Distributor rides IT boom in Eastern Europe

Elko Group, one of Eastern Europe's biggest wholesalers of computer hardware and peripherals, is riding a wave of demand for its products spurred by rapid economic growth in its nine-country region.

The company boosted sales by 41% in 2005 to reach $610 million and expects to break the $1 billion mark by 2008. At the same time, Elko Group is shifting its product mix towards higher-margin finished goods, such as laptops with built-in wireless, and away from components like processors and disk drives, where it sees slower growth.

Founded by four Latvian entrepreneurs in 1992, the company began moving into foreign markets during the 1990s. Elko Group is now the holding company for nine affiliates, in Croatia, Estonia, Latvia, Lithuania, Romania, Russia, Slovakia, Slovenia and the Ukraine.

The company distributes products including chips from Intel, hard drives from Seagate Technology and Western Digital and laptop computers from Acer. and Fujitsu-Siemens Computers GmbH. In 2005, two Swedish investment funds, Amber Trust and East Capital, took a 25.5% share of the company.

IDG News Service sat down with Jens Hartmann, Elko Group's CEO, to discuss the rapid growth, the opportunities in the region and what it takes to run a wholesale business that crosses several borders.

IDGNS: You've had some very fast sales growth and will rank as the largest company by sales in Latvia in 2005. What was behind the fast growth?

Jens Hartmann (J.H.): First of all, the markets in Eastern Europe are growing a lot faster than in Western Europe so vendors are paying more attention to them. This kind of growth is not possible in Germany or the U.K., so the vendors are looking to Eastern Europe and supporting their partners there much more. Secondly, we've transformed our product portfolio in the last two years, more toward mobile computers and notebooks and a little bit away from components. The market for notebooks took off like a rocket last year. Thirdly, we have invested a great deal in recent years in our own IT, in warehouses, in people and management.

IDGNS: Margins are slim in IT distribution and competition is intense. One could argue that you're simply moving products around rather than adding to their value. When someone orders 2,000 notebooks in Croatia, how do you make a profit in this business?

J.H.: I would be happy if it was 2,000 notebooks at once, but it's more like 2,000 times one notebook to a reseller. This is our strength, that we can deliver the one computer to the outlet but still have real buying power with the vendor. We combine the demand from Croatia and from elsewhere.

IDGNS: How does your supply chain work?

J.H.: Depending on the vendor, we are ordering six to 12 weeks ahead. This is our backlog, as we call it. Then we get weekly deliveries to our warehouse in Amsterdam and deliver to the various countries, also on a weekly basis. We load the product mix each country needs, be it notebooks, disk drives or digital cameras. ... The system runs on a J.D. Edwards solution that is now part of Oracle. We use it for our planning. The country affiliates get what they need on a just-in-time basis.

The IDG News Service is a Network World affiliate.