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İsmail Åžahin

AZERBAIJAN - Energy & Mining

Hungry Caterpillar

Country Manager, Borusan Makina

Bio

İsmail Åžahin began his career at Notika Teknik Yat in 1990, before moving on to Çukurova Import and Export, which is a significant Caterpillar Dealership. He began working at Borusan Makina in 1994 as a Service Engineer in Turkey, and then became Deputy Service Manager. He then worked in various countries for Borusan including Georgia and Iran, before becoming the Country Manager for Borusan Makina in Azerbaijan.

When did Borusan initially come to Azerbaijan, and what were the strategic interests the company was pursuing in coming here? Our first installation was in 1997, and was based on […]

When did Borusan initially come to Azerbaijan, and what were the strategic interests the company was pursuing in coming here?

Our first installation was in 1997, and was based on extensive analysis that convinced us of the potential in the country. Our initial interest was to support a forthcoming pipeline project. Until 2006, our operations were then limited to the support of existing pipeline operations; however, around this time the country started to increase its oil income with the help of the BTC and South Caucasus Pipeline operations. This brought a tremendous change, with sector revenues increasing dramatically. We also saw opportunities in the sectors supported by the income generated by the oil and gas industry, namely the service and construction sectors. We needed to remain flexible when we first came to Azerbaijan, because our sector’s revenues and opportunities at that time were very limited, and things have gone from strength to strength since 2006.

What sort of products do you primarily provide in Azerbaijan?

Our main line of business is earth-moving equipment, and we are the sole licensed dealer of Caterpillar equipment in Turkey, Kazakhstan, Georgia, Azerbaijan, and Kyrgyzstan. Before the recent financial crisis, Caterpillar generated about $51 billion in revenue worldwide. We also deal in generators and agricultural equipment. We are a sector leader in every respect, especially in earth-moving equipment, as well as in generators. But in Azerbaijan, we mostly deal with just two types of equipment: earth-moving equipment for construction, and generators, especially for industrial and oil and gas applications.

Who are your primary competitors in the Azerbaijani market, and what is your market share?

Our market share stands at around 20% during times of normal business activity, yet it is a constantly changing environment. Our primary competitor for high-quality products is Komatsu, yet Chinese companies also command a good portion of the market with low-class products, as there is a lack of European-style quality requirements in Azerbaijan. We would like to see such standards introduced to this country, as quality products benefit productivity and also addresses environmental concerns.

How significant are after-sales services to overall revenues?

In order to make customer support income significant, we need to increase the penetration rate in the country, and increase our market share. Once there is a solid base of running equipment, we can expect to obtain reasonable revenues from after-sales service. We currently have a special service agreement with BP in which 25% of our profits come from services. We hope to increase the overall importance of after-sales revenues to total revenues in the future with similar deals, as the market only began to build up in 2006 and remains fairly shallow.

Is there much of a market for earth-moving equipment when it comes to building infrastructure such as highways, roads, and railways?

Yes. We have looked at the economy sector by sector: general construction, mining, oil and gas, and the other sectors as well. But in this country, because mining is not a major interest, there are two reasonable sectors for us to target: general construction, and oil and gas. There are also some investment projects we are involved in, including big hotels and shopping centers. But mostly, general construction involves the construction of infrastructure.

What sort of reforms do you think would help improve your operations in Azerbaijan?

A few large companies dominate the sector, and these few companies win most of the large project contracts. These companies represent our main competition, and sell similar equipment. When large companies win projects and sell competitor brand equipment, it makes the market less competitive. Right now, there is a limited group of companies that can work on the available projects. One possible opportunity for us would be if these larger companies hired smaller companies to work on portions of these large projects. Otherwise, if we cannot capture the large projects, we have no chance to sell our equipment.

What is your outlook for the sector in 2011, and what challenges will you face going forward?

In 2011 we expect to grow about 15-20%. Things will be clearer after the National Assembly approves the investment budget. Then we will see. A problem here is that there is no certain information flowing in the market as to when major projects will take place. This lack of information makes it difficult to prepare bids in time, without previously having heard about the potential of a new project. This can cause problems of supply. We have a production system in place with Caterpillar in which its production is based on our projections. I always have to consider the possibility of short-notice projects, and have gotten used to this as a condition of the Azerbaijani economy. It is therefore more difficult to make accurate business plans.

You have worked in places like Georgia and Iran. How does Azerbaijan compare to those countries in this regard?

There are a lot of common points, though each country has its own dynamic. In Georgia, our sector is very shallow. We mostly provide service and support with existing equipment. That market is mostly driven by international funds, such as the IMF and World Bank. The regulations are therefore different. Here, the country has its own income. The sectors benefit from this income, especially in service and construction. But we don’t know how much will be released, and when. Sometimes, the level of demand drops sharply, without any warning. Sometimes it is just difficult to collect payment. In 2010, we suffered from this for three months. A payment was not released, and we were left waiting. It is the customer’s responsibility to pay, whether he has received his payment or not. Going forward, Borusan believes that its products are the most advanced in terms of costs and revenue benefits. However, we believe that in the coming years the difference will come in after-sales service and support. This is our focus currently. We are increasing our manpower, our services, our parts lead times, and our service capacity and capability.

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