Stimulating sessions engage sDs

Unite for your rights

While the summit had many invigorating sessions, the most debated and
participated one was the one taken by S Karthikeyan, Founder President,
Confed-ITA, the umbrella body for all IT associations in Tamil Nadu. The idea of
the session was to discuss the service tax that the government has levied on the
back-end incentives. In this regard, Karthikeyan presented a case study of the
ongoing service tax and VAT conflict in South India.

Shedding light on the situation, Karthikeyan said, “We need to take a call on
the present taxation policies of the government. Recently, in a single day in
south, about 28 dealers received letters from tax authorities demanding service
tax since 2004 and VAT since inception, coupled with fines. It was then that we
felt the need for a strong and dominant body to address our interests over these
kinds of redresses.”

S Karthikeyan Founder President, Confed-ITA

Opening the floor for some intense debate, Karthikeyan told the delegates
about the efforts that Confed has taken to resolve the issue and also of the
talks that they have had with various vendors.

Briefing the delegates he said, “Some vendors are ready to help us out. But
most are not willing since these are old transactions. They say that they are
willing to do the same for all new business.”

Adding a new dimension to the debate, Alok Gupta of Softmart Solutions, Delhi
said, “Logically the vendors are supposed to bear the service tax that is levied
on any transaction done for them by a third party. So all the sub-distributors
or channel partners need to do is raise an additional invoice about the
additional service tax now and send it to the vendor, and they should reimburse
you.”

Raising a valid point, Sanjiv Bhavnani, who was one of the speakers at the
summit said, “One thing that all of you need to understand is that this will
only happen if the channel partner or, in context of this discussion, the
sub-distributor has raised an invoice for the sale initially. If that has not
happened, then really that will complicate things further.”

A discussion regarding safeguarding against unwanted service taxes and VAT
arose among the audience, thereby a call was made to unite under a common
platform to protect channel interests.

Taking stock of the situation, PK Sinha, Spokesperson, Bihar IT Association (BITA)
said, “After going through the case of the sales tax and the VAT policy, I feel
that it is high time associations across the country unite to voice a common
opinion and preserve our interests in this trade.”

Explaining the success of Indian Software Dealers Association (ISODA), a
national association of software dealers, Alok Gupta of Delhi-based Softmart
Solutions said, “ISODA was formed due to the same issues that some of the
hardware channel partners are facing today. ISODA has been a huge success, and
has been able to raise and deliberate over issues not addressed before. The move
to form a national IT fraternity is not only appreciable but enviable as well.”

He urged that like the software dealers have formed a national association,
the group that is formed now should ask their partners, friends in the community
to join in and move towards forming a national body.

Appreciating the move, Karthikeyan immediately appealed to the audience to
unite under a common platform and the enthusiastic audience resolved to take up
an initiative in this regard.

Explaining the course of action in this aspect, Karthikeyan added,
“Confed-ITA has formed a special committee called Service Tax Task Force to
fight the service tax issues that partners across the country are currently
facing. The committee will take care of the service tax issues by taking up the
matter with the concerned authorities and will find a solution. The committee is
open to all channel partners across the country affected by the service tax
issue, and those who fear that they might be a victim of it. About 20 members
have already joined the committee. While the deadline given to vendors to get
back to Confed-ITA with clarity on the Service Tax being levied on partners'
backend payments came to an end, and reminders were sent over the same, we
decided to impose ban on the vendors which yielded prolific results.”

Confed-ITA has already communicated the need to form of a national IT
association to most major IT associations across the country as pressure over
backend incentives has started to mount from the Central Excise Department.

In this aspect, Delhi-based Computer Media Dealers Association (CMDA) has
already filed an appeal for notices with the VAT department and also taken up
the issue with Manufacturers' Association for IT (MAIT). Also, sources in ISODA
shared that the association is planning to file a legal petition in Chennai
Court seeking clarification over the dominant tax structures, like double
taxation on software and service tax on back-end incentives from vendors.

The result of the session was the formation of a group called Confed India
which would have as its members anyone who wants to join in and wants to have a
say in the channel conditions and fight for the rights of the channel partners.

Theme for a 'change'

The keynote session on day-one was all about the necessity to change. Paras
Shah, MD, Neoteric who gave the keynote explained that, “The last two quarters
have indeed been very tough. We now need to reconsider our business line and
desperately need to follow the route to back-to-basics of the economy.” He
exhorted everyone to, “laut auo, or go back to basics. We need to resize, cut
down expectations.”

The global slowdown has had a major impact on the mindset of the Indian
business community, and enterprises, irrespective of size and strength, had
fallen victim to the 'bear'. Shah advised that at such a time one should expect
a marginal volume and revenue and look at the slowdown as a means to further
business opportunities.

Paras Shah MD, Neoteric

“It is a time when business units across the country need to reinvent
themselves. Not only is cost reduction a solution to maintaining revenue margins
but re-engineering one's unit and downsizing business is the need of the hour,”
Shah said.

Hinting that the slowdown is a good learning process and referring to the
Great Depression, Shah elaborated that while so much time has passed since and
times have changed, there has been almost no change in the business models used
in India. However, he said that there was a silver lining to the dark cloud of
slowdown. “Despite the slowdown in the last three months the profitability has
improved and quality of business has improved.”

Talking about the future he said, “The slowdown will see a phase of
acquisition and consolidation in the distribution business. India is unique in a
way that there are two large distributors in the country who account for 80
percent of the business that is done in India. There is a huge gap, in fact an
imbalance between the top two and the rest and that is what will lead to
consolidation and acquisitions as the market will correct itself.”

Talking about the other dichotomy prevalent in the market Shah added, “It is
only in the IT distribution business that the market dynamics are a bit skewed.
In any other business that you see, the valuation of any company is much more
than their annual turnover or revenue. However, it is only in the distribution
business that while your turnover is very high, the market valuation of your
company is much less. In these circumstances, you as the owner, really need to
ask yourself what you want to leave behind as a legacy. Think about change, get
out of doing the same stuff. Ask yourself questions like are we keeping pace
with technology? Are you or your company helping India advance in technology or
are we peddling products which are out of date? We are the ones who are
supplying technology to the government, we need to have stake in helping the
country advance.”

Hinting at offering the next generation of entrepreneurs an edge and
expertise over business after surviving the slowdown pessimism, Shah concluded,
“The product mix has to change now. Most of the products across the globe are
dumped in India as a result of our slow acceptance of contemporary technology.
On the other hand, sub-distributors keep on pushing the same old products to the
government entering the ongoing cycle of using old technologies.”

Talking about the emerging patterns he said, “Security, surveillance,
virtualization and telephony are the technologies that are emerging very
strongly.

Repair services is another strong business stream that is coming up. In IT
business the clear mandate is towards gross margins and that will not come with
entry level products. These new technologies and a varied product mix will
provide growth and business health to organizations.”

Ending his session he said, “The next year the emphasis will clearly be on
quality by all vendors and that 'Change' is the theme for the sub-distribution
business and we should all go out and embrace change.”

Business evolution from SD to ND

It is a dream for any sub-distributor to mark his presence nationally by
evolving into a full fledged national distributor, commanding more business
volume and revenue.

VK Bhandari, Director, Supertron India took a session in which he talked
about his personal experience and helped the present delegates look at the
journey that they will encounter while trying to evolve from a sub-distributor
to a more national role. He also discussed the challenges one has to face when
going through the transformation into a national distributor.

“Every vendor, irrespective of their business size, requires a national
distributor to carry on their cycle of logistics and growth. They require
distributors who have a wide network, own a good infrastructure, have optimal
resources at their disposal with a strong financial support and have good
channel penetration,” said Bhandari.

Listing down the expectations that a vendor has from national distributors
Bhandari said, “What a vendor wants from a national distributor is perhaps the
right place to start. Always know the expectations that any vendor will have
from someone who they want to appoint as their national distributor. A vendor
wants that as distributors network should be wide, his infrastructure-the
godowns, the branch offices and the back offices should be all up to a certain
standard, you should be able to provide easy scalability as the situation
demands. The other two very important things are that you should have good
relations with your channel and most importantly you should have strong
financial backing, all vendors want to do business with someone whose financial
track record is proven because they all want to safeguard their money.”

VK Bhandari Director, Supertron India

Throwing light on the four essentials of being a national distributor he
said, “The four things that any national distributor needs to know is the art of
managing vendors, managing channel, inventory control and credit control. Once
you have mastered the art of balancing these fours essential things, there will
be no stopping you from growing.”

Commenting on the recent market trends, Bhandari said, “In the present
scenario, sales of LCD and flash drives are on the boom. Looking at the product
mix, one can easily infer that the distributor needs to have a good bottomline
for margins and a good topline for volume business. The product mix becomes
crucial as one has to concentrate on sustenance in times of poor margins as in
the case of the global slowdown, as well as concentrate on volume business.”

Interested by the flow of the conversation, the audience put up questions and
comments on the credit control situation and persuaded Bhandari to speak more on
the key facts of enhancing channel presence and maximizing utilities based on
the financial strength one has.

Interestingly, Bhandari pointed to the delegation of power in this regard,
explaining how to maximize presence and control the credit flow situation.

“As one grows in area and finance, one has to learn to delegate key matters
in due course of time. As everyone in this business starts from a holistic
approach and presides over every department, one tends to do the same even after
the business volume increases overtime. However, such things should be avoided.
This not only distresses the person intending to take charge of every department
on his own but prevents expansion of the company.”

“In due course, one has to learn to delegate power to key personnel in the
organization allowing more room for the employees and enhancing the business
performance scope of the same. One has to take up professionalism and evolve
from a one-man company to a schematic organization with diversified divisions.
Also, we cannot help but succumb to the credit policy prevalent in this
industry. However, we can rotate funds fast enough to counter the situation.”

Stating the key benefits of getting into national distribution, Bhandari
highlighted key findings based on his own experience over time. Pointing out
that a multi-location presence not only increases the business volume resulting
in optimum margins but return on capital increases can be high resulting in
maximum utilization of resources.

However, Bhandari also drew the audience's attention towards the threats to
the business of national distribution. Low margins have been an everlasting carp
for a ND since inception. As the business volume grows, one has to be ready to
face the brunt of margins steeping down. Also, being a vendor driven business,
one has to be ready to sacrifice their bargaining power in face of drawing more
business and release credit in the market. With the growth in branches and
divisions across the nation, operating costs will grow naturally and this has to
be countered by enhanced sales and wide area of operation.

Concluding on the most important threats to a national distributor, Bhandari
elucidated, “High amount of debt and the debt trap is the most crucial of all
the threats. As business volume increases with enhanced national presence, it is
clear that the credit flow in the market will increase. One has to stress on
collection and back-end in this regard to maintain their stability in the
market. There is always the risk of falling into debts as the business is
totally based on credit and failure to collect the payments with a fast rotation
may augment to the national disti's woes.”

Adding brand value

Beating recession with enhanced cash management and optimized cash flow is
now becoming the order of the day in the IT business circle.

Informing the sub-distributors across India over the same, Sanjiv Bhavnani,
Chief Mentor, Mentorpreneur Advisors said, “A decent balance sheet with a lower
tax outflow will help the IT business combat the slowdown. As good cash flow and
cash management within the organization depends on returns on capital, one has
to ensure that the much scanty capital nowadays has to be employed in proper
direction.”

Sanjiv Bhavnani Chief Mentor Mentorpreneur Advisors

According to him, the need for capital in India is the rising
post-liberalization era, however, the economic foundation of the nation is
filled with dips, and combating it is the biggest challenge, as markets have
begun to shrink. Also, the fact needs to be highlighted that major business
units across the nation are having a YoY growth, besides a rise in gross
domestic product (GDP) in India at a steady pace.

Also, he emphasized that banks nowadays are not ready to offer loans for
business development and it is from here that the biggest blow comes. Taking the
matter further, as credit from the national distributor depends on the revenue
and expansion or consolidation of the partner's business, it becomes tough under
situations when loans are not readily available to expand the business.

Building proper valuation in this age is another concern for the business.
There is always a fright of under-estimating one's business to avoid unwanted
taxation hassles and it has started taking its toll in these times.

“In order to beat the slowdown, one has to maintain a decent and proper
balance sheet. There has to be lower tax outgo implying one must be aware of tax
benefits and investments. Besides, there has to be a revenue growth ensuring
that the profits are either comparatively stagnant or increasing and a dividend
history is crucial,” Bhavnani said addressing the crowd.

Trends for 2009

The year 2009 has been a year during which business across India headed
towards a phase of recovery with new business trends and models. IDC predicted
that in FY 2009-10, India will have a 0.5 percent growth, much below the
expectations forecast in FY 2007-08.

“This year, India will see minimal growth, almost negligible, to what was
predicted for the last two fiscals. Owing primarily to the global slowdown,
India will have a very slow growth in terms of revenue as well as exports,” said
Deepak Kumar, GM-Research , IDC India.

Commenting on the scenario across the globe, Kumar emphasized that markets in
USA and Europe are already headed towards a saturation point and investments and
return on capital have not been considerable in these locations. Compared to the
scenario in Europe and USA, Asian countries like China, India, Taiwan and Latin
American countries like Brazil, Argentina and Peru have huge scope of
investment.

Deepak Kumar GM-Research, IDC India

Citing International Monetary Fund (IMF) figures, Kumar said, “In the year
2008, IMF predicted that India will grow at eight percent on a YoY basis.
However, as the global slowdown came in, the growth figures dropped to 5.1
percent in early 2009. Also, it needs to be emphasized that growth rates for
USA, Europe, Japan, Russia and Commonwealth of Independent States (CIS)
countries were recorded in the negative while India and China still were in the
positive.”

Explaining the case further, Kumar concluded that in a recent IMF survey, it
has been stated that considering the marginal growth in India, the nation will
continue to grow at a a rate of 5.6 percent next FY if market forces remain
constant or improve.

This year, in the Indian IT domain, 27.5 percent contribution is expected to
come from IT services sector with an average growth rate of 14.6 percent YoY
along with software accounting for 9.6 percent and hardware products featuring
in the bulk share at 62.9 percent.

Considering the above stated facts, it is clear that this year, IT and ITeS
sector will be witnessing an increased opportunity compared to the last year
with software services and exports registering a slow and minimal contribution.

Also, it needs to be emphasized that this year, PC shipments will be seeing
an overall decline of six percent with a 10 percent fall in desktop shipments.
However, notebook shipments have seen an increased demand are projected to post
a positive growth of five percent.

On the printer front, multi-function inkjet printers took the lead, with
marginal growth in terms of sales and revenue, and multi-functional lasers
taking the second lead. However, it is on the IP-telephony front that IDC has
predicted a huge growth.

“IP-telephony will be witnessing a tremendous amount of opportunity in sales
and services this year primarily because of two factors. As the nation is
heading towards increased use of technology with the concept of remote services
booming in the Indian corporate mindset, IP telephony is becoming more user
friendly nowadays. Also, new installations coupled with existing ones are
switching from the conventional 16-port telephony to 24-port telephony and
tremendous amount of migration is predicted this year on this front,” Kumar
added.

According to IDC, it is estimated that IP-telephony market in India will be
valued at Rs 200 crore in the next 20 years.

Analyzing the facts and figures quoted by IDC, the traditional PC hardware
industry in terms of exports and imports will be constant and considerable
growth is not expected this year on that front. However, sales across India on
PC exports front, have been at a standstill, while on the accessories front,
last year, there was considerable growth in terms of revenue and net earnings.

Also, owing to the global meltdown, the software market has been hit very
badly and exports on this front may be headed towards an all time low. As
hardware and ITeS continue to dominate the market in the field of IT, 2009 seems
gloomy for most quarters.