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Paras Shah
Managing Director
Neoteric Infomatique
Year 2008 could be compared to the movie Kabhi Khushi Kabhi Gam, because the first half of the year was full of high spirits, market enthusiasm, and an economy hovering in the 8 percent+ growth bracket.
Then after the collapse of Lehman Brothers and the beginning of the global financial meltdown, the trends started reversing. Though initially there was talk of India being ‘decoupled,’ by the end of the year the impact was being felt across sectors in the country.
It was a year of mobility, a year when the growth of notebook sales far outstripped that of desktops, and LCDs became mainline products.
Market sentiments in the first half were booming, and stock indices breached new heights of over 20,000, which in turn prompted consumer and enterprise spends.
IT retail gathered steam, and to an extent was quite a success in metros, with smaller cities trying to emulate the biggies. The IT industry as a whole was expected to grow around 30 percent.
But after the fall of Lehman Brothers sentiments changed. The financial and banking sectors were the first to incur losses, and since they are also major IT spenders, the impact on IT buying was severe.
The slowdown then spread to other core segments, leading to a slowdown in the economy. The drop in demand from major industry segments has led to a huge inventory pile-up at various levels of the supply chain right from vendors to distributors, and even tier-1 and tier-2 partners.
The cascading effect of this, combined with the liquidity crunch, has affected channel financing and credit facilities. The twin effect of interest rate hikes and dollar appreciation affected affordability and reduced consumer buying.
By the fourth quarter, the realization that the slowdown had come to stay had sunk in, and industry started taking corrective action.
Meanwhile, the government stepped in, cutting interest rates, reducing fuel prices, and announcing a stimulus package. But with core demand and consumption suppressed, even these steps have not been enough to revive the economy. As such, continued policy intervention at regular intervals seems to be necessary considering the global crisis which is unprecedented in scale and impact since the Great Depression.
Some positives are the cooling of crude prices, inflation coming down to 6.5 percent, the rural economy showing resilience, and growth coming from semi-urban and rural markets as witnessed in the end-of-year sales of FMCGs and white goods.
Forecast 2009
2009 looks to be a year for optimization and rationalization. Organizations will want to get the best ROI from any investment they make—as it should always have been.
2009 will see a change in the pattern of IT consumption. Semi-urban and rural regions are not driven by financial markets or the IT/ITES segments, and are thus less affected by the meltdown.
A rural economy fuelled by strong agricultural growth and the government impetus of the last budget means that it has more spending power. Another factor is the setting up of large SEZs in many states. This has led to the acquisition of large tracts of land, thereby giving farmers additional income—and a chance to spend more.
Pharma, defence, and public and government organizations are expected to fuel the next level of growth. Due to the recent terror attacks, state governments as well as the centre are likely to push for greater security. Laptops will continue their dominance over desktops, and netbooks are likely to fuel demand from newer segments.
Retail will be on the slow burner this year as it is likely to undergo consolidation. Customer behavior will play an important role. Today, customers are not just price-conscious—they also want a quality product—and so brands that can meet both expectations are likely to succeed.
On the channel front, the credit crunch is a major concern. The liquidity shortfall and the drop in consumption are pushing the partner community to a corner to the extent that some parties are going bust.
This is the time for partners to focus on true value-adds. They need to be updated on technologies and their applications because today’s customer is a tech-savvy person.
Opportunities & challenges
While the financial crisis is having a maximum impact on the metros, rural and semi-urban economies are showing resilience, hence the growth pattern will shift toward upcoming cities.
Large corporate and MNC buying is reducing because they are the ones to bear the immediate brunt of the global crisis. SMBs could turn out to be one of the main buying segments. In its efforts to spread across India, IT can take a leaf from the telecom and FMCG industries, which are now present in more than 5,000 towns and cities.
With most activities linked to ROI, trading will be under pressure as margins reduce. The key would be to further streamline the supply chain and bring in efficiency in inventory management. Right business practices (like spread) will help to mitigate credit risks. Emphasis should also be placed on achieving operational efficiencies and cost optimization.
Partners should build service offerings around their core products. Being mere box pushers will not lead them anywhere.
Our initiatives
In 2009 we will be going all-out in our marketing among partners through a series of activities. This will include educational mailers, road shows and technical meets. We will also focus on activities to promote some of the new brands added to our portfolio. As our growth over the last couple of years has been steady, this year we will concentrate on penetrating newer markets, particularly in upcoming towns. Increasing the technical knowledge of the team is also a priority.
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