Desi PCs under threat?

Goldie

MUMBAI: Come January 2005 and the PC business in the country could see many an equation changing. From this period onwards, duty-free regime as part of WTO agreement, is expected to come into existence. What this means is that multi-national PC vendors would enjoy the benefits of zero customs duty on their products and hence be able, to price them more competitively. This, market sources believe, could pose a serious threat to both Indian PC brands as well as the assemblers.

Currently, both the Indian PC brands (like HCL, Zenith, PCS) as well as the assemblers are at par with each other on price front. However, when compared to MNC brands (like HP, IBM), they stand to be cheaper by 15-25 percent. However, with customs duty done away with--which is at around 15 percent for whole machines--the price differential can reduce further.

Currently, multi-national PC vendors, command nearly 19 percent marketshare (MAIT figures) with Indian brands having 16 percent of the pie. The rest 65 percent belongs to the assembled segment. Assembled segment so far, has been able to have a price-advantage on counts of low overheads, small marketing expenditure and low operating margins.

The Indian OEMs on the other hand, have benefited by using bulk purchasing powers for components to reduce costs. However, in case of MNC vendors, their products have traditionally been viewed as one with high price tags and unappealing to budget-conscious users. But, with WTO's recommendations for free trade, these vendors can now look forward to enjoying many duty-related sops. As a result of which, price differential can be brought down to 10 percent -15 percent region. "Once that happens, which I believe is very likely, the assembler segment will come under severe pressure," opined Ontrack Solutions director, G Balakrishnan.

And vendors sure are looking forward to it. "The WTO regime would definitely result in an increase in the share of branded PCs (both local and MNC). Branded PC business will witness the kind of growth that mobile phones are witnessing today," felt HP India Commercial Desktops (PSG) country manager, Nitin Chaudhry.

According to him, the duty-free regime would result in a level-playing field for all players in the industry and would see a shakeout in the assembled segment thereby leading to consolidation of the industry as is witnessed in the developed world.

Partners too are closely watching the ramifications of such a scenario.

"Post-WTO, only the VARs would be able to survive and pure box-moving assemblers would find it difficult to sustain," said Xpress Computers MD, Chetan Shah. This will also be an outcome of the fact that once WTO agreements are implemented, there would be an international pressure on the Indian Government to rationalize its domestic tariff structure.

This could mean lowering of excise duty, roll-out of VAT and amending disparities in the current duty structure. As a result, those operators, who survive by way of duty evasion, would succumb in the long run.

"Only those players who are able to offer value, be it MNC or Indian brands, or even assemblers, would survive in the intensifying competition," opined Ashtech Infotech sales and marketing VP, B Shankar.

Sources feel that Indian brands would further get squeezed between the assembled and MNC brands. "We are already matching prices of assembled PCs and it is quality and service support that will protect our marketshare," said PCS Industries product manager, Arun Narayan. He felt that reduction in duty will only increase the market and there would be a bigger playing field for PC vendors.

"The customers would then become more aware of the variety of features and services, which they can get at lower costs, and therefore the dynamics of the market will then shift from cost to value," suggested Chaudhry. A point that even MAIT openly endorses.

"In our recommendations to the Government, we have always stressed that duty structure should change in a way that PC becomes far more affordable so that price doesn't remain the single largest factor for a buyer in decision making," added MAIT executive director, Vinnie Mehta.

While it would be foolish on anybody's part to blindly assume that assemblers would gradually be forced out of business because of changes in duty structure, it would surely be interesting to notice the way business models of different PC manufacturers evolve over the next two years.

(CNS)