MARKET SLUMP: Down, But Not Out

Bundling, cost-cutting, promotions, expansion of existing product portfolios —- the never-say-die Indian channel is doing it all in a bid to survive the ongoing market slowdown. While these efforts have helped partners keep their bottomlines healthy so far, they are looking forward to a speedy reversal of the trend.

The year 2001, according to
the Chinese calendar, is the year of the snake. And one retailer quips that
perhaps this is why things have taken such a downturn! He laments, “Humaare
dhandhe ko saap sungh gaya!” (The snake has poisoned our business!)

This says it all. Tons of
print ink has already been used to write about the economic slowdown. And the
effect of this slump has found its echoes in all corners of the world. Lay-offs
and pay cuts have almost become passe’ as vendors try to make sure they reach
their revenue projections.

Tremors of this slowdown have
been already felt in the Indian IT industry in a strong manner. The impact is
all the more visible in the channel business. The question that haunts medium
and small partners is: How long can one manage to make both ends meet?

Well, there is an age-old
adage that says that even the mightiest oak is uprooted by a storm because it
cannot move with the wind. But the tall grass is the survivor of this calamity
as it is flexible and bends freely while the wind unleashes its fury on it.

Well, this is exactly what is
happening in the channel space too. Those who are flexible to the market demands
and innovate, will certainly make it through the economic storm. And the others
— well, as they say, you win some, you lose some.

The time things went bad

While business was not quite
rosy in the OND quarter last year, things really started going bad for most
channel partners this JFM. Says Rajeev Mahajan, Business Manager, Aditya
Infotech, a national distributor, ”Though it would be difficult to recall the
exact time, I thing the slowdown was greater in the JFM quarter.”

Ramesh Jain, Director, Marks
Marketing, agrees with him, “Business has gone down by 30 to 40 percent, with
a greater impact in the JFM quarter than AMJ.”

According to Rajesh Goenka,
Divisional Head, Rashi Peripherals JFM was alright, but AMJ was bad, with sales
dropping by almost 15 percent as compared to the same period last year.

Randhir Marwa, Director,
Microcity, dealing in mobile computing products, has seen revenues going
southwards by almost 25 percent. Seventy percent of the company’s sales goes
to the SMB segment and the rest to the corporate. “Both these segments are now
holding onto their purse strings tightly. Also the competition has increased
making the market size smaller. This means that we cannot rely on our old
customers for sales, but instead have to concentrate on tapping newer markets,
which has impeded growth,” he explains.

For Kamlesh Kathod, MD, Bela
Computers, the JFM and AMJ quarter was not at all bad. But the company saw
orders drying up in August, with sales coming down by almost 40 percent.

Whether it is Bangalore-based
Connoisseur Electronics, Lampo Computers or Delhi’s GDR
, Click Automation Technologies, OST Comptech, RR Systems, Wellwin
Industry or Mumbai-based Zeta Technologies, The Best or Hyderabad’s SV
Electronics -— they have all seen their sales going down steadily, though the
figures vary from 20 to 50 percent.

But just like there is an
exception to every rule, similarly certain partners have escaped from the
cascading effect of the slowdown. Vikas Microchip Technologies, a software and
hardware solutions company, is one of them. Says Venkatachalapathi, MD, 
”We concentrate more on services and the slowdown has not affected us much. Instead,
we have increased our work force in the past two quarters.” Vinod G of Arcamax
Computers Systems too has added onto his team as the slump has left him
unscathed. Pune-based Naam Moriyani of Baba Infotech did not see sales fall,
though he admits that he was unable to achieve the targeted growth.

Says Deb Mishra of Kapson Exim,
Delhi, “There has not been much of an impact on the importers and
distributors. Yes the average volume generated by each reseller has gone down,
but this has been offset by the fact that we have added more resellers on our
list. We have seen a 50 percent growth.”

Effects of the slowdown

As fewer and fewer customers
sign up lucrative contracts for purchase or service, the channels are looking at
newer segments to make money. Anil Kumar Singh of Lampo
states that service and support has remained profitable as usual,
but the other business streams have been affected. Says Venkatachalapathi of
Vikas Microchip Technologies, “Certain sectors like health and hospitality
still offer opportunities for service companies. The business coming from
the corporate segment has gone down.”

Jitender Sharma of Wellwin
agrees with him. He cites the example of the drop in SCSI HDD demand, because
corporate customers are shying away from it. While dotcom bust has affected
business, Chalapathi Rao Immidi, Business Development of Hyderabad-based ARM Ltd
feels that the dependency on the US market is also to blame as it has stopped
Indian companies from tapping other markets in the world.

Dinesh Chopra, Softek Surya
feels that principal companies going upcountry have aggravated the situation.
“For example, with offices coming up in eastern India, Nehru Place is losing
its position as a supplier to other markets, as goods are being made available
locally,” he says.

Wholesalers have been most
affected as resellers shirk from keeping excess stocks. This means that the onus
of stocking rests with the wholesalers and big distributors, who end up blocking
their money in this inventory. Adds Chetan Saigal of OST Comptech, Delhi, “The
wholesale business has been affected to a greater extent, because resellers are
having problems finding customers.”

When actions speak loudest

The Indian channel is said to
be one of the most resilient in the world. True to this, partners are
improvising on their selling strategies to buck the trend.

Vikas Microchip Technologies
has shifted its focus towards newer vertical service segments like financial
institutions, health and hospitality, educational institutions etc.  Plans
are also afoot to tap niche areas like embedded applications and systems under
educational institutions.

Ramesh Jain of Marks Marketing
has started devoting more time to retailing, which has more scope than corporate
buying. Says Anil Singh of Lampo, “We are focusing on vertical segments like
government institutions, financial and public sectors, which continue to
contribute to our sales as usual.”

Aditya Infotech has decided to
stick to the evergreen formula of bundling. Says Rajeev Mahajan of the company,
“We are stepping up our effort to educate the customer and see to it that the
customer understands the technicality of the products, so we can provide him a
better deal and value for money.”

Mumbai-based Zeta Technologies
worked out a bundling scheme in the AMJ quarter, offering sunglasses with all
their products. Says Tejas Sheth, Director of the company, “We have also
stepped up our marketing efforts with our sales team going to assemblers,
informing them about our products and prices.” Naam Moriyani of Baba Infotech,
Pune, promoted his "Meera" range of computer cases, by giving free CDs
with each purchase.

Rashi too resorted to bundling
and gave authorized partners Sulipi software with their Logitech mice. One of
the few companies to advertise in an in-flight magazine, it also launched a
direct marketing effort for Genuine Logitech Dealers in the metros.

Says Rajesh Goenka, Divisional
Head, Rashi Peripherals, “We provided one representative each to GLDs with
T-shirts, caps and banners. This rep walked up to customers exhorting them to
purchase from the GLD. This measure met with a lot of success.” Besides, there
was Asus’ scheme, "Buy More, Win More" for systems assemblers. Every
Asus motherboard carried a coupon. If an assembler collected seven coupons, he
got a CD-ROM drive from Rashi as a gift.

Next to innovative marketing
schemes, come the cost-cutting efforts. Softek Surya has shelved its plans to
add branch offices to reduce costs. RR Systems too is cutting corners, but at
the same time it is paying attention to inventory management. Says Bharat
Bhushan, Director, RR Systems, “Cost cutting is not an exercise that you can
undertake quarter to quarter. Good sales this quarter does not mean I push
overheads up and bring them down in the next quarter. We ensure that we stock
goods in lesser quantities now.”

Entering into newer
relationships too has gained much importance in these lean times. Microcity, for
instance, has tied up with 3Com, Cisco, Zoom Technologies, Simpletech memories,
Sony, IBM and Kingston accessories in recent times. Bela Computers has
concentrated on internal relationships, that is, its dealers. Says Kamlesh
Kathod, Proprietor, “We are more proactive with them. We call them every day
and ask them how many units they have sold and which new clients they are

Deb Mishra of Kapson Exim too
is working on this front. “Relationships are given precedent over margins in
this market, but only to a certain extent. Beyond that like a typical customer,
loyalty does not exist. So we are building strong relations with our channel to
remain strong during slowdown. The other thing is to get good prices from your
suppliers and then pass them to your partners.”

Launching new products has
become another effective tool to battle the demon of recession. The Best
launched its own brand of motherboards last quarter. Says Sandeep Parasrampuria,
Director, The Best, “We did this because we would go that extra mile in
pushing our own product, which in turn would safeguard our bottomline.”

Bull Power Infotech is
planning to come out with competitively priced innovative products, to get an
added edge over its competitors, like an UPS within the CPU cabinet. Says R
Chandrasekhar Rao, MD, “This would reduce the cost of the system to about 30
percent. The in-built UPS will be capable to supply uninterrupted power for a
duration of 30 minutes.”

Control, Alt(er) and Shift

Along with bundlings,
promotions, launches of new products, partners are also looking newer business
segments. Vikas Microchip Technologies, which is a hardware service provider, is
now looking into IT-enabled services. Vinod of Arcamax  Computers has
gotten into laptop and server "manufacturing" which has given him a
new revenue stream. “We are also looking at the e-business solutions
arena seriously,” he adds. 

Hyderabad-based ARM has
already entered into new product segments like SDH, DWDM and CRPS. Says
Chalapathi Rao Immidi, Business Development, “We have executed huge orders of
CDMA Patch Panel antennae and solar panels for CDMA infrastructure providers.”

Though Rashi Peripherals has
not shifted its focus, it is trying to concentrate on servicing other
non-competing products. “This will ensure that our service setup is used to
its optimum capacity and help in generating extra revenue,” says Rajesh Goenka.

There are are other partners
who are looking for greener pastures but are tied down by their current
business. Says Dinesh Chopra of Softek Surya, “It becomes difficult because
our thought process is caught up within the trade because of the many years
spent here.”

Ramesh Jain of Marks Marketing
is not averse to venturing into a newer avenue that will provide him more
stability. But he  admits that it is difficult to change professions at the
age of 40!

Bharat Bhushan, on the other
hand, wants to take things easy at the moment. “Slowdown is a part of every
industry. One must not forget that the growth rate has gone down, but the growth
has not stopped,” he says.

Jagdish Varma of Connoisseur
Electronics has no intentions of steering from the tried and tested line that he
is in. “Trying to move into a different business line because of a recession, 
without a complete knowledge about that field is dangerous,” he cautions.

Naam Moriyani of Baba Infotech
says though he has not decided to get into a new business at the moment, the
thought is there at the back of his mind. He quips, “After all I always say
‘Jeena yahan,  marna yahan, iske siva jana kahan!’"

The million-dollar question
that is in everyone’s mind is: When will the market slump reverse? To get an
answer, one has to look at the demand and supply scenario. The main reason
behind the slowdown today is the decreasing demand in the industry. How
long it will take to bring this demand back is anyone’s guess. Partners say
that the reversal could come in the next three to six quarters.

It looks like the channel is
geared up for another three lean quarters at the least. But what is worrying
them most is: How will they be able to sustain if the slowdown lasts longer than
expected? The biggies might manage to survive utilizing their internal
resources. But the impact will be the harshest on the small players that line up
Nehru Place in Delhi, Lamington Road in Mumbai, Ritchie Street in Chennai and SP
Road in Bangalore.

But like they say, it is the
tough battles that separate men from boys. Those who will emerge victorious from
this bout of economic slowdown could well be the tomorrow’s victors ready to
face any upheavals in their businesses.

Mumbai with inputs from Sunila Paul in Bangalore, Mohit Chabbra in New Delhi and
Zia Askari in Hyderabad.

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