Bounce Back
Leading partners share their strategies to combat the slowdown and bounce back into business
By K R Nambiar
 Recent events in both the global and Indian economy have more or less confirmed the worst fears of the Indian IT industry. Yet instead of meekly surrendering to the slowdown, channels, vendors and distributors are gearing themselves to achieve the goals they have set for the year.
This is no marching forward blindly, but rather taking careful, steady steps to ensure that bottomlines are safe. “This recession might be the worst in decades, and probably the worst in a century. However, from what I have seen, the industry is better prepared, and has already learned from whatever happened in the past. Most partners and peers I have spoken to expressed concern, yet exuded confidence that survival is definitely possible, and making profits is also possible,” says Anirudh Shrotriya, Director of Pune-based Shro Systems.
Many in the industry echo the sentiment. Comments Rajeev Mehta, Managing Director of the Delhi-based Zest Systems, “The slowdown is real. However at Zest we are seeing it as an opportunity, and hence we are approaching it differently. We know that if we survive this period, we can thrive in future.”
Not everyone is that confident. “Things are definitely going to get worse, especially after the recent terrorist attack in Mumbai. Sentiments are down, but we are taking a number of steps to cut costs, stay afloat and keep our bottomline safe,” states Anuj Gupta, Director, Sales, of Mumbai-based MIEL.
Cost cutting
Whether a systems integrator, reseller, retailer or sub-distributor, channel community leaders are all advocating reduced spending. While some in the industry are trying to cut down the most trivial expenses, others are being more pragmatic and are looking at reducing costs which account for most of their expenses. “We have been evaluating our costs for the past few weeks, and are doing a cost optimization exercise across the organization. We are trying to cut down costs everywhere, whether it is in terms of real estate or in terms of people,” says Gupta.
Travel expenses are being constantly reviewed. “At Quadsel, we have cut down air travel. I have started taking trains, and my management team has also started using trains to reach shorter distances,” informs Girish Madhavan, Managing Director of Quadsel Systems, which is based in Chennai.
Adds Shrotriya, “We have asked our teams to cut down their expenses, and asked them to work under budget. It is during such tough times you realize the value of every penny. We are working toward making ourselves more productive through cost cutting.”
Ajay Mian, CEO of Delhi-based Alle Technologies, has a different opinion. “We are a services organization, and our biggest expense is salaries. I am of the opinion that the minor savings you make by cutting down coffee expenses will not help your bottomline that much. At the same time, such moves can be very demotivating to certain employees. We are therefore focusing on some of the larger expenses, and how to optimize them.”
Support from employees
Over the past few years, salaries have grown at exponential rates. “For an organization like ours, the biggest expense is salaries, which accounts for nearly 80 percent [of our outgoings], with rest of the expenses shared by infrastructure and operating costs. This is true for any service provider. While we have not asked people to go, we have been slow on fresh recruitments, and are more eager to replace or realign people internally in case of any attrition,” continues Mian. “We have not yet asked our staff to take salary cuts, but the regular October appraisal has been postponed.”
Many organizations have reported that some of their staff members have voluntarily asked the organizations to pay them less over the next few months, and requested that they should not be fired. “We have several employees approaching us, voluntarily informing us that they are willing to take pay cuts in exchange for secure jobs. We are considering such requests,” reveals Gupta.
Madhavan of Quadsel observes the same trend. “Some of our staff even offered to take a 40 percent cut in salaries, saying that they have survived on much lower salaries before. Though we are quite overwhelmed by their gesture, we do not plan to cut salaries by so much.”
Bangalore-based sub-distributor and retail chain owner, Sogo Computers has a similar story to tell. “Some of our loyal and senior managers have offered to take lower salaries till the markets pick up. The management is seriously reviewing their offers,” informs Narayan More, Finance Head at the company.
Mian of Alle hopes that this becomes an industry trend. “I am sure no one wants to lose people, neither would they want to run up losses. It is a sensitive issue, and needs to be addressed by the industry as a whole because people are our biggest assets. If salary levels do come down, it will help organizations like ours to survive.”
Some of the leading players are seeing that hiring is easier, and they are using this as an opportunity. “There is a correction happening on the availability of good people at the right cost. We just hired four senior people, and are looking for better people to join us,” informs Mehta.
Payment terms
One of the first indications of the slowdown was the delay in payments, and a request from across different industry segments to suppliers to work on delayed payment terms. “30-day payment terms have gone to 45 days, and 45 days to 90 days,” observes K V Jagannath, Director of the Hyderabad-based Choice Solutions. “Meanwhile, banking and finance rates have also worsened. Now we need to work even harder, and pick and choose customers.”
Quadsel has taken some steps in that direction. “The most important thing any business needs to learn during recessionary periods is the ability to say ‘no.’ It is something we forget during good times because we are eager to do more,” Madhavan explains. “As the first step we have started insisting on some kind of advance, when customers ask for better payment terms. Some do not agree, but others do. We have also taken a call to ensure that margins are healthy, and are looking at margins of around 10 percent.”
He advocates zero tolerance of defaulters and delayers of payments. “We had a case where a reputed customer refused to pay even after two months. Though the products had been delivered two months earlier, I insisted that we would take back the systems and cancel the deal. Once the customer realized that we were willing to take such a drastic step, he caved in.”
Some feel this will not be practical. “Price wars will start as customers can afford to bargain and get better deals. There will be a bloodbath, and you cannot survive with such strategies. You need to look at working with customers who can afford to pay you on time—that is the right strategy,” believes Shrotriya.
Be choosy
Even during an economic downturn, there are segments which are said to be healthy. “We are now targeting the government, education and pharmaceutical segments, as well as some SMBs that are not likely to be affected by the downturn. The government is spending, and during these times it is one of the safest customers because your monies are assured even if there are payment delays,” Shrotriya points out.
A L Srinath, Director of the Hyderabad-based Shell Networks, agrees. “The government and education are two segments which are still spending. It is important for partners to identify the right customer segments and refocus their business.”
A few partners recommend caution while dealing with certain segments—software, exporters focused on North American markets, finance and banking. Segments that are considered better bets include the government and those who manufacture for local markets.
Get real
Large software export houses have been advocating longer hours and shorter recess periods and lunch hours. Some of the partners have started advocating similar moves. “We have decided to work harder and spend longer hours to achieve our targets. During the next few months we know that we need to put in more effort to reach revenues that we achieved more easily during better times,” comments Mehta.
Some sub-distributors and distributors have been smart enough to sense the slowdown and have already taken steps to control the damage. “We have taken a cue from distributors and have started levying delivery charges for all orders which are less than Rs 1 lakh. We advise partners to pick up the goods directly from our warehouses or offices if the value of the order is less,” informs Dinesh Nair, General Manager of Sogo. “On the retail front, we have identified a number of expenses across stores from the cost of signage displays to electricity bills. We are evaluating these and are reducing the costs of the same.”
Chennai-based CCS Computers is also said to be slowing down their retail plans. “We are continuously evaluating and identifying options to ensure that our retail shops are profitable,” informs Sadiq Batccha, General manager of CCS.
Many partners are considering the re-negotiation of real estate contracts that were signed earlier. “We have already opted out of an office space in Mumbai since the rates have dropped by 50 percent, and moving to a location in the same neighborhood at a lower cost,” says MIEL’s Gupta.
Nair of Sogo says that is another option the group is considering. “It is tough asking for lower rates, but we will see whether in some places the regular increase in rates can be done away with.”
Need for positive thinking
Some industry leaders blame the media for creating hype about the recession. “I can understand the recession in Mumbai or Bangalore. But in Kerala the economy is supposed to be doing well because dollar rates are up and exporters are all reporting good results. The rest of the market depends on the average consumer, and I feel the only reason people are not spending is because sentiments are down. We have been advising resellers to stay positive,” says Harikrishnan P K, President of ACKMADA, the local channel association.
Indeed, Harikrishnan is of the opinion that, whatever happens, the IT market will not see negative growth. “I think everyone can sustain themselves because PC penetration in India is still low, and therefore the market will continue to grow. The industry needs to stay positive and cooperative.”
Sunil Pillai, COO of Bangalore-based value added distributor Ivalue, asserts that his company is looking at things positively. “The slowdown is real, but we have been careful from the start to identify the right opportunities, vendors and business model, and our attitude will continue to be upbeat. Whatever be the case, today information technology is critical for all businesses. You cannot survive without e-mail or your laptop, so customers will continue investing in IT,” he insists.
Finance and inventories
HP partners across the country say that HP Financial Services (HPFS) has started becoming active. “We have begun recommending HPFS to our customers, advising them about the advantages of leasing their IT products and solutions against financing them internally,” informs Shrotriya.
With the finance markets down, bill discounting seems to be difficult for most partners. “Project-based funding has been a problem for the past few months because banks have been advised not to fund short-term projects. Hence, bill discounting or short-term funds against purchase orders is difficult,” explains Satheesh G Nair, CEO of Open 2 All Systems, a solutions provider from Bangalore.
Navin Kapur of Iris Unified Learning has a bit of advice to offer. “It is important for partners to build strong and clean balance sheets. Companies that are strong on paper are still getting funded.”
Distributors are already feeling the pressure of piled inventories. “We are cutting neither the number of people nor branches. What we are doing now is reducing our inventory intake. We will slow down purchases and bring down our inventories to normal levels by December,” informs Suresh Pansari, Managing Director of Rashi Peripherals.
He says that bad debts will increase because many partners have invested in real estate and stock markets, and hence they face a liquidity crunch. “The recent negative news is only the start, more such news is expected, and we need to take things in our stride,” comments Pansari. “Our current goal is to see that partners are also carrying smaller stocks, and that the pressure on them is reduced. We are also working with our principals on inventories. The markets will be tough for some time—but they will rebound soon.” |