Destination India

It is an oft-told story. That of a price war in the PC
segment. One that happens with clockwork regularity, around the year, every year. Last
year was no different. Zenith, HCL, the GIDs all did their bit to get PC prices down. The
only thing different in last year’s script was the entry of a new player into the price
war game. Aggressive, with a marketing budget to match and fast with its strategies,
Compaq for the first time in its history of selling PCs in the Indian marketplace took the
price of its PCs below the Rs-50,000 mark. The MNC has got off its premium price point
strategy and was slugging it out with the best of them from India in a no-holds-barred
fight for marketshare. Following the launch, the then Country Manager of Compaq India,
Abhishek Mukherjee, confidently predicted that Compaq was going after becoming the largest
PC seller in the Indian market in the next one year. According to him, the company had all
the tools to do it: a product that was world-class and a price that was affordable by
Indian standards. As far as Mukherjee is concerned, HCL’s days as the number one PC vendor
in the country are numbered. Maybe. But it might not be Compaq that will pip HCL to the
post as the country’s largest PC vendor. For, aggressively breathing down Compaq’s neck
with prices below even the Houston-based company is the country’s largest printer vendor.
Hewlett Packard India Ltd is not happy with its position as king of the printer market. It
now wants to expand its reach into the PC marketplace as well. So out comes a brand-new
pricing strategy which places the HP Vectras five percent below equivalent Compaq models,
a new made-to-order plant that is coming up in Bangalore, and an aggressiveness that has
so far characterized its dominance of the printer marketplace.

Being Global, Getting Local
The PC market by-play clearly brought out the repositioning
happening among the multinationals. The focus quite clearly has been on garnering
marketshare and establishing their brands in the country. The long and
less-than-successful flirting with high-breed brands came to an end when Wipro and Acer
announced they are re-entering the market with products under individual local and MNC
brand names. So it’s back to both a Wipro brand and an Acer brand name. The break-up has
acted as an impetus to push the Acer brand with more aggressiveness, and already Acer is
building on its MNC aura in ads that push the simultaneous launch of products in India and
the rest of the world. The same was true for the other multinationals, with Compaq in
particular saying that its DeskPro 1000 had been specially designed for the Indian and
other third-world markets. HP with its plans to set up a plant in Bangalore is clearly
leading the race to become the first Indian MNC, much like Hindustan Lever is in consumer
durables. Being among the first in the Indian market gives the company an edge and it has
clearly capitalized on its early start to lay down roots in the Indian marketplace. This
has already happened to a large extent in the printer market. HP DeskJets and even their
more expensive laser counterparts are available off-the-shelf at any and every computer
retailer, be it in Nehru Place of Delhi or even in the smaller metros like Jodhpur or
Agra. The Vectras have a long way to go to emulate this kind of reach, but HP is now
focused on pushing this brand.

50 IT MNCs In India (1997-98)
Rank Companies Turnover 1997-98 Turnover 1996-97 Growth%
1 HP 655.0 596.0 9.9
2 IBM 644.0 577.0 11.6
3 Compaq 435.0 359.9 20.9
4 Digital 401.6 321.9 24.8
5 Intel 392.4 360.0 9.0
6 Microsoft 320.0 200.0 60.0
7 Redington 287.3 171.1 67.9
8 Acer 273.0 265.2 2.9
9 Sun 225.8 216.0 4.5
10 Siemens 225.6 154.6 45.9
11 Seagate 175.0 160.0 9.4
12 Citizen 149.4 89.0 67.9
13 BT 108.2 62.8 72.3
14 Oracle 94.5 70.0 35.0
15 Novell 90.0 80.0 12.5
16 APC 90.0 65.0 38.5
17 Liebert 86.0 80.5 6.8
18 Motorola 83.0 68.5 21.1
19 Apple 80.0 97.2 -17.7
20 Samsung 80.0 0.0 #DIV/0!
21 Silicon Graphics India 78.8 71.5 10.2
22 Dell 77.0 70.0 10.0
23 Cisco 72.0 39.0 84.6
33 SAP 60.0 22.9 161.8
24 3COM 54.0 52.0 3.8
25 CA 49.0 11.3 333.6
26 HNS 46.9 31.2 50.3
27 Intergraph 45.0 45.0 0.0
28 Texas Instruments 40.5 36.0 12.5
29 Baan 40.2 15.7 156.1
30 Datacraft 37.0 21.3 73.5
31 Epson 32.9 57.6 -42.8
32 Cabletron 30.9 17.0 81.8
33 Autodesk 30.0 20.0 50.0
34 Lanbit 30.0 0.0 #DIV/0!
35 Toshiba 29.4   #DIV/0!
36 Imation 28.0 0.0 #DIV/0!
37 LG 27.0 22.0 22.7
38 SDRC 26.0 22.2 17.6
39 D-LinK 25.0 17.0 47.5
40 Bay 21.0 33.0 -36.4
41 Ascend 21.0   #DIV/0!
42 PTC 18.0 20.8 -13.5
43 Cadence 14.8 11.6 28.0
44 Microfocus 14.7 7.0 110.0
45 SAS Institute 14.0   #DIV/0!
46 Informix 11.5 10.0 15.0
47 Boca 11.5 8.7 31.7
48 Multi-tech 10.8 10.6 2.2
49 Packard Bell 7.0   #DIV/0!
50 UB 2.0 17.0 -88.2
TOTAL 5891.9 4783.6   23.2

Compaq on the other hand had a single-point agenda
for most of the year-channel building, which it did with admirable success. Compaq head
honcho Mukherjee spent more time jetsetting to the B and even C grade towns to set up
resellers and open retail stores. Mukherjee, the ex-Leverite, was clearly banking on price
as well as a wide availability to make his statement of becoming the number one PC vendor
in India come true. That Compaq is already half-way there, thanks to its takeover of
Digital, does not change the picture much, as HCL still sells double the number of PCs
that these two companies together do.

Sprinters And Laggards
While hardware companies tended to hog the first five places
in the Top 50 table the fastest-growing companies continued to be software and networking
companies. The big growth story of the year undoubtedly was Computer Associates. The
company grew by over 300 percent to end the year at a turnover of Rs 49 crore, as compared
to the previous year when it did business worth just Rs 11.30 crore. CA’s entry into the
market was preceded by the kind of hype and hoopla that helped the company quickly gain
mindshare in the Indian IT marketplace. Its COO Sanjay Kumar was the story of last year’s
IT India/Comdex and the company unleashed a plethora of plans to mark its entry as a
formidable presence in the Indian marketplace. The disadvantages of coming in so late or
in such a recessionary year did not seem to affect CA’s drive to garner a share of the
enterprise business computing market.

That was a market that also saw a lot of action from the
ERP vendors. ERP and its MNC vendors like SAP and Baan were the other success story in an
otherwise lackluster year for Indian IT businesses. Clearly establishing market leadership
in the ERP segment, SAP recorded an impressive 161 percent growth to end the year with an
estimated turnover of Rs 60 crore. Its rival in this segment, Baan, too grew at a
comparable 156 percent to end the year with a turnover of Rs 40.2 crore. The huge growth
rate in the ERP marketplace came about essentially as last year was the year of the ERP.
Indian corporates swung this way en mass and a number of major kills were reported. The
largest undoubtedly being SAP’s deal with the Tata Group to implement a solution across
all its companies. SAP already has an installed base of 70 companies and is actively
working on making its solution India-friendly. Given the small size of the Indian
corporate market, most ERP vendors are actively downsizing their packages and coming out
with India-specific features like different accounting systems etc. Baan has already
dropped the price of its package to $ 5,000 per seat to suit the Indian marketplace. The
company is also keenly eyeing the SME segment where most of its future growth is expected
to come from.

The last of the plus-100 percent growth rate companies was
Microfocus, which paid special focus to the Indian marketplace in the past year.
Microfocus is followed by Cisco and Cabletron. Both the networking companies recorded
growth rates in excess of 80 percent, proving that the networking market is far from
mature. This is expected to be an area of high growth in the coming year as well.
Interestingly, the company to watch is Cabletron which has acquired a new aggressiveness
after its takeover of Digital Networking Systems (Digital Equipment Corp.’s networking
business). Though the combined revenues of the two companies is below the Cisco figure,
what Digital brings for Cabletron is a huge customer base from its former parent Digital
India, as well as a marketing team that can make a difference.

The laggards are led by Epson, which saw its revenues last
year come down by almost half over the previous year. Apple, Bay, and PTC all recorded
revenue falls as they came in the grip of a recessionary market. The others in the list
recorded single-digit growth rates to prove that the year had not been too good for
anyone. In fact, current MNC topper HP just about got left out of the laggards list as it
recorded a growth of just 9.9 percent.

Behemoths And Big Time Takeovers
The Comdig merger might have created the second-largest IT
company in the world, but in India it has created the largest MNC. Combined revenues for
the year put the combination at Rs 836.60 crore, almost Rs 200 crore clear of current
leader HP. Hewlett Packard, with its focus on the printers market, however, ended top dog
for the current year with a revenue of Rs 655 crore. Just Rs 10 crore more than the second
behemoth-IBM. Big Blue with its special focus on solutions and services and a predominant
focus on emerging markets like ecommerce ended the year with a turnover of Rs 664.30
crore. The company recorded a less-than-average growth rate of 11.61 percent over its
previous-year turnover of Rs 577 crore. But the growth was still higher than numero uno
HP, which had a rather smaller growth of 9.9 percent over its previous year’s turnover of
Rs 596 crore. Compaq at third with Rs 345 crore and Digital following closely with Rs
401.65 crore both had growth rates in the plus-20 percent range. Intel rounded off the top
five list with revenues of Rs 392.4 crore and a growth of around 9 percent over the
previous year.

For the big five selling the big machines-IBM, HP, Sun
Microsystems, Silicon Graphics, and Digital-the year clearly belonged to Sun Microsystems.
The company sold over 975 high-end servers to clearly dominate the non-PC server space.
Its distribution tie-up with Microland saw Sun emerge as the runaway success in the
high-end range. HP did well to sell 755 of its machines but not enough to pip Sun to the
post. Digital and IBM did enough to stay in the reckoning as server vendors selling 465
and 457 machines respectively. IBM especially had a decent year with its RS/6000 range
getting picked up here and there.

In the workstation segment, too, the clear leader was Sun,
which sold 751 machines. In the process, they pipped last year’s top vendor HP, which
actually ended up selling fewer workstations this year than it did last year. Compared to
700 in 1996-97, it managed to sell just about 550 machines in fiscal 1997-98. This puts HP
behind even Silicon Graphics, which sold 668 machines, thanks to an ever-increasing demand
from Bollywood for special effects machines.

While the high-end market suffered from the general
depression in the marketplace, the same was not the case with the PCs and servers markets.
Here aggressive price-cutting by the MNCs as well as the domestic companies ensured a year
full of activity. In the PC server segment much of the action was led by current leader
Compaq, which dropped the price of its entry-level server to below the Rs-1 lakh mark. The
move was intended to get the company a foothold in the so far out-of-its reach SME market
segment. Compaq ended the year with sales of 2,638 servers, to finish on top of the MNC
rate card. For Wipro Acer, though much of the confusion regarding the company’s identity
dogged its marketing efforts through the year the company did well enough for Acer servers
to come in at the number two slot by selling 1,784 machines. Surprisingly, Big Blue made a
strong enough splash to end the year with 1,395 servers as against 1,139 by Digital and a
surprisingly low 380 machines by Hewlett Packard. Much of the action in the PC server
market centered around price and here Compaq was the market leader for much of the year.
IBM’s numbers reflect an increasing need on the part of the company to enter the market
where it has not been successful so far. The company is getting aggressive on price and
this is bound to bring in more customers into its fold. Interestingly, this was the first
market where MNCs started directly competing with Indian firms. Compaq’s launch of the
sub-Rs 1 lakh server was the trigger, and the focus is firmly now on the SME segment,
which have now started thinking multinational. Here, too, the market has seen an
interesting segmentation with the more automated medium-sized enterprises going in for the
Compaq or HCL range of machines while the smaller, less-automated firms prefer the file
and print servers from the assemblers.

As far as the non-Intel servers are concerned, while Sun
had grown in the corporate segment marginally, overall there was a fall in both units and
value. It is patently clear that in this category, vendors will have to go in for
innovative strategies to beat back the onslaught of Wintel combine. Adding to the problems
are the sluggishness of the major sectors of the economy, telecom, infrastructure etc.
Unless and until these projects bear fruit and come within the radar of automation, it is
very much likely that the non-Intel servers will continue to be under pressure.

The second issue that these companies are facing is the
post-nuke reactions from the corporate segment. Even in areas such as distribution,
logistics, supply chain etc., where solutions have been developed on these platforms, lack
of willingness to invest and the FUD factor are spoiling the party. At least in the first
six months of the current fiscal, there does not seem to be any respite from these
problems. In the medium run, it is clear that Wintel will be the winner.

The PC marketplace which saw so much competition among the
MNCs and local brands was dominated by Compaq on the MNC side. The company sold 44,462
machines to retain its MNC leadership in the market. Interestingly, with Digital’s figures
added on, Compaq is still about one third below HCL, which is all set to cross the
one-lakh PCs mark this year. While Compaq has been successful in dropping its prices
substantially and HP, too, has followed suit, the MNCs are still a way off from offering
serious competition on the value-for-money brand, which was dominated by Zenith.

However, the one MNC that has made value-for-money its
business for much of the last year was Intel. The company helped give a cloak of
respectability to the gray market by launching its Genuine Intel Dealer (GID) scheme
across the country in 1996. With the introduction of the GID scheme, PC availability
across the country further shot up, as consumers were no longer buying a PC from dubious
sources, they were buying a machine that had the Intel seal of guarantee. At a price that
was even lower than the one offered by Indian companies. What more could a user ask for?

Software Sultans
The company to make the entry of the year undoubtedly was CA,
but on the marketing battlefield, it was Microsoft that continued to dominate the scene.
Growing at 60 percent in a year that did not see any new product launch from the company,
the Microsoft marketing machinery still rolled on nevertheless. Recession notwithstanding,
the focus for Microsoft was on gaining marketshare in the back-end market-which it did
with both Windows NT as well as SQL Server. NT dominated the OS shipments, picking up 48.5
percent of all servers to be shipped into the Indian market. Long-time leader Novell
NetWare was pushed behind total Unix servers, with the two accounting for 25.5 and 25.9
percent of the market respectively. NT made its presence felt on the high-end workstations
too, picking up 36.6 percent marketshare. This resulted in Unix dropping share to 63.3
percent. In the market for RDBMS, SQL Server finished runner up to Oracle, which focused
on a number of things from ERP implementation to vertical segments. The fact that Oracle
Open World was held in India for the first time gave the company a chance to demonstrate
its Network Computing Architecture, as well as tell corporates about its special focus on
vertical segments. Power and telecom are two areas, apart from petroleum, that Oracle is
looking at for growth in the coming year. Novell suffered under an NT attack but still did
well enough to pick up a growth rate of 12. 5 percent. It tied up with Oracle to offer a
five-user version of Oracle free along with its NetWare OS in order to stem the NT tidal
wave at least in the SME segment. Novell still dominates the small aspect of the SME,
while NT is making inroads into the slightly larger companies.

Networking companies too witnessed a good year, with Cisco
recording a turnover growth of over 84 percent. But companies here were hit by falling
prices. Take modems for example. The average price of a modem plummeted from Rs 15,000 to
Rs 5,000, leaving companies like Multi-Tech with poor growth rates in value terms.

Overall, the top 50 MNC companies did business worth Rs
5,891 crore to record an overall growth of 23.17 percent over the 1996-97 revenue of Rs
4,783.63 crore. The MNCs, however, could not match the overall growth rate of the domestic
industry. Falling just short of the 26-percent growth rate there. However, for most of
them, this was a year of building up and changing focus, as they got out of their niche
segments and began to focus on the larger value-for-money segment, which has for long been
the domination of the Indian companies. On the software side, the MNCs are clearly driving
the market with the ERP implementors at the top end and Microsoft at the desktop level
being the major growth engines. Even among these companies, the order of the day was
channel-building and creating India-specific packages.

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