Brand value prevails over grey

Vendors are now introducing PCs keeping in mind factors like security, manageability, and compatibility. This shows that Indian consumers are shifting their choice of personal computing from just an average system to one that is high-end and feature-rich. This is an indication of both technology and user maturity. Gaurav Patra reports on the PC segment

Unlike 2002, the year 2003 was very bullish for the overall IT market, including PCs. After March 2003, the PC market started picking up in the Indian subcontinent.

“The year 2003 was entirely a different experience than 2002. Qualitatively as well as quantitatively market dynamics have changed over the past eight to nine months,” says Ajay Sindhwani, senior analyst, Computing Products & Channel Research, IDC India. According to IDC, the overall Indian desktop market has grown from 2.14 million units in 2002 to 2.52 million units in 2003, registering a growth of around 17.7 percent, which is handsome if we look at the other segments and overall IT industry growth. The outlook for the year 2004 is also very positive. IDC predicts that the desktop segment will experience a growth of around 24 percent and the size of the overall desktop market will be around 3.12 million units. One very interesting fact is that branded PCs have increased their market share from 28 percent in 2002 to 36 percent in 2003. In 2003, while the branded segment grew by 50.7 percent, the grey market grew only by 4.7 percent over 2002. With encouraging government policies this trend is expected to go from strength to strength.

What fuelLed growth?

Buying plans of large enterprises, the government sector PSUs and the banking, financal services and insurance (BFSI) sector started gaining momentum in 2003. “A lot of corporate as well as small and medium enterprises (SME) buying also took place in the last fiscal. Earlier it was just the ‘M’ of the SME, but now it is also the ‘S’ of the SME that is buying PCs,” says Shuchi Sarkar, head of Marketing, PSG, HP India.

Due to various factors including economic strains, people were holding their budgets back in 2002, resulting in low key buying. But, in 2003, even some pending projects got kick-started, which fueled desktop growth. Apart from enterprises, the government, BFSI, BPO and software development sectors continued to contribute to overall desktop segment growth in 2003. And as everyone knows, a lot of IT outsourcing has also come to India, which is powering this growth to further heights. Vendors feel that another sector to look at is the education sector. “More students will need access to computers. With the prices of PCs being slashed, the education sector is expected bring an appreciable demand for PCs,” says Alok Ohrie, vice president, Personal Computing Division, IBM India.

Manufacturing and home are the other two segments that fueled this growth in the last fiscal. “In the enterprise space, investments by large verticals, as well as the home segment fueled the growth of the Indian desktop market. We are quite optimistic of immense growth continuing this fiscal too,” says S Rajendran, general manager-Sales and Marketing, Consumer Product Group, Acer India.

Apart from the growth in different sectors, one of the major developments that took place in the last fiscal was the government’s policy on hardware. The recent duty cuts have given rise to the advantage of low hardware prices and have reduced the gap between the branded and assembled market, as far as value of products is concerned. “The desktop business has been very good and is growing strong this year. The reduced prices due to tax reduction have helped the market grow to a great extent. This is sure to translate into an increased demand for PCs in India,” says Raj Saraf, chairman and managing director of Zenith Computers.

Issues to be addressed

PC penetration in India is still low and the biggest challenge is trying to increase it. To spread awareness, the utility value of PCs needs to be communicated by vendors to the masses. “The awareness about the benefits of IT, in general, and PCs in particular, needs to be generated among the masses. Also, standardised content in the arena of education can bring about huge multiplier benefits,” says Rajendran.

The government has done a great job by defining policy changes, which will encourage computing hardware in a great way. “We definitely see this increasing the market size both in volumes and revenue, giving a larger installed base of PCs in India. This, in turn, will bring in more manufacturing opportunities to this country,” says George Paul, vice president, marketing, HCL Infosystems. However, this is not enough as far as government initiatives are concerned. The government should also take aggressive steps for the adoption of IT in all spheres of its activities both at the central and state levels. It should bring in transparency and speed in administration. Again, depreciation of IT products should be limited to just one year. It is quite obvious that the pace of change in IT is far too rapid to have a three-year time frame for depreciating this asset. This will also help in providing an opportunity for the corporate sector to invest in the latest technology more quickly. This refresh cycle will help PC penetration improve by leaps and bounds.

As far as initiatives from vendors are concerned, they need to do for consumers what they did for business and government customers—simplify, enrich and lower the cost of networked home computing products. With the personal computer viewed as the future digital mainstay of the home, we expect a networked lifestyle where devices will able to talk to each other, share information, and make lives easier. The drive towards standards-based computer systems has been evident for sometime now and will gain further momentum. By driving industry standards for consumer technologies, the convergence of a broad range of consumer electronics equipment in the home—with the personal computer being at the centre—is inevitable. Today, consumers want to connect their computers, home networks and consumer electronics under an open, standards-based architecture. With standardisation, comes another certainty—the customer always wins through lower costs and freedom from proprietary products at unreasonable prices.

Another piece of good news is that the share of grey market has come down because of government policies, which have now reduced the reasons to build a grey product in the country. However, the grey market still has the major share. “Price competitiveness as compared to local assemblers is still not very good, because there is a lot of grey business and commoditisation happening due to the dominance of the local PC assemblers. But the perception of the customer, unless he is a large corporate buyer or a global company, is that a PC is nothing but a screwdriver technology,” says Nitin Chaudhry, country manager, Business PC, PSG, HP India. That perception has to be changed and vendors have to play a major role to change this perception.

Market Trends

One of the biggest trends, which will be evident in the Indian market, is the falling price of desktops. Over the last couple of years prices have come down drastically. “There are incredible deals available in the market place today. This has helped in increasing the addressable market. That is why we are getting the next base or larger base of customers, who can afford a PC or will start looking for a PC,” says Paul. This has helped the market to grow both in consumer as well the commercial desktop space. “In the last fiscal, the commercial desktop market has shaped up well in favour of vendors. We have witnessed slow but sure conversion from assembled to branded PCs. It’s a good sign that for the first time the industry has seen the assembled PC market share coming down by 3 percent,” says Chaudhry.

Another new area, which is opening up is regional language PCs. Unicode is now becoming a standard and Microsoft is coming out with this particular product, which will open up a new market. This, in turn, will also help in taking PCs to rural markets, where people are more comfortable with their respective regional languages. This also shows that vendors have recognised the fact that the smaller markets have the potential.

SMEs, present in metros as well in non-metro towns, is another segment to be watched. Most MNC and Indian vendors are focusing on the SME space and are coming out with SME-focused products without compromising on quality. However, in the consumer space, the industry will see more and more entertainment-oriented features being included in the normal PC. In the commercial space, the pitch will be in the form of security, robustness and multiple levels of redundancy to ensure practically 100 percent availability.

Technology is changing almost every day and with that a lot of convergence is also happening. Keeping this and futuristic technologies in mind, vendors are embedding these into the design of desktops. Some of these technologies that vendors are focusing on are—Hyper Threading, Gigabit NICs, Dual Channel Memory, security and manageability. A good trend, which we first saw last year, and which also helped the growth of the PC market, is that more and more customers have now started thinking beyond just clock speed, memory or HDD size, especially in the commercial desktop space. They have now started considering factors like support, security, total cost of ownership (TCO), compatibility with existing infrastructure and future technologies and also compatibility with various access devices that they have.

Today, Indian buyers, both in the volume as well as value segments, are concerned about value for money. Apart from this, they are also looking at aspects like robustness of the product and after-sales support. Although in the SOHO/home segment brand perception still plays a major role, more and more buyers have started measuring their purchase with the technology offered in the PC. These days, customers educate themselves and are also educated by vendors about the latest technologies in the market and how they can utilise their system to the maximum. So, apart from price, technology is also playing a major role in desktop buying.

Customers, be it in the consumer or commercial desktop space, have also started demanding better service levels from vendors. And, keeping this in mind, customer support has become an integral aspect of PC vendors’ strategy. Most vendors have continuous reviews, processes and enhancements to ensure that support as required by customers is met. “Services is a line where the expectation of the customer keeps on increasing year after year. So, one has to add new features to service offerings—these could be onsite support, administration support or asset management support,” says Paul.

Vendors offer support through various methods like direct support, support through dedicated call centres, online support and support though channels. Vendors are also equipping their business partners with knowledge to ensure better after-sales support. “Service begins from the time a customer is looking to buy a PC to the time he finishes using the PC through its lifetime. Support has become very critical,” says Saraf.

Linux on the desktop

The biggest question facing the PC industry is how the acceptance of Linux on the desktop will shape up. The acceptance of anything actually depends upon how seamlessly it works with prevailing ecosystems. When one says that somebody is interested in using Linux, he has to see it in the context of his usage environment. However, industry experts say that as of today, primarily people who use PCs in commercial environment, which is not so multimedia- rich, are buying Linux PCs. “When you come to multimedia-rich applications, people tend to prefer a Microsoft platform, as it provides a better experience. Having said that, Linux has now reached a stage, where it is also offering features similar to that of Windows. However, the adoption of Linux in the multimedia segment and the home segment will be slower than the commercial segment,” says Paul. Says Chaudhry of HP, “The acceptance is there, but it is not that high. In comparison with other segments, the acceptance of Linux is more in the education and defence sectors.” However, Chaudhry further reiterates that Linux has made branded PCs more affordable and acceptable. A spokesperson for Dell agrees, “There is limited demand for Linux and it’s probably sometime before we see a major shift in preferences. It appears to us that most Linux users are converting from UNIX as opposed to converting from Microsoft.” However, Saraf of Zenith feels that Linux on desktops will not be as popular as Windows because it is not ‘plug-and-play’ and applications and peripherals are not compatible with Linux versions.

Conclusion

The Indian PC market has definitely got the potential to be one of the largest markets in the world. According to IDC, the desktop market is expected to grow at the rate of 24.5 percent during the 2002-2007 timeframe. Almost all the big players are geared up to exploit this opportunity with good pricing strategies, better after-sales support and best-of-breed technologies. This means the customer is going to be the biggest beneficiary and he will get value for his money. On the other hand, with value-added services and latest technologies, vendors are looking at taking the relationship and the PC buying experience one step ahead of price negotiation.

gaurav@expresscomputeronline.com

Market Trends

With prices of PCs being slashed, the education sector is expected to see a high demand for personal computers. Consumers are shifting their focus of PC computing from an average system to one that is closer to a high-end system and upwards. The need for the most powerful multimedia computers is increasing. Linux might gain ground in the government and defence sectors. Customers, both in the consumer as well as in the commercial space will demand better service levels from vendors. Service and support is going to be a critical aspect of vendor strategy. Depreciation period of IT products should be reduced to further boost growth. The desktop space will see more and more entertainment-oriented features getting integrated into the normal PC. The enterprise space will witness more stress on security, TCO, manageability and multiple levels of redundancy, among others Companies, which will offer affordable innovation will gain market share. Unicode will drive PC penetration into rural markets SME will continue to be a major segment. The industry has standardised on 80 GB HDDs.