The fast-evolving Information Technology (IT) industry has been witnessing a spate of tie-ups. These marriages in the industry, among players big and small, seem to point in one direction "" polygamy. The big manufacturers, chiefly the MNCs and large Indian companies keep tying the knot with multiple partners for developing distribution channels, and the same vendor hawks a legion of brands under one roof.
Take for instance, the over a decade-old Advanced Micronic Devices Ltd (AMDL), which has embarked on business partnerships with Digital Corporation's subsidiary, Digital Equipment India Ltd and Silicon Graphics as well as being a direct reseller for AST Computer products. Then there is India's top firm, Pertech Computers Ltd's (PCL) lucrative business arrangement with Microsoft, Hewlett Packard (HP), DEL and 3 Com to pool their resources, including sales.
Now Singapore-based Thakkral Computers will distribute both Compaq and IBM products; the retail chain company Tangerine peddles a host of different brands under one roof; while regional player Zenith has become the distributor for big brothers IBM and HP.
What's happening with these tie-ups in India is a global trend, observes K Vijayraghavan, managing director of AMDL. And, these liaisons are inspired by pure economics. Despite the hype about the annual 40 per cent growth rate enjoyed by the Rs 4,000 crore IT industry, the sales volumes continue to remain low. As each new year signals the entrance of fresh MNC's, the pie shrinks even further.
The small domestic demand, the slashing of import duties and the ubiquitous gray market has forced the IT industry into a medley of relationships. Our slim margins of about 2 to 3 per cent force us to make these alliances, says V Anantaraman, chief executive, Wipro Acer. Wipro, a big player in the market entered the channel partner game much earlier with leading MNC's Sun Microsystems and Apple.
The Indian companies "" big or small "" cannot survive in this scenario. So they want to ride piggyback on the foreign companies due to their larger economies of scale, their wider product range and latest technology, points out Vijayraghavan.
For instance, AMDL finding it difficult to sustain their low manufacturing volumes (2,000 units per year for the last two years), plans to diversify and become a systems integrator.
Ashutosh Vaidya, business manager of Apple products at Bangalore-based Wipro Ltd, feels the reasons have a lot to do with high expectations. When MNCs come in they are impatient to see results from the first year. It doesn't happen and they go in for multiple distributors. Similarly, as a quid pro quo, the principals get a taste of their own medicine from their resellers.
In this cut-throat scenario, IT companies have evolved a novel distribution network. Loosely, some companies buy directly from the manufacturers, while a second tier comprises dealers/ authorised resellers. There are also value added resellers and systems integrators who provide solutions along with boxes. Compaq, for instance, has ten business partners at the first distribution tier and around 30 tier-II Compaq authorised resellers. In addition, the distributors' tier II partners number around 150 resellers. Most distributors such as Redington and Thakkral operate on a national level whereas Zenith is a zonal player.
However, Sameer Kochhar, national marketing manager, PCL, scoffs, Multi-distributorship has just become a fashion. How can sales people be trained in five different brands? Instead, PCL has drummed up an unique formula as an answer to distribution relationships. Dubbed Virtual Corporation, seven channel partners share the total range of their business expertise with PCL in an informal relationship. We don't just deal in distribution but share all the resources we have with our partners, he says. PCL has a 300-strong dealership network, with good after-sales support and clear positioning.
American company AST Computers sells 10,000 PCs, making it the fourth largest-selling MNC PC brand in the country. Sales manager, Ashish Bambroo, claims they were the first to import this concept of non-exclusivity to India. We realised India is a mature market. So we tied up with five different resellers and based our relationship on performance and business sense.
AST has 103 dealers in tier II spread over 40 locations. They plan to increase their dealer strength to over 250 and their direct resellers to 8. The five companies they have teamed up with are AMDL, Tata Unisys, Tangerine, PCS and Odin.
Digital Equipment India, which entered the country in a direct sales approach, defends itself. Earlier, strong national brands were ruling the roost with protective government policies. The high costs of MNC brands was a deterrent too. So we waited, trials were initiated and everything had to fall into place before we set up a distribution channel, chips in Kapil Jain, vice president of Digital. Today, Digital is cruising along with 30 channel partners and 60 per cent of its business comes from the channel route.
What is the criteria for selecting channel partners? We look at people to see if they match our appetite, says Bambroo enigmatically.
Manufacturers weigh a number of factors before snapping up a partner "" financial strength, distributor reach and attention given to products are only some of the imponderables.
Each direct reseller develops a niche for itself. For instance, AMDL is known for its focus on the STP market segment, Tangerine for its good distribution network and Tata Unisys for being a good systems integrator.
How do distributors deal with the multi-vendor role thrust upon them? Says Bambroo, They have learnt to grasp the market mood and push a brand according to its value. For instance, customers move towards AST for desktops or turn to Digital for networking. Choice generates standards; you cannot do business in a monopoly situation.
But at the end of the day,
competition leads to a shakeout. And Indian IT companies are
getting pipped to the post. Only the biggest Indian companies are persevering with manufacturing (even a Wipro signed up with Acer), but the small players, seeing the writing on the wall, have already begun to diversify into dealerships.
However, Tapan Bhatt who heads the Sun division at Wipro Ltd, sees a silver lining: This trend is not so bad. After all these companies are switching over to more relevant segments such as systems integrators and providing value added services. A comforting thought, but a bitter pill to swallow nonetheless as the small players feel the pinch.
