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In the face of economic uncertainty, five leading partners map out their strategies to ride the tough times
By K R Nambiar
Precision Infomatics
“Markets are bound to rebound”
The prospects for the next six months appear grim. However, we are hopeful of the markets rebounding after September. We expect the GDP growth for the next financial year to be 5-6 percent. The industry, as a whole, should see growth of 12-14 percent. Precision Technologies and its sister concerns saw sales of nearly Rs 300 crore last year. We will be very happy to grow at the industry average rate, and that is our target. We have the potential to grow faster, but are taking a more cautious route to avoid financial risks.
Opportunities
In the next year or so accountability will be key to IT management in all companies, hence they will be extra careful about projects that will not guarantee results. We saw this trend begin six months back and have adopted strategies to offer solutions that will keep customers with us. Since virtualization has been proven to bring down IT management costs, we are betting on this technology. Remote Infrastructure Management is another opportunity we have betted on, and a group company has also set up an NOC (Network Operating Center). We are also expecting local customers to continue outsourcing applications hosting instead of investing in the infrastructure themselves. Security is another area where we see customers investing.
Customer Strategy
It is apparent that IT and ITeS will continue to offer little opportunities for growth. We have identified the government, pharma/healthcare and education as the three sectors that will fuel our growth this year. Our sales teams have been realigned to address this opportunity. We currently have around 800 active customers who fall in the SMB or enterprise category. With the market outlook being austere, we are expecting the IT budgets of clients to be slashed. We have therefore asked our sales team to spend as much time as possible with our clients, to spend time in the field. Even our President is spending more time with customers nowadays.
All the five regions where we have offices have been given the target of adding 3-4 customers every month. Thus, we plan to add more than 200 new customers this year.
Operational Efficiency
Improving operational efficiency has been an ongoing process at Precision. In the last 3-4 months, we have tightened the strings even further. Today, from a figure of 3.5 percent of net revenues, operational costs have been brought down to 2.75 percent. I think any further squeezing will bring down our efficiencies, so our plan is to cut costs without disturbing employee productivity.
We are increasingly focused on collections, and the operations team is making extra effort to see that collections are prompt and that bad debts are kept to the absolute minimum.
HR & Finance
Precision has gone slow on recruiting, and in case of any attrition the first attempt is to find replacements internally. But we have not stopped recruiting totally, and have been hiring on requirement. We have not laid off anyone, and have no plans to do so in the near future. Precision is also investing in training and retraining staff with vendor support.
We are increasingly relying on vendor finance organizations such as HP Financial Services and third-party financers such as ICICI to fund projects for customers. Over 70 percent of recent large orders have been funded through such means. At this point of time, we are not raising any extra capital for our own expansion.
Key Message
Focus on collections, and see that sales teams get closer to customers. Be positive, because markets are bound to rebound very soon.
Choice solutions
“See recession as an opportunity”
I am an optimistic person, and though the market situation has been bad for the past six months, I am of the opinion that it will not continue forever. The government stimulus package has woken up a few segments, and I see overall fiscal recovery in the coming months. I still feel India can see GDP growth rates around 7.5 percent in the next year. The overall IT industry should continue growing at around 18-20 percent. At Choice Solutions we are still on track of achieving year-on-year growth of 45 percent, and there is no change in our targets for the next year. Customers were holding on to their money, but with interest rates being slashed we will see them coming out and investing.
Opportunities
We are extremely positive about the opportunities in data centers, green IT, and Remote Infrastructure Management (RIM). IT is mission-critical, customers are exploring several strategies to ensure ROI, and there are opportunities in consultancy services. Energy costs have spiraled upward, and since almost every business entity is into a cost-cutting mode, there is opportunity to sell our green technology solutions that save money for clients.
Customer Strategy
We are targeting the SMB sector, which still needs power solutions. We understand power, can provide solutions independent of technology, and we see opportunities there. The government is likely to be the biggest spender next year, and we are trying to work closely with different stakeholders there.
Choice currently has around 200 active accounts, and a few hundred other customers. However, we are targeting almost 7,500 potential customer opportunities. This year we are planning to add 200 more active accounts, which should help us achieve our targets.
We are trying to get closer to customers this year, and everyone in the organization has been attuned to be customer-centric.
Operational Efficiency
Though we have not taken any drastic measures yet, I believe that we are and have always been a lean and mean organization from the operational efficiency point of view. We have not cut down on travel because you cannot get business unless you meet clients. But we have tightened strings at a few places which have brought in some savings. Our operational costs, without considering manpower, should be around 4 percent.
Collections have always been a focus, and in these market conditions it’s a top priority.
HR & Finance
We strongly believe that this is the right time to invest because you will get the best price, whether it’s people or infrastructure. That’s why we are trying to raise as much capital as we can to continue funding projects.
Choice is trying to hire the best and will continue doing so through the year. We have come up with a policy to identify under-performers, and may lay off a few. However, the idea is to have a bunch of performers rather than merely cutting out under-performers.
We will continue to invest in training our staff, and that is a top priority.
But we are not being too adventurous in extending credit and implementing risky projects.
Key Message
I have always stressed that there must be better relations between different partners, and that we must work together closely for this will help each other grow. Life gets easier if you see the recession as an opportunity to grow.
Targus Technologies
“Focus on key strengths”
Based on my own experience of working in the US during the last recession, as well as the feedback I’ve received from sources, I think we are going to see tough times. I’m not sure whether the situation will improve within this year, and in all likelihood 2010 will also be tough.
After the Satyam episode, I have lost faith in figures associated with the industry, and hence will not comment on industry or GDP growth rates. Targus Technologies closed at less than Rs 120 crore during 2007-08, and we may cross 130 crore this year if March is good. I will be happy if we achieve during 2009-10 the revenues we achieved during 2007-08. That sounds pessimistic, but we are being realistic.
Opportunities
Anything that saves money for customers will sell in the next year, hence we have moved to a solutions-centric approach where we are pushing services that have immediate ROI for customers. Services offer better margins, therefore we are focusing on AMC, manpower outsourcing, Remote Infrastructure Management (RIM) and network support. We are hoping to increase business through authorized service partnerships with vendors such as HP.
All kinds of optimizations will be in demand, including WAN optimization and infrastructure optimization. We have set up operations in Canada, hoping to get RIM projects from there. We have already bagged projects from the Middle East and Africa. Systems integrators in India will need to look beyond the country and leverage on the skill-sets they have built.
Customer Strategy
Government/defence and telecom are the two areas we are betting on because we believe that business from other segments will be weak in the coming days. We have already formed sales teams to address opportunities in these areas.
We know that to achieve the numbers this year we need to add more customers, so we hope to move from 700 to 1,000 customers. We are confident that the culture in our organization—which is heavily sales-focused—will help us get new orders and new customers. Everyone from our service engineers to our receptionist to our purchase staff is generating leads.
Operational Efficiency
We have not set specific targets for reducing operational costs. However, we are constantly reviewing every expense, and are now stricter with internal claims. Collections are the biggest concern, so extra attention is being paid to see that all collections, including rebates and other back-hand claims, are made on time. This is important as vendors are not lenient in these times, hence partners need to be careful in ensuring their claims are passed.
While we are cautious about spending, we are not going overboard in cutting down any operational expenses.
HR & Finance
We have not laid off anyone, but we have asked a few of the non-performers to quit. Targets have been set for months, and now reviews are monthly and not quarterly.
I see a major correction in salaries in the next few months, and I think it’s something we might have to live with. We have already made new recruitments at packages less than what we would have paid only a few months back.
We are increasingly focusing on vendor funding (such as HPFS) to ensure that customers have funds to implement their IT projects.
Key Message
People should be cautious, and should not ignore the threats of recession. It’s wiser for systems integrators to accept the realities, and focus on their key strengths in the coming days.
Care office equipment
“There are ample opportunities”
GDP growth for 2009-10 should be 4-5 percent. In the IT market we could see single-digit growth for the first time in several years. I expect the overall IT industry to grow by 8-9 percent. For the last 10 years, Care has grown at a CAGR of 45 percent. We started FY08-09 with the ambition to take our turnover from Rs 75 crore to Rs 120 crore. However, due to the slowdown, we will achieve a top-line of just over Rs 90 crore. In the next fiscal we expect to achieve 20 percent growth.
Opportunities
With nearly 70 percent of our turnover coming from consumer PCs, our PC business has been growing at 60 percent year-on-year for the last four years. Now however we expect pure notebook sales to dip to a single digit, hence we are looking at new product categories.
Within consumer PCs, we are betting heavily on netbooks. We are presently doing 225-250 netbook units and 2,200 notebook units every month. We expect netbook sales to grow to 600-650 units per month within the next 3-6 months. Within the next 12-18 months I expect netbook to notebook sales to be 50:50. We expect the ASP of netbooks to fall in the next three months from the current Rs 20,000 to under Rs 15,000.
The second category we are focusing on is home security products. We have recently signed up with Australia-based SWAN Systems, one of the largest providers of home safety and security solutions.
Another area of focus is going to be barcode scanners and printers, for which we have signed up with Argox, Zebra and Symbol.
Consumables and accessories have been identified as yet another growth area. With PC proliferation in homes expected to increase due to the acceptance of netbooks, we expect increased demand for PC accessories. In the consumables biz we have signed up with Future Graphics, a manufacturer of components for remanufactured and refilled cartridges.
Customer Strategy
As our customers are resellers, our aim has been to reinvigorate them through schemes and promotions. For the new categories of business we are leveraging our IT channels and have started conducting one-on-one training programs for select partners for providing these solutions. To make selling simpler for the channels, we have set up a help desk they can call.
HR & Finance
We are neither laying off people nor cutting their salaries. Still, we are not hiring anybody at least for the next six months. We are using the same resources to sell a wider portfolio. On the finance front, we share a great rapport with our bank. Indeed, after the distributors stopped providing channel financing, it has obliged us by providing purchase bill discounting.
Operational Efficiency
We have always been focused on operational efficiency and cost management. Our operational costs are probably the lowest in our peer group, and margins among the highest.
One of the largest cost components for us was telecom. But since November, sensing the slowdown deepening, we have cut the cost by 40 percent. We worked out a new corporate plan with Airtel which brought down our mobile bills by almost 50 percent.
On the inventory front, we have reduced our stocking to one week from 15 days.
Key Message
My message to channels is not to give up hope. There are ample opportunities to sustain business. To peer distributors I would say: focus on new businesses that are likely to do well, and train your sales team in new marketing techniques because tough times require a different approach to engaging with customers.
Park networks
“Avoid risks and keep it simple”
Since October 2008, the market has seen volumes come down by 30-40 percent. I am being told that the markets will continue to be bad in 2009, and we are preparing for all eventualities.
I have no visibility on the GDP and industry growth rates, and will not try to predict the unpredictable. The washout in Q4 2008 resulted in most distributors and sub-distributors overstocking, and recently we have corrected our stock positions. We hope that the business will not dip any further.
Opportunities
It is easy to chase new opportunities. However, we are of the opinion that it is better to be loyal to existing vendors and leverage on your relationships and strengths, since these pay you back in the long term. We will be adding new products and maybe new principals. Instead of experimenting, we will focus on fast-moving products this year.
Customer Strategy
We sell to close to 1,000 partners in the NCR region and Haryana. This year we will be cautious in adding more partners, and have set up a stringent policy for reviewing partner credit terms. Cheque bounces are being dealt with more seriously, and the credit terms of partners are being constantly reviewed. We are also monitoring the market situation, and are building up market intelligence on every partner with whom we do business. We expect some of our genuine customers to have issues this year, and will work closer with them and support them.
This year our focus will be to work with fewer partners if need be, but work with safe margins.
Operational Efficiency
We have already reached an operations cost of 1.7 percent of our turnover, which is quite good for our industry. I do not believe that trimming it further will help.
For a sub-distributor, collections are always a concern in good times or bad. We are increasing focus on rebate claims. The biggest change we have made is in the way we plan our stock purchases. Earlier we used to plan and purchase inventory for 21-25 days, and were not concerned if a small percent of the stock was more than 30 days old. However, we now plan inventory for only 16 days. Ideally though we need to be able to plan and stock for 13-14 days. Anything less is not viable in our business model.
We have almost done away with month-end purchases, and I hope all sub-distributors will follow this model. Today, purchases are weekly and sometimes in more frequent cycles. The idea is to buy less, but buy more often. This gives us better visibility of stock and sales in the shorter run.
Finance & HR
We have a small and lean team despite having close to Rs 100 crore in turnover. We are not contemplating any salary cuts or lay-offs. Instead, we are asking our staff to work smarter.
Finance is an issue. Previously we used to do nearly two rotations in a month. Now doing a single rotation is a challenge despite leaner inventory and more attempts to forecast. We are not looking at borrowing externally or raising other money to fund the business this year as we do not plan to outgrow the market.
Key Message
To survive during this recession, you don’t need any rocket science. You can do so by not being over-smart, by not trying to outgrow the market. It is better to avoid risks and keep things simple. Focus on the bottom-line but do not ignore your top-line if you are into distribution. |