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Follow UsConsider this: Delhi-based Elcom Trading for ays into healthcare,
Thiruvananthapuram-based Logtech Systems forays into real estate, and Mumbai-based
Computer Corner has taken up supplying OT tables to hospitals. Although partners
have been contemplating diversification for long, the trend has become more
evident over the past year since the economic slowdown began to have a bearing
on the sales and bottom line of IT partners. Vendors have traditionally
positioned the IT channel community as a premium set of partners, tech-savvy and
more knowledgeable than their counterparts selling consumer electronics. The
community, which burgeoned for a while is today faced with a glut, ‘a potent
time bomb, waiting to explode anyday.’
Diversification was natural for partners. Faced with an over-saturated market
leading to intense competition and thus shrinking margins, geographic
penetration by distributors into smaller towns and cities, tighter credit
policies coupled with the general economic slowdown, partners had to look for
businesses which would provide them with better cash flows and quicker return on
investments. By and large most diversification activities are concentrated in
the metros. Partners in emerging markets like Pune and Hyderabad attribute the
lack of diversification to resource constraint. But a more likely reason is that
markets in smaller cities have not reached saturation yet. The most badly hit
have been big traders in metros loosely categorized as tier two or regional
distributors. With credit cycles reduced to two weeks and distributors
themselves moving into smaller cities, the regional distributors have either
moved up the value chain in terms of services or diversified into different
businesses altogether.
The call of the telecom market
Cellular: One of the most common diversification activities has been to deal
in mobile handsets and take up the franchise of the local cellular service
provider. Partners who deal in mobile handsets and connections have found the
business to be a steady source of income with margins in the range of 10-15%.
The foray has been driven by many factors, prime among which is the launch of
service by the fourth cellular operator and BSNL’s countrywide launch as the
third operator.
Basic telecom: Diversifying into cellular handsets and cellular connections
may be a common phenomenon but becoming franchisees for basic telephone service
providers is not so common. Yet, here is a lucrative business opportunity with
market estimates giving the operational break-even timeframe as 10 months or so.
Non-telecom diversification: There are some really imaginative
diversifications like Delhi’s Elcom Trading taking up the franchisee of Apollo
Hospitals in Delhi. And there is adventurous diversification as into real
estate. Thiruvananthapuram-based SK Hari Kumar of Logtech Systems says, "We
have diversified into real estate, as competition in IT as well as in telecom is
too high. " And there are stray cases like Sameer Mehta of Computer Corner
in Mumbai who has undertaken the supply of hospital beds and OT tables to
hospitals over the last ten months.
Despite the diversification, all partners are firm about their commitment to
the IT business. Partners have agreed that although competition was always
intense, it is the current tough market that is making people look at
diversification. The HP-Compaq merger has also largely distorted the channel
equations with too many partners vending similar product lines. Vendors have
also noticed the diversification and attribute it to natural market forces and
look at it as a process of channel rationalization.
The channel community is optimistic that diversified activities would help in
bringing stability to the IT channel community. This in turn will bring about
more discipline and boost organized retailing.