The Hindu Business Line : Grey matters

The more branded players loathe your local PC wallah, the better he seems to be selling. And, if the pie above reminds you of a grey blob swallowing a helpless wedge, you got the picture.

EVERY time the results of India's annual PC sales are out, the largest seller of computers in the country doesn't get any compliments. Instead, the industry decries his performance, saying its time the Government checked his activities. But nothing has deterred him from configuring more and more PCs from the comforts of his neighbourhood shop, or from home. Slowdown or no slowdown, his business continues...

We are talking about your local PC assembler who would make you a PC in a matter of days, at a price and configuration of your choice. Despite continuous efforts by the organised (read branded players) hardware industry, assembled PC makers, most of whom would qualify to be called `grey market operators' since they evade duties and taxes, continue to hold sway in India's PC market. Statistics reveal assembled PC makers, or the unorganised sector, accounted for over 50 per cent of India's total PC sales in the past couple of years.

For instance, in 1999-2000, they had a 58 per cent market share, according to data collated by MAIT (Manufacturers Association of Information Technology). The MAIT survey says that the share of the unorganised sector has since been diminishing to 53 per cent in 2000-01 and 46 per cent in 2001-02.

While the MAIT statistics provide comfort to branded PC makers, IDC India, an IT market research firm, comes out with a contrasting view, asserting that the unorganised sector still dominates the Indian PC industry. IDC, which recently revised upwards its annual PC sales in India in 2001 to over two million, says the unorganised sector (including local brands) in fact improved its market share in 2001 to a staggering 65 per cent from 58 per cent in the previous year. (IDC includes local brands also in the unorganised category).

MAIT's Executive Director, Vinnie Mehta, agrees that the market share of the unorganised sector has gone up by four per cent in the second half of 2001-02 to close at the current levels. In the first half of 2001-02, the share was just 44 per cent, much lower than 59 per cent in the same period of the previous fiscal.

"There is no logical explanation as to why the unorganised sector improved its share... Four-five per cent is not a significant number and I perceive it as dynamics of the market. Anyway it (the grey market) is a pain and it doesn't really matter whether it is up or down by a few percentage points.''

IDC India's Manager of Computing Products Research, Vasu Anisetti, explains the reasons for the assembled PC's continuing sway over the Indian market.

"Last year, the PC market grew mainly in `B' and `C' class cities and towns. In these markets, the assemblers are very well-placed vis-a-vis the branded PC makers who are now making expansions to these areas. Besides, these markets are very price-conscious and obviously, assembled PCs come cheaper.''

Another reason why the assembled PCs did well was the easy and uninterrupted flow of parts and components to the unorganised sector during 2001. "While severe shortages of critical parts hit the unorganised sector in 2000, there were no such issues last year and the business was not affected,'' Anisetti says.

Come to think of such a smooth flow of components to the local assembler, and an initiative by chip giant Intel stands out. Realising the potential of the unorganised segment, Intel has included it in the company's `Genuine Intel Dealer' (GID) programme. (If you walk into a local assembler's shop, you may see him sporting an Intel certificate). The GID programme guarantees that the local assembler uses a genuine Intel chipset and this is a major factor that boosts the confidence of buyers in an assembled PC.

"The PC and IT growth here is among the world's fastest and the assembled segment has been contributing significantly towards this. Personal computing and enterprise will be key growth drivers, with the home segment driving a lot of incremental demand in India. This leaves an enormous opportunity for the assembled segment, specially in the smaller cities, to see a huge demand,'' says Amar Babu, General Manager, Sales, Intel Asia Electronics.

"Certainly the GID programme has increased the comfort levels of customers who are going in for assembled PCs,'' MAIT's Mehta concedes. Anisetti of IDC too agrees that this move by Intel gives the local assemblers a lot of `respectability'.

Intel today has 12,000 GIDs across the Asia-Pacific. "Channel partners qualifying for this programme can expect a series of benefits and training from Intel... Today. Intel's channel programme is focussed on the emerging tier-two and three cities market and we plan to step up the use of local language communication in order to reach out to these regions better,'' Babu says.

Moreover, Intel's latest initiative has been to enable the GIDs to assemble notebooks, servers and wireless LANs, he points out, underscoring the importance Intel attaches to the unorganised segment.

Intel's arch-rival, AMD, too is going all out to tap this segment.

AMD provides technical training, below-the-line communications support such as road shows and promotions and advertising support to the assemblers, whom it calls `System Integrators.'

However, even if corporations such as Intel and AMD rally behind local assemblers, the issue of many of them evading taxes and duties remain unanswered. Rough estimates say that the Government loses Rs 200-250 crore annually due to the grey-market operators, though not all assemblers fall in this category.

When asked whether Intel would ensure that the assemblers pay their taxes before giving the GID status, Babu said: "We work closely with our partners to ensure that they follow strict Intel guidelines.''

Price parity may help

MAIT, which has been vociferous in its campaigns against the grey-market operators, urges the Government to rationalise the duty structure to bring some kind of a price parity between the assembled and branded PCs.

Companies like HCL Infosystems have launched PCs in the sub-40,000 mark but still assembled PCs enjoy a considerable price difference.

As per IDC's estimates, the average market price of a branded PC in the Indian market in 2001 was Rs 46,419 while an assembled PC would cost only Rs 34,898, a difference of about Rs 12,000.

In 2000, this was Rs 50,562 and Rs 37,465 respectively.

"The Government has been planning to introduce the Value Added Tax (VAT) regime for sometime now. We as an industry are willing to offer ourselves to the Government for experimenting the VAT system. The hardware industry can be used as a test-bed for VAT before introducing it across all sections,'' Mehta suggests.

However, ironing out the issues of taxation may alone not help established branded PC makers.

Many local brands are getting established in their respective markets — Nest in Kerala is an example — and they are offering stiff competition to large firms such as HCL and other MNC players.

Besides, there are moves by firms like Agrani to launch what they call `branded assembled PCs' which will be made to order.

Such players will enjoy price benefits even after paying duties and taxes by way of lower overheads costs.

It is for sure that the largest player in the Indian PC market will continue to be loathed for some more years.

vipin@thehindu.co.in

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