India: PC Market Outlook, 2003

Transcription

1 India: PC Market Outlook, 2003 Research Brief Abstract: Through 2003, vendors and resellers must determine the optimal price/performance/service combination to build the brand; users must make sure they are getting what they actually need. By Vinod Nair and Martin Gilliland Recommendations Through 2003, vendors should concentrate on mobile PCs, economic growth and small and midsize business (SMB) growth. Global vendors must understand the dynamics of the Indian market and place high importance on building their brand over time. Vendors and resellers must hit aggressive price points, while also considering what is included in the price and what end users actually want. Vendors must realize that although India offers strong volume growth rates, profit will be hard to come by through End users should work with local resellers to understand what vendors are offering and what is worth paying for. Global vendors should consider creating India-specific product lines to compete head-on with large local vendors. SMBs constitute a huge segment of the Indian corporate market, and vendors must devise a separate game plan for this segment. Vendors should concentrate on achieving better service capabilities, because this will be a major tool to differentiate from the competition. Publication Date:3 April 2003

2 2 India: PC Market Outlook, 2003 Introduction The Indian PC market has been a stellar performer for many years. In 2002, the market grew 12 percent, and for 1998 through 2003 the forecast is for a 36 percent compound annual growth rate (CAGR) (see "Asia/Pacific: PC and Workstation Marketplace Report, 4Q02" [HWCP-WW-MS-0263] for more details). This puts India in fourth place in the Asia/Pacific market (excluding Japan) for 2002 with a 9.5 percent share, up from 5.2 percent in India is expected to move into the third place by the end of 2003, with a forecast for 18 percent year-over-year growth. Although India appears to be a strong growth market, profit margins are tight, and local competition is strong. Revenue and unit growth may not be an issue in 2003, but the true challenge for the year lies in making a business profitable. After extensive contact and feedback from vendors, end users and other market watchers, Gartner Dataquest has compiled the following list of the top three demand drivers for the professional and private markets in India for The professional market includes the government, education, large enterprise and SMB markets. The private market includes the home and small office/home office (SOHO) markets in which purchasing PC costs have not been written off against a company's accounts. These lists are by no means comprehensive. They cover, however, the most influential factors in the PC market for Various niche markets may have differing views of the coming 12 months, but these issues will significantly affect the majority of the PC market through Demand Drivers Professional Market The following are demand drivers in India's professional market: Mobile PCs As the technology gap between desktop PCs and mobile PCs narrows, mobile PC prices continue to drop and local/white-box vendors produce strong offerings, the demand for mobile PCs is expected to grow significantly. Economic recovery Although not impacted as severely as other countries, India has had its share of worries because of the global economic slowdown. Recent positive trends indicate that organizations are easing restrictions on IT budgets. This will result in increased PC uptake in the corporate segment Gartner, Inc. and/or its Affiliates. All Rights Reserved. 3 April 2003

3 Gartner Dataquest Perspective SMB growth Because a significant number of Indians are employed in SMBs, any growth in this sector is likely to have a major effect on PC sales. Most SMBs in India are under-utilizing technology, so the expected growth of this market sector suggests that PC demand from SMBs should be strong. Private Market The following are demand drivers in India's private market: Economic strength Ongoing downward price pressures and a fastgrowing middle-class are making PCs much more affordable for home users. Education More students are being required to have access to a PC desktop or mobile for their studies. Mobile adoption in the home segment has yet to make a mark, so desktops will be the prime area of consumption. This will initially drive demand in metropolitan areas, because many middle class families purchase desktops for their children to fulfil academic requirements. Most of these will be first-time users. Strong white-box offerings Price and personalized service are the strengths of the local vendors compared with the bigger branded players, and this trend seems to be gathering steam. The middle-class population is heavily drawn to these vendors. With service capabilities getting better, it will be more difficult for branded vendors to compete with white-box vendors unless they augment their service capabilities to significantly differentiate themselves from the competition. With a population of more than 1 billion, India is considered "the next China" for many industries. This is partially true for the PC industry, where India is poised to take over the No. 2 market share position from South Korea within three years. Although this would still leave India well short of the China's market size, it, nevertheless, demonstrates astounding growth that is showing no signs of slowing anytime soon. The biggest issue with India is that it offers low profit margins. China is similar, but the volume in China justifies the low margins. Internal levies still inflate the price beyond affordability levels for the overwhelming majority.forthetimebeing,manyvendorscanmakehigherprofitsin other markets in Asia/Pacific by selling the same number of PCs. India's vast geography makes it difficult and time consuming for new entrants to establish an identity. Therefore, coming in at the last minute will not work. Vendors must establish their brand and reputation over time. In fact, some may argue that anyone coming into the Indian market now has already missed the boat Gartner, Inc. and/or its Affiliates. All Rights Reserved. 3 April 2003

4 4 India: PC Market Outlook, 2003 Economic Growth Many multinational companies (MNCs) have been lured by the promise of India's growth. India's gross domestic product (GDP) was expected to climb to 4.8 percent in fiscal 2002 (ending in March 2003) to 5.6 percent in fiscal Admittedly, this growth is coming from a low base relative to the country's population. India's GDP per capita is $1,720, which is significantly lower than that of China, $3,600, or the United States, $31,500 (source: True, India has a long way to go before becoming an economic powerhouse, but she does have the purchasing power to get the attention of most vendors today, and there is potential for so much more. Although its GDP per capita is low, India's large middle class in absolute numbers is still significant. Estimates of the size of the Indian middle class range from 4 million to 7 million people, which is a very important market to PC vendors, because most of these people have never owned a PC. And this middle class is growing very quickly. The Global Retail Development Index of 29 developing nations produced by AT Kearney in mid-2002 placed India No. 6 in growth rate. That, combined with the already impressive size of the middle class, suggests this is a significant group of end users for vendors (particularly MNCs) to market to. Profit margins are tight in India, and prices are low. Local vendors may have some cost advantages over the MNCs in India, because they do not have to share their various budgets with more expensive countries. An example is an MNC paying for advertising all over Asia/Pacific out of the same budget, whereas the Indian vendors spend only in India. However, the counter-argument would be that most MNCs are cash-rich and have financial support to fall back on something local manufacturers lack. Therefore, local manufacturers may not be able to sustain themselves for long in the event of any sustained lull in demand. MNCs need to recognize these pros and cons and attribute budgets accordingly. Target Markets ThegoalistohittheaggressivepricepointstheIndianmarkethascometo expect. This has happened mainly as a result of strong local vendors, such as HCL Insol and Wipro, but also because the majority of PCs sold in India come from white-box vendors. Based 2002 sales figures, 66 percent of all PCs sold in India came from white-box vendors. This drops to 61 percent when in the professional market, but jumps to 79 percent in the private market Gartner, Inc. and/or its Affiliates. All Rights Reserved. 3 April 2003

5 Vendors need to target SMBs strategically, because this segment will be the main business contributor in the near future. This segment is fairly price-conscious, but it also expects professional services from vendors. At this stage, vendors have been able to cater only to the top strata of the SMB segment. Lower down, it has been dominated by white-box assemblers. Vendors must target this layer with an apt price-service combination, keeping in mind the features that the end users actually require, rather than pushing standard boxes. The education sector is slowly gaining momentum, with the government moving to computerize schools in the country. On the other hand, desktop demand will rise as parents purchase computers for their children. Vendors have an opportunity to drive this initiative through schools and offer attractive education-bundled bargains. The bundled offers could be easy financial terms, packaged educational software, higher-level courses and so forth. Vendors have not tapped into this yet. End users must beware of putting too much importance on purchase price. If reduction in total cost of ownership (TCO) is too difficult or too expensive in the short term, end users must look at what is being offered by vendors and resellers in detail. Local and multinational vendors may compete with the same offerings, so it is important to understand what extras you are getting for the extra cost, or what you are missing by taking a less-expensive option. Look out for warranty terms (customer carry-in vs. on-site); installation and delivery (to back dock vs. to user's desk); preloaded software; assetmanagement tools; and image management capabilities. Some offerings from multinational vendors may not be needed by an end user and should not be considered. Similarly, some local vendors cannot offer the level of service and support that larger local vendors and multinational vendors can. End users should work closely with their resellers to understand what vendors and resellers are offering and what they really need. There is no point in paying for something you are not going to use, but it is also vital that minimum requirements are covered up front. Vendors should be flexible with their product offerings. For many multinationals, this may mean creating a range of PCs specifically for the Indian market. Certain pockets of the market will justify this investment, depending on the capabilities of the vendor. Those with the most flexible product development processes should have an advantage Gartner, Inc. and/or its Affiliates. All Rights Reserved. 3 April 2003

6 6 India: PC Market Outlook, 2003 Market Maturity As India grows economically, so the market moves toward maturity. For example, desktop PCs today overwhelmingly dominate the Indian PC market. In 2002, almost 98 percent of all PCs shipped in India were desktop PCs. As the Indian economy grows, foreign direct investment (FDI) grows, mobile PC prices come down and local white-box vendors begin to produce good alternatives to the global vendors' laptops, so will sales of mobile PCs rise. Mobile PCs are forecast to grow at almost twice the market growth rate in India in 2003 (see "Asia/Pacific: PC and Workstation Marketplace Report, 4Q02" [HWCP-WW-MS-0263] for more details). The number is still small relative to the total market, but branding and reputation are extremely important during this time of maturation in the market. Vendors must penetrate the professional market with strong branding messages, as well as very aggressive price points, because they are competing with other mobile PC vendors, as well as with desktop PC vendors. Unlike desktops, component level repairs for mobile PCs are not yet available in India. As more vendors start eyeing this market, service capabilities will also increase, thereby bringing the overall costs down. Another sign that the market is maturing is the fact that the home market is forecast to grow significantly faster than the overall Indian PC market, with 26 percent year-over-year growth expected in The improved offerings from white-box vendors will play a major role in this growth, but the important point is that more homes are getting their first PC. Mature markets are moving toward a situation in which many homes have two or more home PCs, but the growth potential for India in this segment is huge. Non-white-box vendors and resellers must work together to develop bundles that will attract budget buyers from the less-expensive white boxes. A brand name will offer some equity and, therefore, some price premium, but end users must be convinced that the return for such a premium is justified. The Indian home PC market is still immature and dominated by first-time PC buyers. As such, global brands do not hold a great deal of status in this market, because users have no experience with these brands and are unlikely to know anyone who has. Vendors and resellers must treat these new customers with respect and offer good value. Word-of-mouth will help vendors significantly in the long run, so vendors may need to be patient in 2003 while continuing to build their brand image in this segment Gartner, Inc. and/or its Affiliates. All Rights Reserved. 3 April 2003

7 7 It is typical for developing markets to tend toward the less-expensive white-box PCs, while mature markets are more aligned with the large brands. India has a long way to go before becoming a mature PC market, so foreign vendors should consider 2003 a year of branding. Growth will come, over time, to brands that have proven themselves in the local market. It would be a good exercise to understand which applications are widely used in this market and by excluding the lesser-used ones, reduce prices meaning different strategies for different markets. White-box vendors are likely to start pushing into the branded PC market space in 2003, so larger vendors should be prepared to compete head-tohead with stronger offerings from these minor players. Most of these offerings will be localized, so larger vendors may want to concentrate on their national or even multinational presence to differentiate themselves in the professional market. Again, end users must make sure they are getting all they need from their vendor (not just from the chosen product) before signing a purchase order. White boxes may be less expensive, but they may also lack key components or offerings. One example is the on-site warranty, which is difficult to obtain in many places in India. A local white-box vendor may actually be the best option for a small firm with only one location. It is unlikely, however, that a local white-box vendor can meet the needs of a firm with multiple offices all across the country. Overall, prospects are very positive for India for 2003 and beyond. Understanding how to make a profit during this time is the key for vendors and resellers, while end users need to make sure they are getting what they actually need. Key Issue What market forces are affecting computing hardware platform shipments and revenue, now and in the future? 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 3 April 2003

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