Multinationals in India Firm Foothold, Rapid Growth

Eight of the DQ Top 20 are
multinational companies. Prominent among them are Hewlett-Packard, IBM, Tech
Pacific, Compaq, Microsoft and Samsung Electronics.

How did the MNCs manage to flourish in
India, against the hurdles here? Slow bureaucracy, weak infrastructure–particularly
telecom, piracy, and intense competition–especially among themselves? How did
they grow so fast despite the low penetration of infotech? How have they
penetrated India’s myriad small towns?

MNC System Vendors

(Rs crore)

in 1999-00
1IBM India1,182.4

Revenues of HP only

MNC Peripheral Vendors
in 1999-00

A big factor is of course their
products, which often have a technology, quality and brand edge. But products
alone do not make success stories, and other factors have helped.

One has been the strategic ability to
work closely with Indian partners and developers. Another, the acumen with which
market needs have been assessed-and, often, products developed or modified in
response to these needs. And of course, the advantage of experience of
international trends and their impact on local markets.

HP, IBM…1,2

In the last fiscal, HP along with its
software operation, HP-ISO, grew rapidly-by some 80%, to Rs 1,256 crore. HP,
already dominant in peripherals, grew through a focus on corporate desktop PC
sales and enterprise systems and storage. HP also announced its e-speak
technology to stake its claim in ebiz, and pushed servers and services to ISPs.
The challenge for HP in India now will be to make its presence felt in the
increasingly crowded world of ebiz infrastructure providers.

IBM also had a good year in 1999-00.
Most systems areas brought in strong revenues, and services helped fatten the
bottom line. Notebooks, PC servers and RISC servers did well, though the company
struggled to grow in desktops. The Tata-IBM joint venture ended, and became IBM
India in September 1999. The Rs 707-crore company remained separate from the Rs
476-crore IBM Global Services, but the two worked closely and reported to the
same CEO. IBM Global Services grew 34% to Rs 476 crore, over half of the growth
coming from service exports. Systems made up four-fifths of IBM India revenues,
down from the 90% in fiscal 1998-99, as peripherals grew faster and software
finally integrated Lotus.

Acting as catalysts for change and
helping build and develop a set of opportunities around them, MNCs played a role
in building new dimensions in both software and hardware sectors. As MNC
companies and their markets grew, a positive spin-off was that a whole industry
of partners, channels and resellers evolved, leading to a mature IT industry
catching up with the developments and standards worldwide-and fuelling a
consumer boom.

Channel focus

Demonstrating the channel trend was the
performance of Samsung Electronics India-which grew 54% to Rs 501 crore, moving
four rungs up the DQ Top 20 ladder. With just 11 employees, that’s an
impressive productivity level of Rs 46 crore per employee-helped by a channel
program and a supporting B2B network. The company worked towards building volume
demand and gaining market share, and it brought in a full range of computer
subsystems and peripherals. It ramped up its share of the monitor and hard disk
drive markets. Samsung’s flagship Samtron line of color monitors continued to
dominate the market, selling 435,000 units-and helping unit sales grow 61%. A
channel focus, customer orientation and tech expertise were clear strengths that
helped Samsung grow exponentially. Samsung intends to touch Rs 800 crore this
fiscal, and Rs 2,500 crore by 2003.

MNC Networking Vendors

(Rs crore)

in 1999-00
33 Com140.0
MNC Software Vendors
in 1999-00

In the Indian peripherals market
another big gun, dot-matrix and inkjet vendor Epson, established itself firmly,
helped by a high-profile branding campaign and a wide range of new products.
Epson clocked Rs 159 crore against the previous fiscal’s Rs 95 crore, moving
to #50 in the DQ Top 200, up from 71. It sold 80,106 DMPs and 70,542 inkjets in
the country.

Cisco’s Net game

Cisco remained number one in
networking, as in 1998-99. Its sales revenues rose to Rs 360 crore in 1999-00
from Rs 143 crore last fiscal. The router king held a virtual monopoly with an
estimated market share of about 75%. Cisco also continued its lead in the remote
access server (RAS) market, cornering a 45% chunk of the market. However, in the
switches segment, it faced heavy competition from Cabletron and 3Com.

The MNCs chose their markets with care.
For example, while many players in the networking space focused on the higher
end, D-Link targeted the low-end network interface card, hub and dial-up modem
segments-growing 93% in the last fiscal. With a strong channel network, and its
manufacturing plant in Goa, the company ensured the shortest time to market,
another strong MNC characteristic.

Software struggles

The packaged software market presented
a different scenario for MNCs in the hardware-dominated Indian domestic IT
market. For the strongest company in this sector, Microsoft India, the last
fiscal was one of mixed fortunes. OEM Windows sales improved, with growing MNC
PC market-share, and it signed agreements with state governments, ending up with
revenues of Rs 466 crore in fiscal 1999-00, a growth of 40%. But the much-hyped
Windows 2000 did not move as well as it may have hoped for, with Windows 98
still remaining dominant by far. Microsoft focused on growing enterprise
application areas, especially SQL Server databases and Exchange email servers,
an other NT server software.

The database multinational Oracle
couldn’t generate the same fervor in India that it did in the US, but it did
launch a high-profile TV and media campaign. Though Oracle remained the most
sought after database name, Microsoft’s SQL 7.0 continued its inroads into the
company’s traditional stronghold.

Another big MNC engaged in software was
SAP India, the wholly-owned subsidiary of SAP AG, Germany, which enjoys a 50%
market share in the enterprise software worldwide. The SME segment continued as
a prime focus for the company, with the reconfigured SAP/R3 and MySAP.

Lotus, now an IBM subsidiary, is more
than a decade old in the country and another stalwart in the software business.
The company, which operated in India through a liaison office, dealt in packaged
software and training. It achieved approximately 65% of its revenues from
software, including Lotus Notes and Smart Suite, and the rest from education,
support and consulting. (Beginning this year, Lotus revenues are included in IBM

Shortfalls made up

On the flip side, there were areas
where MNCs did not fare so well. For instance, the retail business for IT
products and the quality of the supplies market, which was characterized by
substantial amounts of counterfeit and fakes. But what offset these negatives
was that most MNCs had a wide range of products within their IT stables, whether
it was consumables or high-end servers. These brought the companies high
visibility and was key to entry into many segments of the market. A consequence
was the explosive growth in the home PC market. And the retail business in India
saw an upturn in relative terms.

Lessons for the future

What can domestic companies learn from
the MNCs? One, there is a need for IT companies to nurture, invest and maintain
their position in retail so that consumers have easy access to products. Second,
provide better products and technology at good prices. Three, make products
trouble-free and put in a good support network.

Then there are the macro issues. The
lack of adequate infrastructure is one of these. It prevents the Indian industry
from exploiting the Internet economy to the maximum. And though we may witness a
steady growth in ecom transactions, the absence of adequate bandwidth and
world-class telecom infrastructure not only slows the pace for companies across
the board but also affects the Indian companies’ bottom-lines. Many MNCs have
invested heavily in infrastructure, with backup datacom, call centers, and more.
It costs money, but it’s a major differentiator and a critical customer need.

A key foundations of the MNC model is
to share best practices with customers-on a world-wide basis. They allow their
customers to form a link wherein they give feedback on how a particular solution
can be improved and made far more effective. The experience gained through this
process is tailored to the needs of the MNC customer all over the world. This
leads to an increase in the ability to deliver customer-centric, open,
personalized and collaborative solutions on demand. Aligned with customer
requirements, the MNC in India as elsewhere has the ability to offer solutions
to a range of industries. And with the Web, it’s easy to do this.

On a particularly positive note, there’s now a range
of Indian MNCs spanning the globe too-from training majors NIIT and Aptech to
software exporters who are busy opening offices, merging and acquiring
companies, and listing on Nasdaq and NYSE. Doubtless, other countries will learn
form them, too. DQ

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