Making money comes last

For a long time now, the problem with the Indian IT industry has been that nobody has given enough thought to the bottomline. Words like profit, margin, etc are not exactly very well known mantras amongst the hardware vendors. The main mantra here is the topline. Barring some exceptions here and there, almost everybody has been playing the numbers game.

What matters to them is where do they stand in the overall turnover hierarchy. 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 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.

Here it won’t be an exaggeration if we take the example of some MNC IT vendors who are purely selling hardware. Take for instance companies like Dell, Sun etc who have been consistently improving their margins. Compare them with Indian hardware vendors and the situation looks grim.

And unfortunately, this trend has percolated down to the channels also. Here also, there are hardly any channel partners who are making decent enough margins. There is mad-mad rush to sell more, so that they are able to cash in on the incentives offered by various principals as well as distis. But instead of making more money–which the incentive schemes are intended for–channels end up discounting these very schemes. At the end of the day, they are left holding the empty basket with nothing to show.

Contrast this with the software companies where the bottomline is the main mantra. It is not to say that they do not keep an eye on the topline. They also are looking at growing at a fast pace. But at the same time, their bottomline is also growing at the same pace, if not more.

All said and done, there is a need for a drastic change in the mindset of the vendors that ultimately it is in their own interest that they start putting equal emphasis on the bottomline. This will not only be in their own interest in the long run, it is also very important for their shareholders who will get better return on their investment and as a result it will indirectly benefit the whole industry.