It's finally official. The US economy is perhaps going through the worst
economic crisis since The Great Depression. The meltdown of financial
institutions like Lehman Brothers, Merrill Lynch, AIG, Fortis, Washington Mutual
and Wachovia Bank have triggered a meltdown so severe that probably for the
first time, the US Government had to step in to bail out the ailing
institutions. The affects have been felt worldwide.
While initially there were indications that the Indian economy might be
insulated from the financial crisis affecting the US and Europe, the past few
months have put that notion firmly to rest.
So what does the US economic meltdown mean for India and more specifically
for the IT channel space? The closure of leading investment banks and insurance
firms in US is expected to directly impact the (Banking, Financial Sector and
Insurance) BFSI sector in the country.
The impact is expected to trickle down to the IT channel community as well
since business from the BFSI sector contributes 30-40 percent to the overall
revenue.
Market Watch
The market however is on a wait and watch mode these days, and no one is
ready to put a ballpark figure to the losses that will be incurred.
Chennai-based Rangarajan Sriraman, CEO, Athena Info Consulting claimed that
the financial crisis has affected the Indian solution providers (SPs). "The
overall market has been slow for the
past two quarters and the current financial crisis will further slowdown the
market. Observing this trend, it is visible that those SPs who are focusing on
the global market will definitely have to bear the burnt for an indefinite
time," he added. However, Sriraman quipped that the impact on Indian SPs, who
deals with BFSI segment, would be exposed only after end of the third quarter.
Sanjiv Bhavnani, CEO, Visesh Infotechnics felt that there is no way that the
SPs who are focusing on the domestic markets could remain without being
affected. "Nations that are using dollar as the base currency in the forex would
certainly get affected when there is a financial crisis in US and no country
including India could escape this. Due to which any impact on the US market
would certainly hit the Indian markets as well," Bahavnani claimed.
Mian also added that the companies would try to leverage on the existing
infrastructure and would try to cut their expenses on further upgradations and
purchases. He claimed that the financial turmoil has led to the restrictions in
the liquidations and customers are demanding essential solutions only. "BFSI is
a segment that would trigger the collapse of every other segment. Being
interlinked to all the verticals, the effect on BFSI will be felt in the other
verticals too," he added.
Cash Crunch
Due to the global crisis, the capital inflows have been limited. The mauling
at the Wall Street has taken a toll on the Dalal Street as well. In domestic
stock markets, the Bombay Stock Exchange (BSE) 30-share sensex closed at
12526.32 with a loss of 529.35 points while the National Stock Exchange's
50-share Nifty closed down by 132.45 points at 3818.30. The global credit rating
agency 'Standard & Poor' stated that September was the worst month for emerging
markets since August 1998. For September the emerging markets lost 18.76 percent
while the developed markets fell 14.80 percent.
Most SPs felt that the overall stock market crash has triggered the cash
crunch among the vendors and suppliers. "Stock markets across the globe crashed
and the real-estate markets were the worst hit. Due to this cyclic effect, the
global cash flow has almost came to a standstill," claimed Mian of All e
Technologies. New Delhi-based Bhavnani said, "It is a difficult time for every
one across the channel community, vendors and suppliers need to operate at the
lower margins," he averred.
Reacting to the assertions on the cash crunch among the vendors, Subhodeep
Bhattacharya, Country Manager-Sales, Pro Curve Networking Business HP India
strongly denied any such impact due to the fall of stock markets.
Hiked Prices
The first half of the financial year has witnessed the adverse impact of
rupee's movement against dollar. Appreciating dollar and rise in input prices
has forced IT companies to hike their prices for the second time in the year.
Few major consumer electronics makers, particularly those of PCs, digital
cameras, laptops and photocopying machines are in the process of hiking the
prices of their products this October. Forced by the financial crisis, the
vendors are in no mood to absorb the price hike this time.
Prior to this price hike, many vendors including HP, Intex, Logitech, etc had
increased the prices of their products in January, owing to CBEC's decision to
implement excise-based MRP on IT products.
In the PC segment, HP has already hiked the prices to the tune of 10 percent,
while Dell has resolved to hike it anywhere between five to 10 percent. HCL
however, has already revised the prices and increased it by about four percent;
Intex is hiking the prices of desktop PCs, monitors and peripheral products by
three to four percent, whereas for the laptops the price hike is slightly higher
at about seven to eight percent.
Canon has hiked the prices of their printer products in the range of eight to
10 percent, whereas the price rise for its laser compatible products will be
around five percent. AOC has hiked the prices by six to eight percent.
Going against the trend in the segment, Sony has resolved to maintain the
prices for its product even as their competitors are hiking it.
LG has also planned to hike the prices across different product segments.
Explaining on the price hike, R Manikandan, GM-Sales and Marketing, IT Products,
LG said, "Since the dollar price now stands at Rs 47, it will bring about an
increase in the prices of our products in the range of six to seven percent.
However, we will hike the prices in a phased manner and it will be at about 2.5
percent to start with. While the hike in the LCD monitors will be less, ODD will
witness major price changes."
Commenting about the latest round of hike in prices, Sameer Garde, Country
GM, Dell India said, "Yes, it is true that there has been about five to 10
percent increase in the prices of our products, though there may be variations
across models and different configurations. The hike primarily is based on
external circumstances related to changes in currency rate and corresponding
increase in component prices."
Alok Bhardwaj, VP, Canon India shared that the hike is mostly going to affect
the vendors. "Till now the hike was affecting our bottomline, but now the
situation is such that the bottomline cannot take the hit anymore. We have
resolved to hike the prices across various product categories in the range of
eight to 10 percent."
Channel Speak
As usual the recent price hike has brought mixed reactions among the channel
community. Distribution and the retail market is said to have taken a big
beating owing to this hike. Elaborating about the same Bengaluru-based Dinesh
Nair, GM, Sogo Computers felt that there has been 10-13 percent dip in the sales
at the retail front. "The distribution through the channels is going on as usual
without any problem, however the price hike is a worrying factor as Sogo is
determined to expand its retail operations across the state," Nair said.
On the contrary, K Gopinath, CEO, Modern Computers averred, "The only threat
for the booming retail segment is the LFRs. However, Chennai retail industry has
been safe till date and the saga would continue for a while. The recent price
hike wouldn't be a huge threat as there is no cutthroat competition in the
retail segment in Chennai unlike other places," he claimed.
A Singh, Proprietor, Computer Land, New Delhi said that the spending power
among the consumers is gradually decreasing. "Being affected by the inflation,
people are in no mood to spend more than it is required. Besides, the disposable
income among the public has also reduced."
For Hyderabad-based distributor and retailer G Mahender, CEO, Compage
Computers, the price hike is like adding fuel to the fire. "The market has been
slow for the past two months and we are facing a lot of cheque bouncing cases in
the distribution process. If the rates are going to become high, liquidating the
stocks are going to be a real trouble," he averred.
Suggesting on the price hike and the global financial crisis, Suresh Pansari,
CEO, Rashi Peripherals said that the vendors, the distributors and the channel
community should address the price hike jointly.
Managing Difficult Times
Whether it is a price hike or a stock market crash, these instances do not
dither partners; some still believe that it is an opportunity for them.
Hyderabad-based KV Jagannath, CEO, Choice Solutions said that the global
slowdown and the financial crisis in US will provide lots of outsourcing
opportunities for the Indian SPs. "Everyone who are in the revival stage, would
look for some cost effective solution to run the company and predominantly will
outsource their operations to countries like India, which would give enormous
opportunities to the SPs here," Jagannath claimed.
Echoing similar sentiments, Atul Hemani, CEO, Omnitech Systems said that the
companies across the globe are in the cost cutting mode and will outsource most
of their operations to service providers to lower their operational costs. V
Murali of Precision Group feels that the best way to operate during these tough
times is to have right kind of product mix and the market mix.
Not only SPs but even vendor's have similar feelings that the market crash
would bring in opportunity for the vendors to showcase cost effective solution
to the customers.
NR Sethuraman
(With inputs from Amrita Tejasvi and Pooja Sharma)