The Sensex was at its bullish best in 2005. And the market is expected to sustain the momentum throughout this year. Other things being equal, the BSE Sensex should touch the 10,000 mark before we bid adieu to this quarter. On a more micro level, last year, the IT industry was witness to a never-before-seen bullishness in the product distribution space
The year 2005 saw distributors throw caution to the wind and expand their product portfolio and geographical reach with new fervor. Several disties also set a tentative foot in the retail space, to test the water. We even saw a spate of mergers and acquisitions and there are rumors of more consolidation in the days to come. And going by the current enthusiasm among disties, the industry is likely to see many more activities this year.
Driving Factors
Several factors have contributed to the optimistic trend in the distribution space. Many MNCs, which didn’t have a direct presence in India, are now expected to set up their operations here this year. Global IT players like AMD, IBM, Intel and Microsoft have renewed their focus on India.
End of 2005 saw the global head honchos of several companies visit the country to get a first hand understanding of the growth phenomena that is India. The domestic market is growing at a gargantuan rate with all key verticals investing heavily into IT. Even the Soho and SMB segments have emerged as major consumers of IT products. The year also saw the home segment evolve from assembled products to branded products.
The increased purchasing power of the general populace has been the key reason for these growth factors According to a study conducted by AMI Partners International, the channel partners’ business is closely linked to the country’s economic performance. Thus, most partners experienced an average revenue growth in the past year. However, partners are optimistic about their future earnings and anticipate a 19 percent growth in revenues this year. Gartner predicts that the total Indian enterprise IT spending (excluding consumer IT spend) will reach Rs 1,093 billion in 2006 growing at a CAGR of 20.8 percent. India can expect to see an annual enterprise ICT spending growth rate of 23 percent in 2006, with Rs 739 billion being spent on telecommunication services and equipment and Rs 172 billion spent on hardware.
In 2005, the SME, SMB and Soho sectors adopted technology with renewed vigor. This saw most IT manufacturers including domestic and MNC brands take several market development initiatives. In this endeavor, partners are likely to be their most important allies, as they would be instrumental in increasing sales to the SMBs.
Opportunity
In 2005, mergers and acquisitions enabled several distributors to gain brands and customers directly and in the process bypass huge investments in terms of both time and resources. The acquisition of SES Technologies by Sahara Computers in the last quarter has given rise to the possibility of a new trend wherein principals could acquire a distributor and gain direct access to the market. Rajesh Goenka, divisional head, Rashi Peripherals says, “M&As are part of the business strategy, which depends on the objectives set by the organizations.” Most disties tied-up with multiple manufacturers to expand their product portfolio and categories they deal in. But a new trend was seen emerging in the tier-two and three segments. Most tied-up with international brands that might be well know abroad but do not have a presence in India.
This provides the disty with the opportunity to distribute an exclusive brand and earn higher margins. Disties have been promoting these brands in developing markets where affordability is a concern but they stand a fighting chance with the more established brands.
Several disties have taken the initiative of registering brands under their name thus moving from being a vanilla distributor to a brand owner. Neoteric has exclusive rights to the Umax brand. Aditya Infotech acquired the Typhoon brand and has been introducing several products including PC peripherals. According to Yogesh Dutta, national sales manager, distributors have crossed the stage of vanilla box pushing for multinational brands and are now evolving into a true value added disty and brand owners. In addition to this, the cost factor is also not high in the smaller cities. The real estate cost in the smaller markets is only a fraction of what has to be paid in the metros.
Even manpower costs are considerably lower. But the advantages are many. The penetration in the dealer community goes up significantly, as a disty can provide access to material whenever the need arises. As a virtue of this factor, sales tend to go up. Several disties are also testing the retail business. A few have already invested in retail set-ups albeit incognito. According to Goenka, this year should see this trend gaining further ground. Many disties are introducing greater control over credit availability. Iris Computers has made it mandatory for its partners to issue a post-dated cheques of 30 days before giving out any supply. Even Aditya has introduced several policies towards this end.
According to studies conducted by Gartner, IDC and others, in 2006 we can expect unprecedented growth in the networking space. Even wireless technology is expected to create a huge impact this year. However, if distributors want to achieve their targets they need to invest in acquiring good brands while ensuring that they can offer manufacturers the reach and visibility required.
The year 2005 saw distributors throw caution to the wind and expand their product portfolio and geographical reach with new fervor. Several disties also set a tentative foot in the retail space, to test the water. We even saw a spate of mergers and acquisitions and there are rumors of more consolidation in the days to come. And going by the current enthusiasm among disties, the industry is likely to see many more activities this year.
Driving Factors
Several factors have contributed to the optimistic trend in the distribution space. Many MNCs, which didn’t have a direct presence in India, are now expected to set up their operations here this year. Global IT players like AMD, IBM, Intel and Microsoft have renewed their focus on India.
End of 2005 saw the global head honchos of several companies visit the country to get a first hand understanding of the growth phenomena that is India. The domestic market is growing at a gargantuan rate with all key verticals investing heavily into IT. Even the Soho and SMB segments have emerged as major consumers of IT products. The year also saw the home segment evolve from assembled products to branded products.
The increased purchasing power of the general populace has been the key reason for these growth factors According to a study conducted by AMI Partners International, the channel partners’ business is closely linked to the country’s economic performance. Thus, most partners experienced an average revenue growth in the past year. However, partners are optimistic about their future earnings and anticipate a 19 percent growth in revenues this year. Gartner predicts that the total Indian enterprise IT spending (excluding consumer IT spend) will reach Rs 1,093 billion in 2006 growing at a CAGR of 20.8 percent. India can expect to see an annual enterprise ICT spending growth rate of 23 percent in 2006, with Rs 739 billion being spent on telecommunication services and equipment and Rs 172 billion spent on hardware.
In 2005, the SME, SMB and Soho sectors adopted technology with renewed vigor. This saw most IT manufacturers including domestic and MNC brands take several market development initiatives. In this endeavor, partners are likely to be their most important allies, as they would be instrumental in increasing sales to the SMBs.
Opportunity
In 2005, mergers and acquisitions enabled several distributors to gain brands and customers directly and in the process bypass huge investments in terms of both time and resources. The acquisition of SES Technologies by Sahara Computers in the last quarter has given rise to the possibility of a new trend wherein principals could acquire a distributor and gain direct access to the market. Rajesh Goenka, divisional head, Rashi Peripherals says, “M&As are part of the business strategy, which depends on the objectives set by the organizations.” Most disties tied-up with multiple manufacturers to expand their product portfolio and categories they deal in. But a new trend was seen emerging in the tier-two and three segments. Most tied-up with international brands that might be well know abroad but do not have a presence in India.
This provides the disty with the opportunity to distribute an exclusive brand and earn higher margins. Disties have been promoting these brands in developing markets where affordability is a concern but they stand a fighting chance with the more established brands.
Several disties have taken the initiative of registering brands under their name thus moving from being a vanilla distributor to a brand owner. Neoteric has exclusive rights to the Umax brand. Aditya Infotech acquired the Typhoon brand and has been introducing several products including PC peripherals. According to Yogesh Dutta, national sales manager, distributors have crossed the stage of vanilla box pushing for multinational brands and are now evolving into a true value added disty and brand owners. In addition to this, the cost factor is also not high in the smaller cities. The real estate cost in the smaller markets is only a fraction of what has to be paid in the metros.
Even manpower costs are considerably lower. But the advantages are many. The penetration in the dealer community goes up significantly, as a disty can provide access to material whenever the need arises. As a virtue of this factor, sales tend to go up. Several disties are also testing the retail business. A few have already invested in retail set-ups albeit incognito. According to Goenka, this year should see this trend gaining further ground. Many disties are introducing greater control over credit availability. Iris Computers has made it mandatory for its partners to issue a post-dated cheques of 30 days before giving out any supply. Even Aditya has introduced several policies towards this end.
According to studies conducted by Gartner, IDC and others, in 2006 we can expect unprecedented growth in the networking space. Even wireless technology is expected to create a huge impact this year. However, if distributors want to achieve their targets they need to invest in acquiring good brands while ensuring that they can offer manufacturers the reach and visibility required.
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