|
 Paras Shah, CEO, Neoteric Infomatique opines that while the economic outlook has significantly improved, there still remain some factors that are concerning and hence a cautious approach to business is required
Year 2009 was a year of reset. All the key economies and sectors purged excesses and recalibrated to realistic level.
Fuelled by easy availability of capital at low rates in US and Japan, there was easy and in some cases excess liquidity till 2008. It found its way into hot sectors and in emerging economies. As this excess liquidity chased limited opportunities, a self-fuelling bubble was created. In many ways, this led to a deviation from fundamentals of business—be it in terms of inventory, credit, operations, hiring or geographical expansion.
IT industry too was also not immune to the slowdown. But, we combated the slowdown—taking lesson from the dot-com bust in 2000. In short span of time, the channel took corrective steps.
Several companies streamlined business processes and reduced unwanted overheads. Everyone assess their outlook and expectation, and tackled the excesses built up in the system.
We didn’t see the panic in the market that we had witnessed in 2000. The government did a good job by stepping in with lower interest rates, stimulus packages that helped in the process of revival.
In India, the slowdown has been much short-lived than expected. In Q3 2009, we saw a bounce back in enterprise buying led by sectors like utilities, infrastructure, education and automobiles.
The year 2009 taught us to have tighter financial controls with stronger credit and debt management. We have to be nimble in transforming our business depending on the fluctuations in the global economy. Especially, since India is becoming increasingly important in the global economy, the up and down cycles of the global economy may impact us more than before.
Be very wary
Global economics has improved but not to the extent we would like it to be. Hence, we have a cautious outlook for 2010. Currently, some of the excesses of pre-2008 are reappearing. The quick surge in capital markets is a matter of concern, and so are the soaring realty prices.
Many fear that this might be a W-shaped economic recovery, and the bounce back witnessed in the global economy is perhaps a result of large stimulus money poured in by various governments.
Despite that, we still expect the IT industry to grow by 15 percent in 2010. We have seen retail demand return from the Q3 2009 quarter led by pent up demand, low-interest rates and improved consumer perception about the economy.
Technology trends
There has been a noticeable shift in how consumers perceive technology. We have seen defining shift toward mobile computing, evident from the success of netbooks. With 3G roll out by telecom players on the anvil, if the process of spectrum auction is not further delayed, we will see an exponential growth in mobile computing—not just notebooks and netbooks but even in smart phones with computing power.
In 2010, with falling ARPUs (average realization per users) among telecom players on voice services, the focus will be on value added services like broadband and IPTV. This would also spur growth in the PC market.
But there are a couple of factors that could prove to be a stumbling block in the retail segment. With increasing inflation, essential commodities have significantly contributed to the rise in cost of living for families and could dent their sentiments. Going forward, rising inflation will harden interest rates.
Road ahead
Among corporate sector, there are a few who have doled out IT Capex from Q3. However, the IT purse string overall is yet to loosen up and deals are not closed as expected.
It will be some time before the momentum in the commercial segment will resume. According to our estimate, the demand from commercial segment will grow in another one to two quarters. We think Q2 and Q3 of 2010 will be crucial.
| Takeaways for 2010 | - Focus on business fundamentals
- Be prudent in forward looking projections
- Be lean in terms on inventory and focus on productivity
- Have a hawkish eye on inventory and debtors
- Focus on value additions to create genuine entry-barriers and differentiation
- Listen to your customer and markets
|
Being a distributor, one of the most awaited policy reforms of 2010 is the introduction of Goods and Services Tax (GST). Although delayed, GST will greatly simplify and rationalize taxation. It surely would
significantly contribute to efficiency of the entire IT value chain.
We expect a certain amount of extend rationalization and consolidation in the IT distribution scenario. Both vendors and distributors will look at consolidating their products and services portfolio. New concepts like cloud computing will bring about new services delivery models.
In the retail segment, a lot has been said about the competition large format retailers (LFRs) pose to smaller retailers. However, most of these fears haven’t materialized. While LFRs are here to stay and will be an important route to market for many vendors, they will have to justify their costs and ROIs.
Action plan
For most distributors, the focus in 2010 will be on deeper market penetration. Due to slowdown, many distributors and vendors had curtailed their expansion plans. But in the new year, we will see increased investments in developing these markets.
In 2009, we were confident that the next level of growth will come from smaller cities and towns. We have been vindicated. Upcountry markets are growing faster than the big cities. Increasing tele-density in rural areas will play an important role in PC penetration in these markets.
We believe Q1 2010 would be crucial in deciding the path ahead for the IT industry and hope to see more clarity on policies, taxation and growth trends. |