Small Is Big

Urban vs rural. Metros vs small towns. Earlier there was a big divide separating these two sides of the same geographical coin. But it looks like this will soon come to pass. Small towns are now staking their claim in every facet of business -- especially in channel business. If you are a vendor, distributor, reseller, dealer or retailer, this is where you should be headed for. For this is where the moolah really is.

Don't take our word for it. Here are a few figures that show that in the near future, there will be no such thing as small-town glory.

IDC India's Market Potential Index (MPI) predicts huge untapped and latent opportunities in small town markets. The MPI of small towns with population between 5 - 10 lakh is 27.74, which is very close to the MPI of cities with a population of 10 - 40 lakh which is at 30.03.

Currently small towns make up nine percent of the total IT market in the country. Small town IT market is growing at a rate of 28.5 percent. Equate this with the growth of the small IT market size of Rs 198.2 crore in 2000-01 to Rs 254.6 crore in 2001-02 and one get an idea of the potential of these towns that awaits exploration. 

From numbers to words

After that number-crunching, read what some Silver Club members have to say about small towns. Dushyant Mehta, MD, Mediaman Infotech says, "Small towns are emerging as leading markets for us. This is one of the reasons why we have set shop in most of the B class cities." 

Mediaman has also come up with an unique way of catering to the demands of these cities. All enquiries that are generated in a particular city, for example Vadodara, will not be forwarded to the head office in Mumbai. Instead it will serviced directly by the Ahmedabad branch. "This cuts down the time involved in servicing our customer," adds Dushyant. The company has seen a lot of business coming in from C class cities, especially for mass products, rather than niche products. 

Mumbai-based Priya International too has found out that small towns have assumed great importance in their business. In addition to its 16 branches nationwide, Priya intends to add another four outlets in Ranchi, Dehradun, Vizag and Coimbatore by the end of this year. This move should help the company touch its targeted turnover of Rs 300 crore for the current fiscal. 

Aditya Bhuwania, Director, Priya International explains this move, "Sales from metros have stagnated because of the entry of numerous players. But small towns are now emerging as major markets, which is why we are investing in infrastructure in these places." 

Suresh Pansari, Director, Rashi Peripherals too echoes this sentiment, "I think industry-wise, one third of the sales come from C and D class cities." And Rashi has found C and D contributing almost 30 percent to its own kitty. This is why it opened branches in D class cities like Ranchi, Guwahati, Coimbatore and Parwanoo in HP. "We are reaching the northeastern regions, where others are just halting at East. We also have an office in Raipur," informs Suresh.

High growth in small towns

For Compuage Infocom, growth was definitely there in the B, C and D class cities in the last fiscal. According to Atul Mehta, CMD, "All three categories are growing faster than the percentage of growth in A class cities." It has already opened offices in Pune, Nagpur and Chandigarh. "We have not penetrated into C class cities. At the moment we are trying to consolidate our operations in the B class cities," says Atul. But this does not mean that the company has ignored the C class cities. It has appointed C&F agents in certain cities, so they can take care of some of the distribution activities.

Savex Computers too wants to enter three new cities this year with offices being planned in Ludhiana, Nagpur and Raipur or Bhuvaneshwar. Western and southern regions are its strongholds, with each region contributing one-third of the total revenue. Rest of the revenue has come from northern and eastern regions. 

The Best too has established its presence in 20 districts of Maharashtra where it has its most preferred partners. The company opened its first office outside the state at Indore in March 2001. It has the ambition to go national by opening at least an office each in all the four regions in the near future. 

The shift is on

More than the the B and C class cities, it is the emergence of the D class cities that has surprised industry players. Says Dushyant Mehta, "Last year we got orders from places like Jamshedpur and Benaras among others." Priya too has enquiries pouring in from small towns of the country. This explains why the company opened branches in Lucknow, Chandigarh, Jaipur and Zirakhpur. "During the initial months these outlets made an average sale of Rs 1 lakh monthly, which has now increased to Rs 1 crore annually," says a bemused Aditya

Bhuwania. 

There were other players who were not quite as quick to move into these regions and are regretting it now. Jitendra Kulkarni, MD, Redington believes that if the company had entered more number of B and C class towns, then last year's financial results would have been even better. Says he, "We took a little longer to expand into newer geographies." The initiative was taken only in the fourth quarter of 2000-01. Since then, 13 new locations have been added taking up the total to 26.

Redington sees high potential in SOHO and SME segments in the days to come. It also wants to concentrate on C and D class towns where it expects business to grow exponentially. 

This shift to small towns is hardly surprising. In fact it was inevitable. C class cities are the right places to be in now, because metros are becoming saturated. "In the next three years most of the sales will come from these C class cities and then we will have a first-mover advantage," says Mediaman talking about their investment in these cities. And this is precisely why Rashi too has set up shops in so many places.

According to a Manufacturers Association of Information Technology (MAIT) survey which talks about the growth of the IT market in the country, 28 percent respondents described the degree of IT usage as good, up from 20 percent in 1999. Which means that IT has finally come of age in small cities. The country can now boast of having about four million Internet users and 1.12 million Internet connections. The number has gone up from a mere 6.7 lakh last year as per MAIT figures.

Aditya Bhuwania adds that customers in small towns have very high disposable income and therefore they do not shy from paying high prices for quality products. "Since our products are the best in terms of quality and also are priced higher than most other brands, we do not have to worry about sales from these regions," he states.

Compuage agrees with this reasoning. "Buying power is definitely there in these cities. The extent of computerization that has taken place, as well as the Internet penetration has propelled IT spending in these areas. These are the reasons why we see more proliferation in these cities," says Atul

Mehta.

Aditya Infotech admits that its future lies in the interiors of the country. These regions will bring a balance between commodity and niche products, as the latter will predominantly be a metro phenomenon. "The up-country markets will provide healthier margins and keep the commodity business moving, while the niche markets will absorb the new products," says Aditya Khemka, MD.

But selling in small cities often calls for special strategies. Aditya Bhuwania says that in the first few months, one might sell at low prices to capture the market initially. But after that the prices are brought at par with those that are prevalent in the rest of the country. He adds, "In another bid to bring micro-level focus in product segments, at each of our branches, we have certain people concentrating only on certain product segments. This way there is no dilution of focus."

There is no denying that growth is in the small cities. In fact these places can hardly be called small any longer. So, are you there yet?