Monday, July 1, 2002		Guest Speak

Indian IT market channel dependant
Raj Kumar Rishi

Raj Kumar Rishi,  Country Commercial Sales Manager, Imaging and Printing Group, Hewlett-Packard India, Pvt. Ltd.

THE distribution of IT products and services in India is an interesting case study in the structure of marketing channels. Channels to distribute IT hardware in India emerged in late eighties when products like PCs and printers started gaining volume. Today, the market for IT hardware and associated services like systems integration is worth Rs. 25,668 crore, according to IDC. With the increasing penetration of computing, declining prices of hardware and growing computer awareness, market for IT products is growing.

The accelerators for growth are the SOHO (small office home office), home users and small and medium enterprises (SMEs). To cater to this widespread market in terms of numbers as well as area, hardware and software manufacturers have built a massive distribution network in recent years. This market is extremely dynamic because of the faster introduction of new technologies leading to short product life cycles. Consequently, the sales and distribution channels are constantly under pressure, as they need to keep pace with these developments. It is, therefore, not surprising that sales channels have undergone major changes in the past decade.

Let us look at the end-customers of IT products, the way the industry looks at them. IT market in India can be categorised into the home market; the market for SOHOs (including self-employed professionals); small business that typically comprise job workers and where a typical organisation is 5-49 persons strong; medium enterprises which are typically 50 to 499 persons strong; corporate which may be employing 500 to as many as 7,500 workers; and finally the enterprises that are massive organisations employing more than 7,500 employees. Typically, only the corporate and enterprise have in-house IT departments. Others are solely dependent on the vendors to provide end-to-end solutions, including post-sales service. As may be evident, these market segments have been defined on the basis of the number of users.

So, the profile of IT customers may range from a lone home user to an enterprise having thousands of employees. Let us now take a close look at the people who service this market. The traditional resellers, also called box-movers, sell to the SOHO market. The market for home PCs, and sometimes, small businesses are served by the retailers. Then we have an important market participant called system Integrator, also called Value Added Resellers (VARs) who service the medium enterprises while corporate segment is served by the corporate resellers. A recent trend has been corporate resellers gradually quitting being hardware-only sellers and moving to become system integrators. These corporate resellers are now reorienting themselves to the changing market demands. The manufacturer generally serves enterprise segment directly. The government segment presents a huge market and is generally serviced directly by the manufacturer. Different types of resellers need to develop different skill sets that in turn depend on the market segment being addressed by them. These skill sets may include market reach, sales and support capabilities, systems integration, software development etc.

Normally, the MNC vendors distribute their products through national distributors who, in turn, sell to the final tier resellers like VARs, traditional resellers etc. As far as the SOHO or small business are concerned, there is another important intermediary called Redistributor. Typically, a distributor or wholesaler buys from the manufacturer in bulk and then sells to the resellers. However, not all final-tier resellers buy directly from the distributor mainly due to the commercial constraints in the market. A redistributor comes into the picture. This player buys from the distributor and typically passes on the merchandise to resellers. Typically, a redistributor sells to 50 to 100 resellers. There are around 8,000 to 10,000 resellers in the market today.

In the hyper-competitive IT market, manufacturer are constantly on their toes to retain the loyalty of their distributors and resellers and to ensure that they are adequately trained to service the end-user.

The Indian IT market is highly channel dependent. The channel environment is also rapidly evolving. As customers are increasingly cutting costs and demanding more value, there has emerged a focus on value-addition by channels - the reason why pushing boxes is no longer viable and channel players are trying to gain competencies to provide a single window service to their customers. Arranging finance for customers or supplying other products required by a customer (by tying up with other product channels such as a PC vendor supplying networking equipment too) are two examples where a customer may get a solution rather than a basket of products. With the market growing rapidly (sale of PCs alone crossed one million units a couple of years ago) and newer PCs and peripherals products being introduced by the day, IT sales channels would be an even more interesting segment to watch.