Healthy margin should be the key mantra

The time has come for the channels to start focussing on their bottomline.
There is no way they would survive in the long run if they don’t stop selling
at "any cost". What is happening today is that a majority of them sell
a lot of products below cost, which is certainly not a sound business practice.

Unfortunately, this problem is not unique to the channel community only.
Rather, it is common across the Indian IT industry. For a long time now, not
enough thought has been given to the bottomline. Though words like profit and
margin are rather well known mantras amongst the hardware vendors, but in
practice, most of them do the opposite.

The main mantra here is the topline. Barring a few exceptions here and there,
almost everybody has been playing the numbers game. What matters to them is
where do they stand in the industry pecking order. Just take any company and
what you see is the phenomenal growth in terms of overall sales but a less than
satisfactory growth in profits.

But then there could be an argument that it is extremely difficult to make
any decent money on hardware where the margins are very low. Granted, still this
in no way one can digress from the fact that vendors can be only selling
hardware and still be making money. They can do that only if they keep a close
look at their margins and not go in for a dizzy topline growth.

If a company like Dell, which is the world’s largest PC vendor, can make
good money, there is no reason others cannot. In fact, Dell has been
consistently improving its margins. Compare it with the Indian hardware vendors
and the situation doesn’t look too good.

The sad part of the story is that this trend has filtered down to the
channels also. You can count the number of channel partners on your fingertips
that are making decent enough margins. There is a mad rush to sell more, in the
process hoping to cash in on the backends as well as incentives offered by
various principals as well as distributors. But instead of making more money,
which these schemes are intended for, channels end up discounting these schemes
also.

In contrast, look at the software companies for whom bottomline is the main
mantra. It is not that they are not too interested in growing their topline
fast. They certainly are-witness Infosys, TCS and Wipro who have become
billion-dollar companies. But at the same time, their bottomline is also keeping
pace with the topline growth.

So, there is certainly need for a drastic change in the mindset of the
channel community that their long-term interest lies in having a healthy
bottomline. In fact, a balanced approach to turnover and margin will be ideal.