating at least 100% growth rate in terms of sales volume. The break through is achieved thanks to OEM agreement in Asia market as well as entry in some other new markets.

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11. Business opportunity.

Due to SAF Tehnika`s unique combination of product simplicity, quality reliability and good price/performance ratio, the company has good opportunity for expansion in an Argentine market.  

By presence on different markets SAF Tehnika already proved its excellent service level, which is a crucial factor in a radio equipment market. Due to very low product cost SAF Tehnika is able, not to repair broken equipment in a separate country, but just change it for a new one. This service approach model proved its excellence and will be the main competitive advantage in an Argentina market.

The main product we are going to present on an Argentina radio equipment market is PtP microwave radios 16 Mbps / low to medium capacity segment / in frequencies 18 GHz. This model has proved its quality and reliability on Eastern Europe markets, where developing countries used it as a core component for the backbone network. Also price/performance for this product has the best ratio.

This product has very good opportunity for sales in a coming year. The main factor is a price, which, by taking to account Argentina’s poor economy shape, plays the main role. The price for a PtP microwave radios from is half the price then competitors offers. Along with superior SAF Tehnika’s service model we should get 12% market share within first distribution year.

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12. SAF Tehnika mission and objectives:

According to company sales presentation company business mission is defined:

“To provide affordable fixed wireless solutions for data and voice connectivity for existing networks and future implementations”

There is also defined company Focus:

“Development of low cost high quality product line that is cost efficient to manufacture”

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13. Business summary.

In early 2003 SAF Tehnika decided to enter Latin American markets. With these purpose special events for companies from Latin America were organized by SAF Tehnika in such exhibitions as: CeBIT in Germany, ITU Telecom in Geneva, local exhibitions in partner countries under partner stands.

The first interest in a product from big Argentinean Company, specialized in sales and service of communication equipment, was expressed on a CeBIT exhibition at Hanover on April, 2003. SAF Tehnika carried out a detailed analysis of Company profile and found out that the company has good experience and distribution network on an Argentinean market. Actually Company had 35% market share in IT products distribution, also distribution network were well developed. Company business model presented mix of distribution and integration capabilities, what  for SAF Tehnika meant that Company will be able not only to sell products (box moving), but also install and support its. After the analysis done SAF Tehnika believes that partnership with mentioned Company will be mutually beneficial and will help to achieve SAF Tehnika’s short term targets.

In coming month SAF Tehnika should negotiate and conclude Distribution agreement with a Company. In agreement should be mentioned , that this Company should ensure not only distribution of SAF Tehnika’s products in a country, but also should provide an advanced service level for all customers. The best scenario for SAF Tehnika would be 1 year exclusive Distribution agreement with a Company This partnership will help SAF Tehnika to enter market much more easer, then by establishing its own subsidiary, as Company has excellent market knowledge and already good portfolio of potential SAF equipment customers. By analyzing Company customer base and its purchasing patterns, SAF Tehnika draws a conclusion that by partnership with a Company SAF Tehnika could reach 10% from a market share of Radio Equipment within 1 year.  After this period SAF Tehnika should be able to change the channel and accordingly to the market situation whether to reach big accounts by itself or choose the Sales agents schema (sales agents work for a certain  commission % from a deal).

For time being all export to Argentina should come from Latvian SAF equipment factory, located on the Ganibu str. 34. Logistic should be executed by shipments delivered to a Company by air, what will increase shipment costs in comparison with competitors, but this will not be reflected in a product end user price, due to product low self cost. Air shipments will give partners additional competitive advantage in the changing market environment in Argentina, partners could be able to adjust supply of a product in a very fast way.  

The 2 years objective for SAF Tehnika in Argentina is to get 20% market share in sales of PtP microwave radios from 2-34 Mbps / low to medium capacity segment / in frequencies 7 – 38 GHz.

SAF Tehnika long term plan (3 – 7 years) is to get dominant position in a market and supply Radio Links to all major market segments. By getting dominant position on a market SAF Tehnika presumes at least 40% market share in all according market segments

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Table with first year expected costs, sales and profits:

Host government does not help. We should definitely certify our product and get it tested at the defined frequency. Also all standard compliancy certificates should be obtained. SAF Tehnika’s partner company has good relationship with a government and as corruption level is pretty high in Argentina, then we estimate that testing and registration process will take approximately half a year. Therefore up to 30% from SAF Tehnika 2004 marketing budget could be allocated for “certification” purpose.  More corruption issue was discussed in an environmental analysis chapter.

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14. Business environment.

Argentina market potential is estimated to grow sharply within next five years. As a good example the Baltic states or other newly developing markets can be used. Total market is expected to be at least 30.000.000 € per year or 2.000 PtP units by the 2004. For the first half-a-year average monthly demand we estimate to be around min 150.000€ to max 250.000€ per month. In a second half we predict increase in a demand up to 350.000€ monthly. Consequently, we estimate that demand will increase, especially along with development in other related industries as utilities, finance and banking, production and research.

We group our customers according to the purchasing power they have on a 6 segments: Mobile operators, Fixed operators, Internet Service Providers (ISP), Utility companies, Government networks and Corporate networks.

Mobile and fixed operator segment typically is relatively conservative and not open to new products, vendors and brand names. It requires significant effort to enter this customer segment, especially for the company in size of SAF Tehnika. However, when customers accept the product and becomes familiar with it, segment provides company with significant sales volume on regular bases. Customers in the segment highly evaluate product quality, technical parameters, specific features, vendor brand and support services provided.  The demand for this segment is estimated for 1.200.000 € for mobile and 900.000 € for the fixed operator for the first business year.

Internet Service Providers are more open towards new products. Brand name is not that important. Segment is price sensitive and accepts lesser quality, features if solution can fulfill very basic functionality but cost is significantly lower. Segment can provide regular sales for company, only volume is lesser as in case of operators. The demand for this segment is estimated for 800.000 € for the first business year.

Utility companies can be interesting customers because typically has spare money for implementing new projects. However, segment requires from supplier complete solution including other systems besides microwave. Since segment is project oriented, it does not provide continuous sales for company. Projects might take place every couple or more years only. The demand for this segment is estimated for 90.000 € for the first business year.

Corporate segment in some ways is similar to ISP segment. It is price sensitive and is less concerned of brand names. Each customer purchase volume is smaller as in ISP segment. Nevertheless, the amount of potential customers in the segment is greater than in ISP segment. The demand for this segment is estimated for 60.000 € for the first business year.

For the first 2 years our main focus will be on a first 3 customer segments: Mobile line operators, Fixed line operators and Internet Service Providers. These customers will help our company to establish good market share as well as get product recognition in a market. The total turnover from these 3 segments is estimated for the first year as 3.000.000 €.

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15. Overall strategy

Entrance into market will be based on cost effective production and high quality and reliable product.

Cost effective production

Cost effective production will give SAF Tehnika possibility to set flexible and attractive price system in the market

Quality and reliability of product

Professional and experienced engineer and telecommunication specialist’s team provide production process in Latvia. In whole production chain SAF Tehnika use latest technologies. Strong quality control and measurement system is implemented. Product is ISO 9001 certificated.

Product in compliance with regulations in Argentina

Product satisfies all internal Argentina’s standard requirements.

Agreement with distributor, which encourages product successful entrance into Argentina’s market.

Agreement between SAF Tehnika and distributor will be based on mutual profitability, common understanding of price strategy and necessary level of after sales service

Qualitative after sales service, provided by high professional distributor’s staff

Both partners: SAF Tehnika and distributor, will work together to maintain fast, reliable and qualitative after sales service

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16. Competition

Main SAF Tehnika competitors in Argentina will be A Brand companies who are dealing in Argentina markets representative offices.

Overall competition Worldwide low to medium Capacity Digital Radio Unit Shipments in 2002 is as follows:

Ericsson Microwave System AB                28 %

Nokia Networks                                 14 %

Alcatel Wireless Transition                11 %

   More than 10 smaller companies cover other 42 %.

 

Ericsson

MINI-LINK is a series of compact, digital microwave radio links in the 7 GHz to 38 GHz frequency bands for transmission of voice and data. It is in operation in public, private and cellular networks in some 100 countries, including Argentina. Ericsson Microwave Systems is the world's largest supplier of this type of radio links.

Price: high

Brand awareness: high

Reputation: good

Financial position: sharply decreasing of Sales since 2000; losses in 2002

Nokia

Nokia's wireless transmission solution consists of Nokia FlexiHopper, MetroHopper and PowerHopper microwave radios, which provide transmission capacities from 4x2 Mbit/s to STM-1 (155 Mbit/s). Nokia's microwave radios enable rapid and reliable rollout of transmission links for 2G and 3G base station access. Nokia GSM/EDGE and WCDMA base stations provide integrated interfaces for Nokia microwave radios. The microwave radio outdoor unit can be connected directly to the base station via a single cable. No BTS site support space is needed for transmission equipment when using the integrated indoor units.

Price: high

Brand awareness: high

Reputation: good

Financial position: Sales stable since 2000; profitable in 2002

Alcatel

Alcatel - the world leader in point-to-point microwave radios - has a field-proven experience in deploying and managing wireless transmission networks. Alcatel global solution of fixed point-to-point microwave radios, which is fully integrated in the Alcatel network management platform, offers full frequency bands coverage, from 1.5 GHz up to 38 GHz. It also supports a large variety of distances, as well as transmission capacities from 1.5 Mbit/s to N x OC-3/STM-1

Price: high

Brand awareness: high

Reputation: good

Financial position: Sales decreased twice, since 2000; losses made on 2002

Advantage of SAF Tehnika is:

• High quality
• High quality of after sales services

• Lower price

in comparison with competitors, who have

• High quality
• High quality of after sales services
• Higher price

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17. Marketing Plan

To provide fast, aggressive and successful entrance into market SAF Tehnika will start selling of product through chosen distributor. After one to two years SAF Tehnika will continue expansion in Argentina’s market by itself. Meantime:

• Local risks will be very well known and eliminated as much as possible
• Already established portfolio of clients and partners
• Country’s political and economical situation must be more predictable

For time being, one of main issues, will be discussed during negotiations about cooperation and distribution agreement, is pricing policy.

Crisis period is just over and market is starting to develop and grow. In this situation customer is mainly looking for the not expensive, but same time liable product.  Argentina’s consumer does not care so much about very well known brand name and is very price sensitive.

Price will be set a bit under market average which will allow SAF Tehnika to get their product well known. It will create value of money for buyer which is important competitive advantage. To avoid too high price escalation, in agreement between SAF Tehnika and local distributor will be settled some max % of interest, distributor can get from each item.

Besides pricing policy itself, agreement with distributor will include very strict and regular pricing policy control. Distributor will prepare reports on regular basis. It will give to SAF Tehnika serious instrument to be updated every moment and gives flexibility to react to any changes in market demand.

To maintain sufficient cash flow and avoid possible problems with distributor’s solvency, SAF Tehnika will use bank, who provides it with LC (credit letter). According to this, bank provide distributor with necessary documentation to receive the shipment, just after money are deposited into SAF Tehnika account.

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18. Product

The widespread and growing usage of microwave radio equipment in modern voice and data networks well deserves to be called a phenomenon of the last decade of the 20th century and beginning of the 21st century. The reasons behind that are numerous, like:

• increased demand for high data rate channels,
• growing pressure on operators to shorten the deployment times,
• the need to shorten time of the return on investments,
• changing demands for the services from the customers.

All of these issues are well solved using SAF Tehnika wireless system CFM.

Basic product introduced into Argentina market is PtP microwave radios from 2-34 Mbps / low to medium capacity segment / in frequencies 7 – 38 GHz.  CFM is safe and economical digital microwave radio link system, operating in 13, 15, 18 and 23 GHz frequency band and providing wireless point-to-point channels for digitized voice and data communications in both metropolitan and rural areas between sites up to 40 km apart.  

Typical applications include PABX trunk connectivity, private combined data & voice networks, and cellular networks of providers of data services. In hands of professional user and installer CFM Microwave radio provides extremely high data channel quality, which is as high as good quality cooper or fiber cable channels. Information on operations can be obtained on the IDU or a computer monitor. Product is provided by 24 months warranty. Product will be registered into Argentina’s controlling institutions and all necessary licenses and permissions will be attained.

Product will be sold under SAF Tehnika brand.

Usual product development process in SAF Tehnika to issue new version of product takes about two months.  Updated version differentiates from basic product just with small additional features and improvements. For basic product life cycle is app. 3 years. SAF Tehnika decided to start into Argentina market with standard set of product, which already proved itself in Baltic market and production goes smooth and effective.

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19. Promotion

As it is usual for different kind of techniques and industrial goods, nature of PtP microwave radio product does not require special adaptation to local market.  SAF Tehnika decided to go into market with: identical product and identical message strategy. Similar promotion system, as it works in Latvia, will be implemented in Argentina.

Promotion will be focused on two main directions: distributor and clients. Additionally, to increase SAF Tehnika’s brand awareness in Argentina’s market, PR and advertisements will be used as well.

2. Distributor promotion.

• As it was mentioned above, pricing policy will be controlled from SAF Tehnika side very strong. Same time special discount programs are created to promote distributor to sell SAF Tehnika products:
• Seminars and workshops where serious training will follows by entertainment;
• Business trips to Latvia for local staff to get experience how the business is done into product’s home country
• Flexible discount system depending on volumes sold
• Possibility to get additional warranty terms
• Possibility of free of charge shipments

3. End user promotion.

• Main emphasis will be on account relationship selling. Due to very fast growing market, SAF Tehnika has possibility to grow together with clients, especially from mobile and fixed operator’s segment. Very close relationships will be established with potential clients and existing ones.
• Regular seminars and workshops for existing and potential clients to introduce with product
• Key accounts visit to Latvia to introduce with production system
• Different additional sales promotion programs. For example “45 days free of charge trial period”.

4. Public relations.

Good public relationship will be provided by active work in trade associations, sponsoring of trade shows. Press releases and briefings for local media in case of new key accounts will be provided.

5. Advertisements

• Advertisements will be putted mainly in special telecommunication magazines. Advertisement campaign must point out point out affordable price and high quality.
• Distributor will be provided with informational booklets on Spanish and English.
• For advertising campaign SAF Tehnika will use local publicity agency.

Distributor’s company head office is located in Buenos Aires and main business in Argentina is concentrated in Buenos Aires as well. Basically that will be distributor’s decision where to start business and where to expand it further, but initially it will be in Buenos Aires metropolitan and other urban. Due to SAF Tehnika future plans expand into country independently; distributor will be guided to sell outside as much as possible by offering more attractive conditions, if the product is sold to companies who are located outside Buenos Aires.

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20. Risk analysis

1. Political

• Transitional governments, no strong leadership
• No guarantees about politics toward foreign companies in long term

Since SAF Tehnika is using distributor within first two years, political risks will not impact business. Mainly SAF Tehnika is interest in long-term political and economical development. Regular politics analysis will be obtained to analyze possible risk factors with in next 3-5 years.

2. Economical

• Insolvent financial system
• Weak exchange rates

Possible currency fluctuations must not impact pricing policy much. Price for distributor is set in USD and settlements between SAF Tehnika and suppliers mainly are done in USD as well. In case of very serious currency fluctuations, using correspondent financial instruments will cover possible losses.

3. Legal

• Possibility of implementation of new standards and setting new frequencies government will reserve for military purposes. If these will be same as SAF Tehnika is using today, big losses can arise.
• Since distribution agreement will be contracted under Latvia laws, there is no legal risk.

4. Micro variables

• All main competitors are worldwide known companies with already proofed service quality. So, initially for SAF Tehnika can be hard to show themselves as company who can provide same quality level product as other A brand companies.
• Competitors have big experience how to deal in foreign markets as well as impressive financial support.
• Due to “short term” thinking, if the results in first 3-4 months will not be as expected, distributor can loose interest on hard selling of product.
• Due to low overall educational level in country, will be hard to find business oriented personal
• Distributor will not be strong enough to defend business from different “interest groups” which can use legal lobby to crowd out SAF Tehnika from market
• Due to business culture any arrangement must be checked and not properly provided service can break SAF Tehnika reputation
• Low awareness of company and country come from, in the market.

21. Feedback and control

1. Business objectives:

• Financial: Budget

• Turnover         3 200 000  €
• Net margin        35%

1. As the main operations control mechanism the budget is going to be used. It will be made for the operations in Argentina, within the reporting system of SAF Tehnika. The Income will be generated by the sales to the distributing company, expenses will be created both locally by production costs, administration costs, etc., and licensing,  part of marketing spending, paid to distributor or paid for brochures, sample materials, etc. to be sent to distributor.
2. Budgeted revenues will be divided by segment to control the development in each of them.

Focus Segments:        Forecasted demand

Mobile operators,         1.200.000 €

Fixed operators,           900.000 €

Internet Service Providers (ISP),            800.000 €

Others,                         300.000 €

3. The budgeted spending via payments to distributor will be included in the agreement. Additional expenses are to be covered by distributor.

1. Marketing goals:

Market share: 12% market share by 31.01.2005.

SAF is also interested  to prepare itself for taking over the distribution in 1,5 years. Therefore, extensive reporting system will be implemented, to also have a deep view on following marketing elements:

• SAF brand awareness
• Price level in the market
• Customer base development        
• Analysis of customer preferences

Additionally to the reports from Company, SAF will also conduct special customer surveys to obtain more information directly from end users. That allows SAF also to ensure the information from Company is correct, also to consult the Company, as SAF already has valuable experience in entering foreign markets.

2. Quality goals

• Product quality
• Service quality

        According to the company’s existing and proved breakdown rates and customer claim rates, the same will be applied to products sent to Argentina and services provided there. The major importance is behind the service level, conducted by Company. As the service is a major factor of success within this business and valuable part of the competitive advantage of SAF, it has to ensure, it is done properly.

As the best information source again, customer surveys will be used for those goals.

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22. Schedule

For the next 12 months, with key milestones and deliverables identified.

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23. Budget

See the detailed budget as attachment # 1

The cash-flow will be generated instantly, as the source is only one –the distributor and the payment terms are based on LC.

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24. Partner Responsibilities.

Distributor will most probably be headquartered in Buenos Aires as most economic activities are taking place exactly there. That would fit very well to the needs of SAF Tehnika as it would give a valuable experience and contacts in the environment where SAF Tehnika intends to open the door to Argentina market after 18 months. After expansion, Buenos Aires will still be the centre of the operations and sales in Argentina. Company, being familiar with local economy, the culture and the political system will help to establish the activities at the beginning, especially to process the licensing of the products for the Argentina market which is the most crucial from first steps.

 Partner should be serious company with good experience in sales in IT sector, sufficient customer base and market share also in segments of SAF Tehnika products. Those would basic factors reviewed when choosing the company. Additionally, the company has to demonstrate strong willingness and ability to sell products of SAF Tehnika and to provide the highest level of service.

Agreement will be prepared strictly formulating the responsibilities of both parties as there is no experience in working with businessmen from Argentina.

The main idea through the agreement is clear:

SAF Tehnika sells and the distributor buys a particular set of unique products from SAF Tehnika to distribute them exclusively for 18 months in the market of Argentina. SAF Tehnika guarantees volume of the products to be shipped and the quality of the products. SAF Tehnika provides cash for part of the marketing, biggest part from which is licensing of the products before starting the rest of the marketing and advertising activities.

Also, SAF Tehnika is intensively participating in educating both Company and the customers about the products before and during the partnership. SAF Tehnika covers the travel costs.

Company takes care of licensing of products, and most of the activities in the Argentina market. Partnership lasts 18 months, during which distributor has to achieve monthly target turnover buying products from SAF at a specially designed price that is fixed by agreement. If distributor fails to reach the target during the period of 3 months, both parties cooperate to determine the reasons and to develop activities to improve the results. In case, the budgeted revenues are not reached after period of 6 months, distributor is given the special plan he has to fulfill in 3 months to show the ability to sell the products of SAF. If it has not reached, the agreement is to be terminated instantly.

That puts SAF Tehnika in position of looking for new partner and the time is lost. Nevertheless, products are licensed and assumable, also known by Argentina market at some level. Alternative to looking for new partner is establishing own subsidiary, because it would not be an easy task to find a partner for so short time. Management’s responsibility is to follow closely the situation to be ready to the termination of the agreement after 6 months of insufficient results and to be able to react promptly to continue the product’s presence in the market and to service the customer.

If the budget is being reached or even overfilled, Company get additional bonuses, where lower price, free shipping of some order, paid visits to Latvia for tope salesmen, free sample material or similar procedures can be agreed upon.

SAF Tehnika must have free hands to conduct different customer surveys to ensure the customers are satisfied, to find out more about their needs, to observe the overall market tendencies.

The reporting system, providing detailed information on sales volume by customer segments, detailed information about customers, etc should be also covered by agreement.

Shipment of returned orders is paid by SAF, regular shipments are covered by Company.

Payment conditions  - Letter of Credit.

If possible to agree on that, the intention of SAF would be to include restrictions to compete to SAF Tehnika’s products for some period of time after 1,5 years.

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