Indian hardware product scenario looking up

India has made its mark in software exports but few Indian companies have ventured into the hardware product arena. Though the hardware industry doesn’t enjoy the level of hype that goes with the Indian software sector, there are companies that are doing extremely well, says Abhinav Singh

In catering to the requirements of the domestic market, Indian hardware manufacturers score over their MNC counterparts, says S Narendran

INDIA must be as strong in the hardware sector as she is in the software sector, feel many Indian hardware product companies. While Indian software companies get all the attention, hardware players are sidelined. Most hardware companies have been successful in carving a niche in the domestic market but few have made their mark in the global market. Even in the software sector India has been able to do well in the services arena but when it comes to software product development it still has a long way to go. MAIT (Manufacturers Association of Information Technology) is working hard on popularising hardware product development in the country and is trying to instil interest among Indian entrepreneurs to come forward and take the hardware product path. Much remains to be done, as Indian hardware companies face a long and winding road in the hardware sector.

Domestic market focus

Unlike software product companies that primarily concentrate on the overseas market, Indian hardware product companies have focused on the domestic market and the majority of their revenues accrue from it. Many of them have concentrated on increasing their hold on the domestic market before venturing into the highly competitive international market, where they face stiff competition from MNCs. Domestic success is a pre-requisite for convincing international customers about the credibility of their products. For instance Tejas Networks gets nearly 90 percent of its revenues from the Indian market and has customers like Tata Power, Indian Railways, Reliance and Hughes in India. Tejas has three patents to its credit. Sanjay Nayak, CEO and managing director of Tejas Networks says, "When we venture into the international market, we have to prove that our product has been successful with domestic users and has the potential to meet global standards."

Although the domestic market isn’t very big, most Indian product vendors are able to understand the requirements of Indian consumers more effectively, as compared to foreign MNCs, and have been able to deliver tailor-made products targeted at Indian consumers. Hence they have been immensely successful in the domestic market rather than the international arena. Some of them have successfully developed products that can withstand Indian climatic conditions, are local language compatible (this includes Sprint, a point of sale (PoS) terminal from TVS-E that supports 11 Indian languages), takes care of erratic voltages/power supply and possess the ability to reach small businesses and entrepreneurs in a cost-effective manner.

TVS-E Sprint, an "all-in-one" integrated hardware platform for automation of transactions, combines the functions of a printer, UPS, smart card and a credit card monitor and is targeted at Indian retailers. S. Narendran, GM, Marketing, TVS-E says, "Our product was developed after thorough research into the requirements of the Indian retail market. It was co-designed and implemented with the help of a large number of retailers and shop owners. We have developed four patents for Sprint and have priced it at around Rs 55,000. Sprint is rugged and reliable, it’s meant for Indian conditions In catering to the requirements of the domestic market, Indian hardware manufacturers score over their MNC counterparts."

Nearly 40 percent of Tejas’s employees on the product development team have been closely associated with hardware product development at an international level, says Sanjay Nayak

Capital-intensive nature

It is a well-known fact that hardware product development requires heavy investments that dwarf those required for software product development. This is one possible reason why few Indian entrepreneurs have ventured into this domain. Companies have to spend heavily on R&D for hardware product development. S Nagarjuna, general manager marketing at WeP says, "We spend nearly 15 percent of our total revenues on R&D. Our aim is to develop world-class products." Setting up manufacturing plants for product development comes at a high price too. A prototype of the product has to be developed, the product development cycles are longer and the whole development process is much more complex than in the case of software products. Some hardware products also require a lot of fieldwork as part of their installation. Nayak says, "Some of the products from our TJ 100 product family (which address the distribution of bandwidth across networks) have been deployed by the Indian Railways at small railway crossings spread across hundreds of kilometres. Their installation and upkeep requires immense amounts of field work, which is not the case with software products. Their installation and maintenance requires huge investments."

Challenges

Developing a top-notch development team
The foremost challenge for Indian hardware manufacturers is to assemble an excellent product team that can think and create truly world class products. If the team comprises dedicated people who have prior experience in working with products, they are able to design and conceptualise state-of-the-art products. Nayak says, "Nearly 40 percent of the people on our product development team have worked abroad and have been closely associated with hardware product development at an international level. We have highly qualified people in our product development team with PhDs and Masters degrees."

Developing a world class product
To deliver a truly world-class product in terms of looks and styling is a big challenge that Indian hardware product manufacturers face while competing against MNCs who score over their Indian counterparts in product styling. Hence Indian manufacturers have to work hard to succeed in both the domestic and the international markets. Vinay L Deshpande, chairman & CEO of Encore Software, the makers of the Simputer remarks, "MAIT is continuously stressing on the need for world-class products to be designed and developed by Indian hardware manufacturers." The product which is developed should also be cost effective and have low operating costs. The need for developing world-class products also comes into the picture. A product has to have some kind of quality certification such as CE (this certification is required for exporting products to European markets), before it ships to international markets.

WeP spends nearly 15 percent of total revenues on R&D with an aim of developing world-class products, says S Nagarjuna

Product customisation
To be successful in India and, gradually, in the global market, Indian hardware product manufacturers need to customise their products as per the needs of particular markets. For instance, for a hardware product to be successful in the Indian market it should provide interfaces in various Indian languages. If successfully implemented, the product would have the ability to capture the Indian domestic market. Deshpande says, "Only a small percentage of the Indian population converses in English. The majority of hardware products have an English interface. If hardware products provide Indian language interfaces then they would be highly successful and can expect to see their sales soar." Apart from this, Indian hardware product manufacturers have to understand the social and cultural mores of the target market. One may have a world class product but for it to take off in a foreign market, it has to meet the socio-cultural needs of the people there.

For instance, when TVS-E developed Proton (a retail printer priced at Rs 7,995, dubbed as the world’s quickest bill printer), a team of young R&D and marketing professionals as part of their research exercise initially identified 600 small businesses across the country. These businesses included different segments comprising retail and wholesale, self-employed small businesses, STD/ISD booths, educational institutions, hospitals, hotels, banks and various government organisations in different cities. Seven dedicated team members fanned out in different directions of the country armed with video cameras and visited various locations to film onsite interviews of users of dot matrix printers (DMP). The research concluded that 68 percent of DMPs were used for transaction printing. It was also found that 45 percent of the respondents were interested in buying a DMP for billing.

A key finding was that conventional DMPs are somewhat unsuitable for Indian conditions as they used to gather dust quickly and occupied too much space. A need was felt to develop a printer for Indian conditions, which could be handled easily by Indian businessmen. The research team collected data and also charted out expectations of end-users. It was concluded that existing DMPs had serious shortfalls in design, features, performance and capabilities. The next step was to address these shortfalls and work towards building a brand new design and concept for a DMP. This led to the creation of Proton, a transaction printer tailor-made for Indian conditions.

Branding the product
One of the challenging exercises that Indian hardware vendors face is that of branding their products in India and abroad. The key, many companies say, lies in working closely with customers and generating a value for them through the product. This is possible if the company understands the customer’s specific requirements and tailors its product to them. It is worth considering that a product that suits Indian conditions may be unsuitable for other countries. The strength of a brand can be gauged by the faith customers place in it. That faith generates word-of-mouth publicity about the product amongst other potential customers. This can only come if the company adds value to the product in terms of its delivery time, servicing and after-sales support. Deshpande says, "Indian hardware manufacturers score over their MNC counterparts in providing customers with value-added after-sales support, especially in India. If they can further improve on their after-sales support, they can beat MNCs in the domestic market."

Future scenario

Don’t expect an immediate rise in the number of Indian hardware product companies in the near future. That said, the potential for Indian hardware companies to grow is immense, especially in the domestic market. Indian hardware companies have not yet attempted to target the international market in a big way and have concentrated their efforts mainly on the domestic market where much needs to be done as far as product customisation to Indian needs is concerned. Indian hardware manufacturers do not have many role models to follow in the hardware sector.

But companies such as TVS-E and WeP, which have done well in the domestic market and have started looking towards the international arena. TVS-E is now planning to market Proton in Europe, the Middle East and the Asia-Pacific region. Similarly, WeP is eyeing the international market. Nagarjuna says, "WeP exports nearly $4 million worth of products. We are exporting dot matrix printers and UPSs to Europe, SAARC and South-East Asia." Tejas Networks has been successful in the Indian market since its inception in May 2000, and is now looking toward China, the Middle-East and Taiwan. Many Indian hardware companies own patents, TVS-E has four patents for Proton and two for Sprint, likewise Tejas Networks owns three patents.

Indian hardware manufacturers score over their MNC counterparts in providing customers with value-added after-sales support, especially in India, says Vinay L Deshpande

However, there are few success stories in Indian hardware. Still many feel that the Indian domestic market holds immense potential for hardware companies, more than it does for the software sector. Companies are coming forward to set up businesses but they are only a handful when compared to the hundreds in the software sector. Venkat Kedalya, chairman, southern region of MAIT says, "The immediate need is to work towards strengthening existing hardware clusters in India such as Pondicherry, Goa, Noida and Bangalore and to set up a hardware technology park. MAIT is working with the government of Karnataka in this regard and we are hopeful that a park would be set up soon in the state."

MAIT has also been successful in its initiative with regard to self-assessment based customs clearance. The scheme aims at streamlining custom procedures for the Indian hardware sector. Under the initiative, hardware companies would be able to declare imports and exports without undergoing physical checks of product consignments. The significantly simplified clearance system, using computer-based risk assessment and management techniques, will help reduce transaction costs and improve turnaround time. It is operational at the air cargo at Sahar (Mumbai), ICD Tughlakabad and Delhi and also at the port customs in Chennai. This initiative would help the hardware sector speed up imports and exports of consignments. As the hardware manufacturing industry is susceptible to large transaction durations due to the high rate of obsolescence of IT products and components, increased delays and transaction costs have been some of the deterring factors of doing hardware business in India. "In case of discrepancies at a later stage the penalties are very high. The whole initiative is based on trust and credibility, which the hardware industry exudes," says Kedalya.

MAIT is also working toward popularising the use of Indian languages by hardware product manufacturers. It is also trying hard to get excise duty on hardware products reduced from 16 to 8 percent and hopes that the government will take steps toward this goal in the near future.

Hardware product development is a very significant area for Indian IT companies and since software services are facing margin pressures, this can be a healthy avenue for investments and entrepreneurial skills.