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HP PSG goes regional in distribution, move to hit Nds

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CIOL Bureau
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GURGAON: Times are changing in HP it seems. Rattled by the advance other vendors have made in the laptop space technology major HP is looking to change its distribution strategy for its Personal Systems Group (PSG) division, which looks after its PC business including desktops and laptops. In the new scheme of things, HP is likely to reduce its billings with Redington and Ingram Micro and start aligning with smaller regionally strong distributors.

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For the eastern zone, HP is said to have appointed Linkworld and Karuna Management as its zonal distributor and is supposed to have done away with its business with Ingram Micro and Redington. In all probability Savex has also been signed up to supply exclusively to the HP World outlets.

While the vendor has not confirmed this officially, sources in the market are saying that in all probability the new distribution strategy will be rolled out as early as the beginning of May. When The DQ Week spoke to Sunil Dutt, President, PSG division, HP India, about the speculation. "We are constantly evaluating and evolving our distribution strategy wherein we look to penetrate markets and go deeper into each product category. We are committed to making it simpler, easier for our customers to access HP products and we will accordingly make changes in our distribution strategy as and when we feel it is needed. We have national distributors like Ingram Micro, Redington, Rashi Peripherals, Savex, Iris and others under which come other channels like sub distributors, LFRs, commercial partners, HP World partners etc. We would want to be nearer to our customers and given the size of the market which is a growing pie, we might look to tap the untapped potential in tier-2 and tier-3 cities by tying up with partners who by virtue of their capabilities are able to scale up to distributing for us. While we are happy with the healthy growth provided by our distributors, we are not ruling out the possibility of typing up with strong distribution partners in the future given that we deal with a wide range of products. We would also ensure that our current relationships will not suffer as the market pie itself is growing and so in an expanding market there is money to be made for everyone. This is a strategic decision for us because we are looking at our existing partners but we are also thinking about their capability and reach. We will look out for the best interest of the customer in terms of service and reach and if required we will scale up and add more partners. We will try to ensure no competitiveness among our channels and will seek the agreement of our existing partners. There is bound to be some overlap but it should be manageable," said Dutt.

Partner response

When we approached HP partners for their reaction to the move, while some partners did not want to comment on what is speculative in nature, others did confirm that change is on the cards at HP. Vinay Dugar of Kolkata based Supreme Technologies said, “There has not been any official declaration on part of HP regarding the change in its distribution model. Rumors are going on in the market that HP may change over to zonal distribution model and appoint regional distributors rather than the national ones. There are primarily two sides of the proposed change. On one front, the change is viewed as convergence of IT and telecom as Sunil Dutt is bringing the time-tested telecom distribution model in the IT channel space. Also, he is trying to make IT a cash-driven industry rather than a credit driven one and this can better the IT channel space as a whole.”

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Adding further he opined, “On the other side, the move will result in HP dealers to allocate separate funds altogether for the HP products as it is presumed that the credit period can come down drastically in the effort to make IT a cash-oriented business and at the same time, HP has to ensure that the profits are optimal for the dealers. Analyzing the new structure will take upto two quarters and as far as I heard that HP will start off with the new structure on May 2.”

A Navi-Mumbai based HP World partner also commented on the condition of anonymity, "From what I hear in the market, it is true that there are changes happening at HP. For instance they are planning to remove back end structures which is a good thing for the industry because often there is a lot of money that gets stuck for long periods of time. On the other hand there is talk that they might force retailers like us to be exclusive HP partners without selling other brands, this will not augur well for us. Also there is stuff going around on the grapevine that now that Sunil Dutt has come in from previous companies like Samsung and Nokia, that the traditional mobile channel may also be used for retailing of laptops and desktops. In my opinion, the factor that is prompting HP to change is the rise of Dell via the channel route in the last three years. Dell went the channel way in a linear fashion in India around 2007 and since then has done well even taking the market leadership from HP in the laptop segment and strongly giving HP a run for its number one position in the desktop category as well. As of now HP's distribution is all over the place and there is overlap that takes place among their distribution channels while Dell has it more structured. For instance, HP would give us 500 PCs at a certain price and also give an LFR like Croma around 5000 PCs at a lower price. Obviously Croma stands to gain and we are stuck with stock which is priced higher and therefore impacts us. There needs to be more clarity in their policy," said the partner. V. Murali of Precision IT chose not to comment on hearsay, "As of now nothing has come out officially from HP's side so I don't want to comment on this."

When contacted A Singh of Delhi-based Computerland, an HP Exclusive Partner for PSG Products who has been associated with HP for 15 years, said, “It is a good move for all the partners who seriously wants to do HP business. HP's products are fast moving products . They move at a bad market operating price . You see a lot of unnecessary discounts given by dealers who are into selling other products as well . With this move of having dedicated partners which will only sell will ensure an end to all discounts . The pricing will be uniformed now. The company is also likely to reduce its credit cycle from the existing 25-40 days. So, all those partners who buy HP only for liquidating cash and use it somewhere else will not be able to do this anymore. On the issue of national distributors being affected from this move , I would say the role of a ND is anyway going down in the last few years.”

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Pradeep Jhawar of Kolkata-based Bard Roy Infotech, “The change in the distribution model is expected to take place in May-end. Till now, no official communication has been made and many rumors are going on in the market regarding their changes in national distributorship and pricing norms. As far as I know, Ingram will continue with HP distribution and Savex will be in-charge of supplying to the HP World outlets. The move, according to me has been taken primarily to increase profitability and remove the channel anomalies. The restructuring, according to me is done on the Nokia model line. Previously, the MoP was dubious as the channel partners were continuously fluctuating the price to enhance sales. Now, as far as I know, HP will be dictating the price removing this unethical business practice. Personally, I think that the new move to restructure the distribution model will bring in more profitability in business and will enhance the company’s focus.”

Welcoming the move another Kolkata partner PL Suhasaria of Caltron said, “There hasn’t been any official declaration from HP over the distribution model change but talks are on that beginning next month, there will be a total change in their pattern. I feel that HP is keeping mum on the projected strategy and may be disclosing facts only after implementation. Even the RSMs of the company are not able to furnish the details about the forthcoming change. As far as I heard, Ingram Micro might cease to be the national distributor for the Compaq range and could be replaced by Savex. Personally, I believe that the change will be for a better future and will help remove the channel anomalies.”

Elaborating that this is not a hasty move, but something that the PSG division has been working for long Vikash Tibrewal, Microtrack Business Systems said, “As far as I know, in the last six months, the problem regarding pricing has become acute and HP personnel were touring to find the reasons. Dealers across the country were setting up lower prices to outrun each other leading to imbalance in the pricing which ultimately led to a weak pricing form. Now, HP is going to fix this problem once and for all. Initially, in the implementation stage, I believe that there may be some hurdles as is normal with any changes. However, there will be a long term benefit because of the reworking of the distribution policy. It is always HPs policy to implement changes beginning every quarter and under no circumstances are they going to disturb the existing one. So the change in the distribution model is expected to be implemented in the very next month.”

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However, not everyone seems to be thrilled with the new changes. Manoj Misra, CEO, Computer House, Lucknow said, “The marketshare of HP will eventually dip since the new regional distributors may not support the localized channel partners as compared to the support given by Redington. However, we welcome the HP's new initiative and it will give opportunity to earn few extra bucks.”

Rakesh Jain of Bengaluru based Rakesh Trading Company wanted HP to come out clearly with the changes if there are any being made. "HP is a giant in this business but they must not sidetrack us dealers if they are making changes. We tried to contact them but they said that they are not aware of any changes. They should inform their channels about changes if they are planning to make it. They should also ensure that the stock of 15-20 days lying with us should also be protected and not affected as a result of any change that may happen. So far they are not telling us anything but if there is something then they must inform us. We have been doing business to the tune of Rs 8-10 crores annually with HP and we have been a partner with them for long, they should not resort to doing things without informing us. If they do that, then it would be wrong of them," said an apprehensive Jain.

Finally, if and when things do come out concretely from HP's side, there is bound to be a lot of reaction from the channels. Will have to wait and see. Watch out for this space.

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