UPS: Where Bigger Is Worse

Indians
love to eavesdrop. It is not an ingrained skill or considered bad manners, we
just tend to lend a sympathetic ear to any conversation that might be of some
fruit to us, some day.

On a recent visit to a computer shop in Delhi’s bustling gray market for
computers and peripherals, Nehru Place, this special Indian trait stood fine by
me. Like most others there, I could not help but overhear a conversation between
a first-time computer buyer and the shopkeeper. While the buyer was keen to buy
a branded UPS (read big name) for his home PC, the reseller was trying to sell
him a low-cost local UPS. The clincher, "Sir, what’s the performance
difference between both the products, same components, same features but look at
the price differential."

According to estimates, about 55-65% of the market has been cornered by the
unorganized sector. Comments Dan Squiller, president, power conversion, Invensys
Power Systems, "In developed countries, the top 10-12 companies have
captured about 80% of the marketshare."

The manufacture of UPS’ not really involving rocket science, it is easy to
see why the unorganized sector has come to play a big role and grabbed a large
slice of the market pie. However, these players are usually at the lower end of
the market, catering to power requirements of less that 30kVA, more of a
volume-driven business.

However, at the top end of the spectrum are bigger brands like APC, Tata
Liebert and Powerware, with products catering to requirements above the 200kVA
range. Though in volumes, they are estimated to be less that 7%, but in value
terms, they dominate the market with about 45-50% of the share.
Post-liberalization, the telecom, datacom and ISP segments have become the
hottest targets for the UPS industry, specially at the high-end product range.

Another important segment for the market is the software industry, which
accounts for over 25% of the $177.2-million market. (See graph) However, even
with a small base of 5%, it’s the SOHO segment which is the sweet spot for the
industry. Growing at an average of 35-40% year on year, the volume-driven
segment is also witness to the maximum heat. Given the increasing PC penetration
and the Internet driving higher SOHO PC sales, UPS manufacturers are also moving
with the flow. No wonder then that the sluggish October-December quarter saw
major UPS players coming out with innovative schemes for their dealers.

While bigger players are using branding and strong dealer network to fight
for higher sales, it is usually at the cost of other players and not so much to
the detriment of the unorganized or gray market operators. The price-sensitive
market is subjected to high tax structure and irregular government policies. For
example, it is only in India that UPSs are classified under the ‘electrical
product’ category and not as an ‘electronic product’. The duty
differential due to this classification is about 13% and also entails the
highest customs and excise duties.

Given all this, industry dynamics are not going to change so long as duty
structures are not rationalized. Until then, big players will continue to focus
on the mid and the higher end of the market without making much of an impact on
the low end, a domain of smaller manufacturers and gray market operators.

So the next time you go to the market to buy a UPS for your personal
computer, don’t be surprised if you hear the clincher: "Sir, big brand
companies are only charging for the brand name. There are other products with
the same features and warranty, and look at the price difference!"

• "The Indian market potential is
  mind-boggling"
  
  Dan Squiller, president, power conversion Invensys Power Systems

Yograj Varma in New Delhi