Imports versus indigenisation

India's dependence on the external world for technological inputs remains high. The power converters industry in India is characterised by a high degree of dependence on the imported content, particularly for critical components. The non-availability of raw materials poses major challenges to the domestic vendors, forcing them to rely more on imported components for the production process.

Indigenisation of raw material content forms an important consideration for the original equipment manufacturers, particularly with a view towards insulating oneself from the risk of exchange rate fluctuations.

The need for an assured supply base of quality components has encouraged initiatives towards horizontal integration wherein merchant vendors are contemplating in-house production of components.

Influx of foreign vendors

The post-liberalisation policies announced by the government ushered in changes in the industry and resulted in easing of tariff levels, altering the face of the Indian power converters industry significantly. The low entry barriers have given rise to a situation where an increasing number of domestic as well as foreign players can always test the waters.

With global players focussing their efforts on the Indian market, indigenous players such as Surge Technologies, Aplab and BullPower Systems Ltd are reworking their strategies to sustain their share. The global players, especially from China, the US, and Taiwan, enjoy huge economies of scale and are able to corner a substantial share of the market with price as the unique selling proposition (USP). The scene in the local market front is relatively dampened with players unable to offer competitive prices.

Inability to mass-produce

The inability of the indigenous domestic players to offer competitively-priced products is directly attributable to lack of sufficient volumes and intense competition from captive production as well. The investment involved in financial and human efforts is not justifiable when compared to the volume that the players cater to. With the reduced size of the market attributed to the competition from the captive markets and numerous players, the domestic indigenous manufacturers are forced to concentrate on niche markets, which, in turn, fail to provide lucrative returns for their investments.

End users with in-house production

Players in the end-user segments are now contemplating moving into production of converters for their own use and even expansion of their product portfolio. Companies such as Amara Raja Batteries and Agilent are into in-house production of converters for their primary product line and they are contemplating spinning this division off into a strategic business unit, thereby endangering the merchant vendors. The resultant scenario is a reduced available market pie for the players.

With threats emanating from the foreign markets as well as captive vendors, the future of the merchant vendors looks bleak. In the last three to four years, Chinese products have found their way into the Indian market and have been successful in acquiring market share with very low pricing. The removal of quantitative restrictions is expected to multiply the inflow of several Chinese products to Indian market. The negative impact of this feature is a decline in the manufacture of converters and consequently lower revenues for the merchant vendors. Vendors must now adopt stringent cost management practices and competitive pricing strategies in order to survive in this fiercely competitive market.

The author is Program Manager, Industrial Practice, Frost & Sullivan India.

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