HP offers Green Solutions for SMBs

Time and again it has been proved that personal touch serves as a critical
component for developing healthy relationships. This is a reality that affects
both our personal as well as business worlds. In the tech hardware business
world, this theory was adopted by moblile handset majors like Nokia, Samsung and
Motorola, and the result was an inevitable success story. More recently Lenovo
did it for its IT business, and again it was a triumph.

Sunil Dutt was the man behind both Nokaia and Samsung successes; it was
achieved through region centric distribution models helping OEMs and their
partners to come closer and work in a more trusted and transparent environment.
Undoubtedly, Dutt has been actively involved with the growth of the Indian
mobile industry and has been one of the pioneers in building the channel
distribution network for mobile handsets, driving higher regional penetration
and retail business across the country. His move to join HP PSG as the president
seven months back, was signal enough that HP was planning to do something new
with its channel distribution model for the personal computing division. And now
that the cat is out of the bag, we know what is in the offing.

What it Means

In what seems as a major restructuring of its distribution business strategy
in India, HP is adopting a completely fresh and experimental model for selling
its consumer PC range, replacing the existing traditional distribution model.
Under the new model, HP is reducing its billings with big national distributors
like Ingram Micro and Redington India and strengthening business ties with the
regional and tier-2 partners having strong holds in their respective pockets.

While this initiative sounds unique for the IT hardware distribution
industry, the other important aspect of this entire reshufflingHPs decision to
appoint telecom distribution channel to sell its range of netbooks and entry
level notebooksis completely unheard of.

Understandably, HP is trying with full vigor to rejuvinate its consumer PC
business that is largely dominated with its notebook sales. However, in recent
years it seems HP has reached a saturation point and its notebook sales has
failed to move beyond the 2 lakh unit per quarter mark. It is therefore not
surprising at all that the PC major will try to device a fresh approach and
strategy to increase its market share and reach out to newer customer segments.

According to HP, the new strategy has been designed based on few
fundamentals. The first objective for the IT major is to ensure that the new
model is in co-interest with the partners and that their profitability level as
well as growth is protected. Secondly, it is that personal touch that HP wants
to recreate among its partners by setting up direct interaction methods even
with small tier-2 and tier-3 partners. In a bid to achieve that, the PC vendor
intends to increase and improve the level of information flow between the
partners and HP. And it is looking at implementing systems where mechanisms on
information for products, inventories, sales, etc, can improve its forecasting
process ensuring availability of the right kind of products at the right place
and at the right time. In short, a lot more process efficiency is being planned
to bring in within the channel distribution space through this renewed strategy.

The third objective of this latest distribution model is to help HP address
the key issue of city-wise approach or limited geographical spread and reach.
Arguably HP has drawn inspiration from the telecom channel distribution model
that is tailor-made to reach and penetrate the hinterlands, touching every small
town and citiy.

Essentially we want to bring in vertical level specialization towards our
distribution model. We now have distributors focused exclusively in the HP
Worlds, retailers and large format retails (LFRs), we have distis focused on
sub-distribution and distis focused on commercial back-to-back business and so
on, informs Sameer Mathur, head, solution partner organization, HP India.
Therefore, the idea is to create a portfolio, wherein we have partners catering
to specialized verticals. The approach also takes care of fighting for
profitability which is common among partners overlapping each others territory.
They can now focus on their specialized verticals and ensure a higher and steady
profit margin which is fully protected, he explains further.

Meanwhile, HP is also re-energizing its focus on retailing that is the HP
World model. This is a very important part of our channel business and we want
a rejuvenated focus on this. We are planning to expand this initiative on a
pan-India level, he says. Presently, there are 200 HP Worlds and in the next
one years time the company targets to expand it to 300. We are planning for
more investment in this space. We are looking at appointing distributors who can
support us gain in this move, partners who have the expertise and infrastructure
to address the retail market in an efficient and organized manner, informs
Mathur. HP has appointed Savex Computers as the exclusive distributor for all HP
Worlds across the country.

The PC major is also planning to invest a considerable amount of money in
marketing, so that it helps to create a market demand and pull for HP product
range and drive traffic into its retail stores. We will also be training our
partners accordingly. Additionally, we are also planning to rejuvenate our focus
towards doing business with the LFRs, which is another important sales channel.
Talking on Savexs new role, Anil Jagasia, CEO, Savex Computers says, We will
handle the HP Worlds nationally. Its a new focus area for us. We feel its a
new task entrusted to us as HP is going to increase its focus in the HP World
model. And with this renewed focus, I think the business will grow better.

The Impact for NDs

Albeit this is a redefined business strategy for HP in India, wherein the
regional distributors are entrusted with more responsibility, theres going to
be some negative impacts on the big distributors. Following this sudden move, it
is learnt that Redington India will face a marginal hit of Rs 130 crore on its
topline in the current financial year (FY 2010-11) or approximately 12% drop in
its overall PSG portfolio. Commenting on this report, PS Neogi, president,
Redington India says, Of course, it would have an impact, but only on the HP
portfolio of the consumer PSG business. For Redington, the overall impact is
estimated to be less than 2% of our India distribution revenuewhich we are
absolutely confident aboutthat would be easily compensated by the aggressive
growth plans that we have put in place with all our vendors in the consumer
PC/notebook space.

However, denying to comment much, K Jaishankar, MD, Ingram Micro says, As HP
embarks on a new strategy, we hope it has designed the same keeping in mind the
future growth potential and will continue to protect its partners growth
prospects. Whatever new decision it takes, Ingram will continue to support HP
and be its important partner.

According to Mathur, the large distributorsnamely Ingram and Redingtonhave
and will continue to play a very important role for HP. Its just that we are
trying to redefine our distribution strategy which will prove to be a win-win
situation for each one of us in the long run, he says.

As HP realigns its distribution strategy with the tier-2 and tier-3 partners,
it automatically changes the role played by them which will definitely grow
manifold. Of course this new structure entrusts more responsibility on the
tier-2 partners in terms of identifying suitable channels to sell our products,
train them, support them, and increase market visibility of the brand and its
products, says Mathur. HP has already appointed Linkworld and Karuna Management
as zonal distributors in the east. The entire idea behind this is to appoint
local distis who understand their respective local market dynamics better and
can generate better business and growth. And we believe partners like Linkworld
and Karuna Management whom we have appointed in the east zone fits the role
well. This will help us to expand the market and reach out to a broader customer
segment, explains Mathur.

A Hit or a Miss?

While many debates and apprehensions are going around this new model, the IT
hardware channel space is abuzz with mixed opinions. However, the bigger
distributors seem to be confident of overcoming whatever impact there might be
and is standing by HP.

Ingram has been a very important partner for HP in India and much of its
success is credited to Ingrams contribution to its business. I think HP is
implementing whatever it thinks is right for business growth, says Jaishankar.
According to Neogi, different vendors at different times have adopted different
models for their GTM strategies. At Redington, we feel very comfortable that
given the physical and financial infrastructure at our disposal, we would
continue to have a very pivotal role to play with all our vendors, he points
out. There will be some hits and misses and impacts on business but thats part
of the game. Like we lose out our sub-distribution business but in addition we
get the responsibility of handling entire HP World outlets across India, so
thats a kind of compensation we get and we can do a more focused business with
HPs retail model, explains Jagasia.

Kolkata based Lalani Infotech is one of the oldest partners of HP and is
primarily into regional sales focusing in the east. The company has become the
zonal distributor for HPs Compaq range of products for Orissa under the new
strategy. I certainly support this new business model that HP has initiated.
Its important to revitalize the distribution strategy in order to increase the
footprint in emerging markets that will automatically help it to gain market
share and grow business, opines KL Lalani, chairman, Lalani Infotech.

Interestingly, Western Digital had introduced similar model as they created a
more zonal distribution model which helped them to reach out to smaller and
emerging markets. This new model has helped to achieve higher success and within
two years it has become the #2 player in its segment. As the regional players
deal with lesser number of players their focus is more. I feel with such a
model, partners will get better services from the regional distributors as they
are more equipped to deal with specific local markets, says Lalani who has been
a partner for WD as well.

Lenovo too had shifted into this model two years ago and it had introduced
the same model that it followed in China for its consumer PCs and tasted
success. The only difference is that it had appointed four national
distributorsIngram, Redington, Iris and Neoteric. In addition it appointed
regional distributors who were authorized to buy from one ND only. So
effectively this is what Dutt is trying to do. Instead of having multiple distis
fighting in each location, let there be one disti focusing in a specific zone
who is investing in the business, taking care of and promoting the business,
says Sanjiv Krishen, chairman, Iris Computers.

However, Krishen feels that this move will impact the NDs but then they will
try to rationalize the losses and make up the revenue through other areas. The
distis will have to be more focused towards what they have in hand. Like, we
worked much harder with the RDs so that they buy from us. We improved the
service levels and delivered better support to them so everything worked well
for us. We were able to invest more money in this model and we were able to grow
the business, and Lenovos business went up by almost 60%, he informs. In fact
the new model of distribution is what Dutt is trying to carry forward from his
Nokia and Samsung experience. Both Nokia and Samsung followed this model and
have been successful and we experienced the same thing when we were distributing
for Motorola. So, this model has worked well for the telecom industry in the
mobile phone business. So, I would say its a good initiative and we should give
it time to stabilize, he says.

How Good is it?

Although HP denied providing detailed information on appointment of telecom
channels to sell its range of netbooks and entry level notebooks, it is
confirmed that the PC major is all set to introduce this alternate means of
distribution channel. We cant specifically comment on the appointment of the
telecom channel right now since we are in the process to finalize this. But yes,
we are looking at appointing the telecom channel and to start with we are
looking at some states. We believe this will again help to expand our market
reach and penetration and increase the customer base, says Mathur.

As most of the established players are already selling smartphones,
understanding products like netbooks or entry level notebooks shouldnt be that
difficult for them. Again most of them are already selling various IT products
and have a taste of how the channel operates. However, they require proper
training and support, says Lalani. Interestingly, Lalani himself is planning to
work with the telecom channel for Compaq products in Orissa. However, he feels
that for the IT channel it will create added competition.

Explaining the move further, Krishen says, Introduction of telecom channel
is another experiment. However, whether the telecom channel can sell netbooks or
notebooks, I am not sure. I dont think any mobile seller can sell such
products, it would be difficult for them as they dont have the knowledge
neither the expertise. It might click, it might not. Only time will prove.

Jaishanker too has a word of caution as he feels there is a huge difference
in selling IT products and telecom products and also the way both these channels
operate in India. However, as far as HPs decision to introduce telecom channel
is concerned, I dont have anything to comment. Its purely their decision. One,
however, has to be extremely cautious while selecting the telecom partners. This
is a completely new game and one has to be very careful and take care of a lot
of dynamics in order to be successful in this model, he adds.

Supporting HPs move Neogi says, We must give HP credit for thinking and
trying out a new GTM route. In our considered opinion, the rhythm and cycle of
IT hardware and software business is markedly different from that in the telecom
space and the telecom channel partners would need to absorb and adapt to some of
these requirements.

Indeed, we should give credit to HP to be bold enough and go for some new and
untried model of distribution and that too in a country as diversified as India
which prefers to stick to traditional methods more than relenting to adopt
modern or fresh practices. While their success remains to be determined by time,
I being a HP user (in fact this story is being written on a HP notebook) can
only wish Dutt and his team good luck!

Piyali Guha

piyalig@cybermedia.co.in