Tablet made in Armenia – the next big thing? – Financial Times

Blog story

By Monica Ellena

It sounds improbable. Dogged by closed borders with Turkey and Azerbaijan, a narrow export base, pervasive monopolies and an over-reliance on remittances from abroad, Armenia’s economic future poses plenty of questions. Could one answer come in the shape of a tablet?

In December, Technology and Science Dynamics Inc/ArmtabTechnologies Company, an American-Armenian joint-venture, announced the first tablet and smartphone made-in-Armenia. Both Android-run, the ArmTab and the ArmPhone were designed in Yerevan and will be assembled in Hong Kong and the US. The producer said the devices, available for wholesale in a few weeks and to retailers in late 2014, were aimed mainly at the regional markets.

The idea may not, in fact, be as improbable as it sounds. Dubbed the Soviet Silicon Valley, pre-independence Armenia had more scientists and specialists per capita than any other Soviet republic. Nearly 30 per cent of hi-tech computer and electronic equipment used for Soviet defence and space systems were developed and produced in and around the capital, Yerevan.

The government now hopes a re-energised Information and Technology industry will turn this small, landlocked Caucasus nation into an e-society. The government’s 10-year industry development strategy, adopted in 2008, focuses on building infrastructure, improving the quality of IT graduates and creating venture capital and other financial mechanisms to support start-ups.

In 2012 there were about 360 IT companies in Armenia, with average annual growth of 23 per cent, according to the Enterprise Incubator Foundation, the country’s leading IT consulting firm. Revenues accounted for 3.3 per cent of national GDP, with the industry contributing 8 per cent of total exports. About one in 10 of the companies has a turnover of $1m and over. The number of small outfits with less than $100,000 in revenues increased significantly during the last five years and, although they don’t have a visible impact on the industry’s aggregate numbers, their rise is a signal of the dynamism in the market.

“The industry is thriving,” says Bagrat Yengibaryan, EIF’s director. “Of eight start-ups in 2012, six were local businesses and we registered a 10 per cent growth in start-ups last year. For 2013, we are talking about $300m in revenues. Most companies focus on software development. Major firms like Pixar are starting to use Armenian products. Partnerships with heavyweights like Microsoft and Singapore Tech Kinetics are still essential but a new wave of specialized professionals are exploring new fields.”

Web entrepreneurs cram small offices around Yerevan, looking for the next PicsArt, the world’s leading mobile photo editor app for android and iOS which has more than 90m users and is a fully made-in-Armenia app.

Although Armenia’s figures are tiny compared with the likes of India, they are significant enough to grab the attention of international corporations. In 2011, Microsoft established an Innovation Center in the capital and the same year Armenia and India set up a joint Center for Excellence in Information Communication Technologies at Yerevan State University.

Through events like ArmTech, an Armenian global high-tech congress organised every year in the US, the government aims to build the international profile of Armenia’s IT industry.

Unusually in Armenia, the sector is also high competitive. A recent report by the World Bank highlights that about 20 per cent of the economy is monopolized, the highest rate among former Eastern bloc countries. Oligopolies control nearly two thirds of the economy.

Still, Yerevan will not turn into the next Hyderabad just yet.

“We are still talking of a niche market,” says Yengibaryan. “The main challenge local companies face is entering international markets, as many international partners either don’t know Armenia or simply don’t trust low or middle income country representatives.”

In 2012, Armenia exported $120m’s worth of IT software and services, mostly to the US, Canada and the European Union. The decision to join Moscow’s customs union in September 2013 scuppered progress towards an Association Agreement with the European Union, including a free trade deal. But it may also provide an opportunity for the IT sector to boost its exports to Russia and other former Soviet republics.

“The custom union can represent an interesting option to expand the industry’s potential markets, ranging from engineering to fully-integrated products that the sector is strengthening,” says Yengibaryan. “ArmTab is a good quality tablet with interesting hardware and innovative design. I can see it well placed in markets from Belarus to Kazakhstan.”