Though it is much better now, but last couple of months had been too bad for the Indian economy. An unprecedented situation arose due to the hardening of the dollar. Many critical sectors started getting adversely affected. The current size of Indian IT Hardware industry is estimated to be Rs 70,000 Cr. The industry suffered enormously in the year 2011-12 due to supply line disruptions caused by Japanese Tsunami and Thailand floods which increased the prices of key components. And now comes the worst of all, the Rupee devaluation which made industry bleed for almost around 4 months.
Constantly increasing prices could not be done but seemed inevitable too. For commercial and consumer segments, overall economic slowdown has prompted slow expansion and consumption. Also, The Manufacturers' Association of IT (MAIT) urged Ministry of Finance, Ministry of Commerce & Industry and Ministry of IT & Communications to address the critical challenges faced by Indian hardware industry due to the existing foreign exchange volatility.
The Rupee against the US Dollar depreciated steadily. To give a contrast it was 49 in Jan 2012 and crossed 57 in June, 2012. Experts claim that there was a 24% devaluation in one year since May 2011 with major downfall of rupee from Feb-May 2012. When experts expect this volatility may continue for foreseeable future, VARINDIA asked a few IT industry people to share their views and how they tried to combat it for the overall health of the industry.
Sabyasachi Patra
Executive Director, MAIT
The Public Procurement Policy should definitely include the ERV clause. This will ensure that all government procurement secures interests of the government and the suppliers. Exchange rate is revised by Indian customs every month to collect duties at current rates. The same principle should be exercised for procurement too.
Vendor Speak
S. Rajendran
CMO, Acer India
The impact of Rupee devaluation on the IT industry has been very severe. Hence it is imperative that the pricing be indexed to reflect the reality. There are numerous large long-lead Government projects, which currently are facing execution challenges since price retention is both impractical and unsustainable for an industry which already operates on wafer-thin margins.
Dr. Alok Bharadwaj
Sr. VP, Canon India
With SI Partners we have credit period ranging from 30 to 60 days from the date of billing. Besides this, we do allow credit benefits to partners/ SI Partners. Based on internal evaluation system (length of relationship/ size of partner (Turnover / profits etc)/ past payment track record etc) of each SI Partner is assigned some credit limit. Canon is generally strict on financial discipline, where Account Receivables is less than 30 days. CIPL Credit terms are decided with the SI Partners before accepting the order and post billing there is no relaxation allowed. But we do accommodate few exceptions if it is a business need.
B. Raghavendran
VP & Head, Partner Organisation, Cisco India & SAARC
Cisco has introduced several initiatives designed to help our partners adapt and succeed amid economic uncertainty. Through Cisco Capital, we offer attractive and easy financing schemes to our partners to help them grow sales, unlock larger deals and increase profitability. In addition to this, our smart financing schemes such as the Easy Lease program are helping our customers acquire technology to differentiate themselves and boost productivity.
Pradeep Devraj
Country Lead, Channel Programs, Dell India
We take full care to provide whatever benefits we can to our partner community. We have back end rebates based on different level of partnership with all the commercial channel partners. And yes, there is a difference in paybacks for different levels of partners, for example- we pay higher rebate based on certification level and also with long term and high business commitment. During the last slowdown in 2008-09, we worked with our partners to get financial support either through Dell finance services or through designated Financial Service Providers that Dell has appointed for smoother transactions. Not only this, we deal on a case to case basis, if our partners face problem in getting the payment from the customer. Our Operations and Sales team work seamlessly to ensure we address these adequately.
Ajai Chowdhry
Founder and Chairman, HCL
While the industry wants to go all out and support the government in this time of crisis, it is unable to do so because there is no protection against the volatility of foreign exchange. He assured that the inclusion of the ERV clause will in no way inhibit the growth of the domestic IT Hardware Industry. Further, once the rupee turns around and appreciates against the USD, the industry will give the benefit back to the government, as it has done in the past.
Ketan Patel
Country Manager - Product Marketing (Consumer Volume & Premium Business Units) PPS, HP India
We ensure business health of our partners very religiously and we look at all the data points including the inventory what a distributor carries and what kind of standing he has in the market plus with HP. We ensure that all these parameters are taken care of for profitability of partners and we continuously monitor these parameters and ensure partners profitability in any and every circumstances. I don’t think so, as of now the market is looking very good with slow consumer buying uptake happening. Yes if we feel that there is any kind of slowdown, we try to work with our partners and feed them with growth offering schemes, programs, customer buying programs etc.
Sanjoy Bhattacharya
Business Sales Head, IT, LG Electronics
LG has always had a simple payment policy of ‘cash and carry’. It has been the same for the past 12 years now. Though, we do not relax the payment terms we are a partner-friendly company. Certain problems and troubles, like the last slowdown in 2008-09 and current dollar fluctuation is driven by the prevailing market situation and heavily depends upon the demand and the supply situation. In certain cases, like when the consumers delay the payment, LG as a vendor has a limited role to play. What can come handy and be used to great lengths is the local IT association, who can help fix these problems.
Sanjeev Sehgal
MD, Sparsh
Yes we too have credit policy. It differs at different levels. In some cases it is advance, some cases on DOD, in some cases COD or at certain levels it varies from 15 to 45 days of credit. During the last slowdown in 2008-09, we tried to consolidate by introducing new technologies and provide better services to our partners and customers which helped them to earn better margins and also increase revenues instead of relaxing the payment terms. At present, we are supporting them by trying to minimize the price increase and take consume maximum hit due to dollar appreciation at our end and passing only to our channel what is beyond us to consume.
Sapan Kumar Jain
Country Executive, IBM Global Financing, India & South Asia.
Our offerings are designed to enable IT organizations to operate in a new economy and mindset that demands high value, transparency, and proof of return on investment. Financing provides access to alternative sources of capital from a stable partner, IBM, thereby addressing capital asset management, business resiliency and flexibility needs. In addition, IBM Global Financing facilitates smart financial decisions at every stage of the IT lifecycle--from the planning phase through equipment disposal. For IBM suppliers, we help improve cash flow through Trade Payables Program which improves cash flow without increasing debt, by leveraging the partner's IBM receivables, decreases DSO and raises ROA. IBM receivables are automatically approved for this program. Besides, other OEM partners on receivables financing determine how quickly they want to receive their payment, and significantly, they no longer have to handle the collections. Inventory financing allows channel partners to buy more products to resell, while receivables financing allows them to collect funds due faster. Also through IBM Client Financing we can offer extended payment terms to customers of business partner thus moving business partner risk to IGF.
Channel Speak:
Philip George
Product Manager - Security & Networks, TelExcell Information Systems Ltd.
Payment policies are very suitable to the SI Market. TelExcell has been flexible towards the requests from the SI community, but there are systems in place to check and balance criteria such as limits and credit terms. There is an air of sluggishness that has been trickling in the market. We believe that this is mainly caused due to the present Global scenario, current depreciation of the Rupee and the added inflation. Product brands that are well established will see a slowdown in the rate of growth. On the other hand, products that are innovative and offer unique solutions such as Mobotix and Ruckus will continue to grow at a better rate as compared to the more established counterparts.
We have seen vendors investing heavily in marketing and training activities to further add value to the SI profile and solutions. We have seen that some customers who have been purchasing products earlier are being reluctant to the new pricing caused due to the depreciation of the Rupee. We have also noticed some customers are seeking cheaper options so that the spending is as per the allocated budget. This will continue to be an issue as long as we have very volatile fluctuation
Kamal Sharma
Group CIO & Business Unit Head, Mindlance
There are various payment policies which exist in the market such as: Payment within 30 days from the invoice date. 100 % advance or 50% in advance and 50% against delivery. There is no thumb rule what is followed and where? Payment policies usually depend on the customer and at Mindlance customer we follow flexible payment process which varies from case to case. Payment policies at Mindlance are channel friendly and the payments are not delayed from our end usually. Recession has started hitting some industries, but the market situation is not as bad the 2008-09 times. The 08-09 was definitely and will be the darkest period of market globally for years to come. Better planning and savings can immensely help any business and ensure their safety in this vulnerable market. We are maintaining the prices of our products and this dollar fluctuation is not bothering us much.
Rupesh Ashar
General Manager - Finance, neoteric infomatique Ltd.
It is too early to comment as external factors like euro etc. have not played out yet. It is a mixed bag; considering the present scenario, consumer behaviour does not seem to be impacted as of now. We would get more clarity basis what happens in the developed countries as that would have an indirect bearing on our country as well. This, coupled with the long awaited economic reforms would help us assess if recession has re-hit the Indian market. However, it is quite unlikely that the nature of this possible recession would be akin to that of 2008-2009. The present scenario, is more to do with sovereign debt. Unlike consumer related products, we do see some hold-back in the commercial products. Our principals are sensitive to the $ fluctuations still, there is a significant hit distributors have to take as the fluctuations were unprecedented and also there is a time lag as market operating prices do not change overnight.
