Swadeshi assemblers vs. videshi brands: The battle continues

With the PC prices steadily reducing over the years and the configuration

going up to provide more and more power to the consumers, the market has a

bright future ahead. The PC market in general is going steady beating all the

odds of political instability and economic slowdown. It grew by 33 per cent in

unit-terms in 1998-99 and is expected to grow by 44 per cent in 1999-2000,

according to International Data Corporation (IDC).

The Indian PC market has a three tiered structure - multi-national companies

(MNC), domestic vendors and the local assemblers. The assembled PCs dominate the

PC market with a share of 51 per cent, followed by the domestic vendors with a

share of 26 per cent and the MNC vendors with a share of 23 per cent. According

to IDC, in 1998-99, a major part of the demand had come from the Small and

Medium Business (SMB) and the Small Office and Home Office (SOHO), which

constituted about 71 per cent of the market. During 1999-2000, demand from these

segments is expected to touch 77 per cent.

The MNC PC manufacturers and local assemblers are marching neck to neck to

capture the market. With the demand for PCs growing among the home segment,

assemblers are doing good business. The most attractive aspect of the products

from the assemblers is lower prices compared to the MNC counterparts. The MNC

vendors find it difficult to match these prices due to high duties and overhead

costs, which are passed on to the consumers. In addition to the price

differential, the assemblers also give additional cash discounts, free CDs,

pirated multimedia games and software. The customers have the choice and

flexibility in choosing a PC, be it for processors, hard disks, monitors,

multimedia kits, etc. The user gets a choice to choose what is best suited for

his requirement and budget.

The assemblers pointed out that apart from the lower price, they provide the

much-needed personal touch to the not-so-computer-savvy customers, which include

better after sales services. Lampo Computers Pvt. Ltd. sales official Lalitha

Slim added, "If a component fails on the motherboard of an assembled PC, we

can replace the faulty component at a very reasonable price. This is not

possible in the case of a branded machine as all components are integrated on a

single board. If one component fails then the whole motherboard has to be

changed, which is quite an expensive affair."

The assemblers also play the role of personal tutor to their customers by

training the latter in the basics of PCs, thereby building a long-term personal

relationship. According to an assembler, it is simple, immediate and inexpensive

to upgrade an assembled machine, while in the case of a branded one, the

customer has to go back to the OEM and upgrade his system by paying a high

price.

A few assemblers also felt that gradually there would be a shift of customers

from branded machines to assembled ones, because of the various advantages,

especially the price factor. According to Sunrise Infotek General Manager

Operations R. Mohan, "The education sector is also slowly shifting their

buy to the assembled market." During the recent past, the assemblers have

been seen penetrating into the corporates and SME’s segment as well.

The OEMs, on the other hand, pointed out that they provided quality and

guaranteed systems bundled with legal software, apart from reliable service,

which gets reflected as higher price as compared to the assemblers. Compaq

Director Strategic Government Initiatives & Marketing Services Bringi Dev

reject the assemblers outright, saying that they cannot be a threat to the MNC

players. He said that their (MNCs') computers were targeted at a segment

different from the assemblers segment, which is not sensitive to price but

quality. "So in no way are assemblers a threat to MNC vendors," he

added.

The OEMs also claimed that their services were definitely better than that of

the assemblers because of the superior technical expertise they had. They also

provide back-up machines to their customers and their technical engineer would

attend to customers 24 hours of the day. As part of their marketing exercise,

some OEMs have used the popularity of the Internet to tie up with Internet

Service Providers to offer free Internet connectivity. They also felt that it

was a lot easier to sell branded machines because the customers were well aware

of their brand and would have no second thoughts about it, but to buy a PC from

an assembler they need to know him well. The OEM’s also capitalize on the

reliability of the company, because some assemblers are the fly-by-night types,

who supply the system and vanish.

It was the huge popularity of the assemblers among the segments which ensured

large volumes, that Intel formulated a strategy to adopt some them as Genuine

Intel Dealers (GIDs). This created a whole new segment among assemblers. Intel

supported the GIDs both financially and strategically. Some of them have now

become national brand names. A GIDs pricing is about five per cent higher than

an assembled machine, about 15 per cent lesser than an MNC branded machine and

about 10 per cent lesser than the local brand.

While branded machine vendors rely on heavy marketing strategies and

advertising to promote their brands, assemblers rely on viral marketing and

quality service, which helps them in getting repeat orders from their customers.

Cache Technologies CEO R. Mohan said, "Our business is promoted mainly

through word of mouth and personal contacts. Customers know us because of our

quality service." Both the OEMs and assemblers have financial schemes to

widen their reach to customers. They have tie-ups with financial institutions

like Countrywide Finance, Ceat Financials, Avco and The Associates, where

attractive installment schemes are offered with an option on the number of

installments.

With a price variation of at least 25-30 per cent between a branded and an

assembled machine, the assemblers do not find it difficult to sell even in slack

seasons. The MNCs, on the other hand, want to take the fight to their opponents'

turf by regularly announcing price cuts and offering a lot of freebies. As an

official from Apple said, " We do not see a widening of the gap, in fact,

as duties come down, it should narrow."

The war does not seem to be over yet. The prices keep coming down, while the

assemblers keep exploring newer markets (and have been successful). It is only

expected to get more interesting and hotter. If there is one who is happy about

the chain of events, it’s the age-old consumer, who has everything to gain

from it.