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PC: MNCs dominating - Views on News from Equitymaster
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  • Feb 24, 2003

    PC: MNCs dominating

    The change in the structure of the personal computer (PC) industry over the last three years is some thing that will make anti-globalisation activists happy. As MNCs have gradually started selling PCs in the Indian markets, the share of unorganised and Indian brands have either declined or remained stagnant. We take a look at the change in the dynamics of the PC markets over the past three years.

    Price erosion
    Increased competition has resulted in significant price erosion for desktops. The average realisation per unit has declined steeply from Rs 34, 683 in FY00 to Rs 29,003 in FY02. Though FY02 was a terrible year for the industry due to a sluggish growth in industrial output, even in FY01 when manufacturers saw strong growth, realisations declined. This is due to the intense competition among players. Traditionally, it has been the unorganised segment that has been responsible for lower realisations. However, with the entry of MNCs like Dell that are known for their low cost of operations, the Indian brands are now fighting on two fronts. At one end are the unorganised players who are offering products at much lower price points to due their ability to evade taxes and at the other end are the MNC players with deep pockets & better efficiencies of operations.

    Desktops FY00 FY01 FY02
    Units 1,405,290 1,881,640 1,670,880
    36.8% 33.9% -11.2%
    Value (Rs bn) 49 62 48
    - 26.2% -21.2%
    Average realisation (Rs) 34,683 32,700 29,003
    - -5.7% -11.3%

    Source: MAIT

    MNCs dominating
    As far as the budget goes, the Indian hardware industry has demanded that the excise duty on computers to be reduced to 8% (16% currently). This would negate the advantage of the unorganised sector and provide a level playing field and thus, make life easier for the branded players. The pain the Indian players are going through is evident from the change in market structure. While the share of the market for branded players has remained at 19% since FY00, the size of the MNC pie has grown to 35% in FY02 from 23% in FY00. Infact, in FY02, when the industry saw an 11% decline in volumes, it was the only the MNC players that were able to report a strong 15% growth in volumes.

    Market share FY00 FY01 FY02
    Branded Indian 19% 20% 19%
    MNCs 23% 27% 35%
    Branded and assembled 58% 53% 46%
    Total 100% 100% 100%
    Number of PCs FY00 FY01 FY02
    Branded Indian 267,005 376,328 317,467
    MNCs 323,217 508,043 584,808
    Branded and assembled 815,068 997,269 768,605
    Total 1,405,290 1,881,640 1,670,880
    Growth FY00 FY01 FY02
    Branded Indian - 40.9% -15.6%
    MNCs - 57.2% 15.1%
    Branded and assembled - 22.4% -22.9%
    Total - 33.9% -11.2%

    Source: MAIT

    Thus, to take on the foreign competition, Indian industry will have to take a two-pronged approach. First step is to become leaner and increase productivity. For instance, Dellís direct marketing program that allows buyers to configure and place an order for the PC is an innovation that has helped the company to stay ahead of others. Its efficient supply chain operations enabled the company increase its market share during the severe technology downturn.

    Another area in which the Indian brands can make the difference felt is the after sales service. This will provide a competitive edge in the low cost segment too. This is due to the fact that technological obsolescence is very fast in the PC market (usually PCs become outdated in every five years). The unorganized sector is notorious for its quality of service and therefore, the repeat business may go to brands that offer better value proposition (technologically better products at a marginal premium). Till now HCL, Compaq and HP enjoy being the top brands in the PC market. But soon we will see the names in the top spot changing rapidly. To continue figuring the top ten list, Indian brands have to pull up their socks.



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