What’s In It For Channels? 

A reseller in Nehru Palace recently stated that UPSs sell like hot samosas. With a growth rate of 40-50 percent, the statement is quite understandable. Heavy purchases by corporates, governments, software companies as well as home and SOHO segments in the first three quarters of 2000-01, kept the channel in high spirits. Sales of course have gone down to a large extent in the last two quarters. 

IT status to UPS

The previous classification of UPS under HSN 8543.89 as a ‘residual category’ made them electrical products. In March 2001, the Customs and Excise General Appellate Tribunal, a review bench, classified UPS as ‘static converter’ under HSN 8504. 

World Customs Organization recommends this classification and is practiced worldwide. However, there are two cases pending in the country against this decision, which are yet to be adjudicated. 

States where UPS is an IT product: Tamil Nadu, Karnataka and Maharashtra
Sales tax in these states: 4%
Sales tax in other states: 5 to 12%

Prices of UPS have come down by 30 percent over the last two years contributing to the demand. Besides, customer awareness about the need for an UPS has also pushed up sales. Says VB Desai of Mumbai-based Accutech Business Systems, “The SOHO market is becoming more interested in branded UPS.” 

According to channels, players like APC, TLL, Numeric, DB Power, TVSE, Wipro, Vintron, Microtek, Aar-em, SuKam, AMI and Elnova are very strong in the home and SOHO segment. When it comes to high-end rating, there are only a few players like TLL, APC, Numeric and DB Power Electronics. 

Channels vs direct sales

Around 70-80 percent of UPS sales take place through channels. Trading here happens in three modes. First, the traditional channel sales. Selling to the home and SOHO segments is done mostly through the channels. 

Second, selling directly as well as through channels. Numeric, though it sells its own brand directly, distributes Merlin Gerin
UPS through channels. 

The proportion of direct sales and channel sales are 50:50 for both TLL and DB. The former sells only above-20KVA category directly. For the 500VA-3KVA UPS and 3-20KVA segments, TLL has value-added resellers and business partners respectively. 

Says Harshesh Malhotra, Divisional Manager, TLL, “We appoint channel partners to reach out to all cities and also to handle huge volumes.”

APC’s channel business is around 80 percent of its total sales. Aar-em sells 70 percent of its products through channel partners. But, the company has plans to focus more on direct sales. “We prefer direct sales because that will add to our profits,” says Ranjit Mohite, Joint MD, Aar-em Electronics.

Third, only direct sales. This is mostly practiced by local players who confine their sales and service to a particular locale. The main reason is that they are unable to provide service to faraway places. Around 20-30 percent of business in UPS market is done directly.

Brand, technology, warranty

How important are schemes in the UPS business? Not much. Brand, features, warranty and service drive the popularity of UPSs among partners. When MNCs brought down their prices at par with those of the indigenous players, the channel turned to brands which met all these factors. 

Says Rajesh Malik of Delhi-based Jupiter Technology, “The reseller now looks for a state-of-the-art product, good distribution network, and sound warranty policy.”

While the channel has embraced famous names willingly, vendors have become very cautious about the replication of their brands. Says Anand Iyer, Country General Manager, APC, “Our vigilant partners bring instances of duplication of APC products to our notice.”

Warranty support

Currently almost all vendors offer one to three years warranty. The nature of warranty, like on-site, off-site and swap, varies according to the product. 

The presence of MNCs has alerted domestic manufacturers with respect to warranty and service. Previously, barring a few exceptions, most local players were lacking when it came to service. Today, to be at par with MNCs, Indian players are improving their service policies.

The service is provided either by vendors or by partners. TLL has its own service center for end-users, and also has business partners, who have their own service set up. Wipro supports its customers only through partners.

The standard margin prevalent in the UPS segment is between 10-15 percent. Partners are happy about these margins. But often they are forced to give up a large chunk of their margins in the face of stiff competition. 

Future favors channels

Recent trends in UPS business seem to favor channel partners. PC vendors like Wipro, Compaq and Vintron have become UPS manufacturers in recent times. They bundle UPS with their PCs and sell them through channels. This has helped partners to sell more number of PCs and give more value to their customers. 

The current market slowdown is expected to bring about a metamorphosis in the UPS industry. Only the big and strong players, be it domestic or overseas, are expected to survive in a tough and competitive market. 

The organized channel operation of big players is expected to hit many weak local players, who sell directly. These players will have to quickly move up the value chain if they want to survive.

Saji MP in Mumbai with inputs from Mohit Chhabra in Delhi and Sunila Paul in Bangalore

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