How has the current economic turmoil affected India’s electronics industry? How hard have we been hit? While trying to figure out these issues, we chanced upon many firms that are still going ‘tough’ and are determined to grow despite all odds. Here’s their story and that of the Indian electronics industry.
By: Sudeshna Das
Friday, February 18, 2009: Innovative growth strategy is even more important during an economic downturn than in a normal business climate, according to the Indian electronics industry. Though the global recession has taken its toll in more or less all segments of the Indian electronics industry, it seems, however, that the market has been able to stave off its effect to a good extent. Some firms are even upbeat enough to think about expansion and growth. Or so, it seems from a recent survey conducted by the EFY research bureau to assess the impact of the global recession on the electronics sector in India, and also to seek out those players who are ambitious enough to chart out a growth plan of their own even in such troubled times.
We interviewed 60 top executives from different firms in the Indian electronics sector on the impact of the meltdown on their businesses, their counter strategies, growth plans, if any, and a host of other issues.
The overall trend
More than 90 per cent of those surveyed reported being impacted by the meltdown, with more than one-third of them being seriously affected. Only a small percentage (about 8 per cent) escaped unscathed. As we delved a little deeper, we found that more than half of the survey respondents were facing a medium-intensity impact, with a revenue loss between 5 per cent and 15 per cent in Q3 this year, while 38 per cent were affected heavily (with revenue loss of more than 15 per cent in Q3). In some cases, especially local trading companies, the impact had been much more severe—leading to a revenue loss of more than 50 per cent. A small fraction was, however, non-committal about their performance prior to the end of year results.
Sell more: A counter strategy?
Most organisations reacted promptly to this by pushing their sales teams even harder. Sales can do only as much as is feasible in an atmosphere where consumer spending is slowly drying up, resulting in a slowdown in the consumer electronics sales. More than two-third of those interviewed felt that the best way was to improve sales force productivity by using sales automation tools and by organising focused trainings for sales force so that they could double as brand-building agents as well. Introducing a new product in the market also seems to be a way by which firms are trying to attract customers. R&D, in this regard, is working hand in hand with marketing to try and ensure as large a customer base as possible without incurring too much cost.
With the domestic market not faring too well, barring the defence and security sectors (accentuated by the recent terrorist attacks), organisations are turning towards exports to save the day. The primary target audience here seems to be the SAARC countries along with Afghanistan and the African nations. In this regard, companies are also using the strategy of showing their ‘human face’ in order to successfully combat the threat of Chinese companies, as was highlighted by Ram Mohan, CEO of Accurex Solution—a firm with 15 years of experience in the field of PCB assembly.
Some like APW President System also plan to increase sales by such innovative methods as cross-selling and up-selling and by sharpening their focus on verticals that are growth-oriented. For example, they have been supplying enclosure systems to customers like IBM and TCS, but recently have also started offering a multilayer power solution that includes data centre monitoring and planning.
Cut cost: The next best option
The next best option as always is to get into a ‘cost-cutting’ mode. Here organisations need to be a little careful though. Often we have seen that firms tend to equate cost-cutting with retrenchment. However, it can be safely said that human resource has a very small contribution towards operating costs. Moreover, given the lack of skilled professionals and the cost that an organisation, in all probability, has already incurred in grooming them—along with the fact that companies will again need to start stacking up once the economy picks up—such a decision, if taken, could indeed turn out to be a myopic one.
Thankfully, none of the executives spoke about retrenchment, though a reduction in salary hike seemed imminent. In fact, some of them even mentioned hiring, especially in research and sales.
The most popular areas of cost reduction turned out to be logistics and wastage reduction. Logistics cost is being brought down by re-negotiation with less expensive third-party logistics (3PLs) and a renewed focus on quality systems and enterprise resource planning (ERP) processes is helping reduce wastage.
For manufacturing companies, reducing excess inventory, as always, seems to be the key to bringing down operation costs, i.e., making the operation lean. While fast-moving stock-keeping units (SKUs) are still being pushed through the channel, slow-moving SKUs are being shipped directly from the plants on an order-to-order basis.
In the marketing and advertisement areas, the Web and bulk messages, pushed through cellular networks, are being looked upon as the innovative strategy of publicity. Other areas that companies are looking at for savings include employee fringe-benefits. As an example, videoconferences and
c-ports are becoming popular by the day as corporates start to wield down on excessive executive travels. These small endeavours can turn out to be of good value in the long run.
More customers could be the key
Some companies like A.V. Systems, however, are looking at increasing their customer base instead of too much cost-cutting. Due to increase in terror attacks in the past few months, these companies are targeting to provide a fully customised security solution for government sectors and PSUs with an immediate plan to launch a cost-effective security solution by using video management system. In the near future, it intends to capture the security solution market of the Middle East by acquiring a growing IT company of that region.
Rockwell Automation, on the other hand, has just finished acquisition of a Chinese company, which will extend its reach to Central and Western China. Some firms like Neural Systems, however, are looking at investing in R&D and re-planning the business as part of a long-term approach, thereby echoing the policy adopted by Sanstar India.
We have also identified a trend amidst some firms to focus on a niche market as a survival policy. Hita Technology is a good example of this as it flags off its move towards exploring the renewable energy sector with investments in solar power generation.
The tough get going
Amidst all this clatter, there are some organisations which have remained apparently oblivious to their surroundings and continued with their growth plans as if nothing has happened. Farnell, for example, registered a growth of 21 per cent in the third quarter as against Q2.
“The key investments that we have made in people and technology have enabled us to be the ‘supplier of choice’ among electronics design engineers,” said Salman Syed, director-APAC for Farnell.
APW President System has recently expanded the capacity of its manufacturing unit at Attibele, Bangalore, with the addition of a 45,000-sq.ft plot. Pramod Agase, COO of APW President System, said, “We strongly believe that India’s growth story will continue, albeit after a momentary dip. We also believe in our own ability to chart our destiny and maintain our record of sustained growth.”
Fortunately for APW, it serves multiple segments like IT, telecom, general-purpose electronics, broadcasting and multimedia, which helps to minimise the negative impact.
Often it has to do simply with an organisation’s strategy to keep a long-term vision, as was highlighted by C.S. Bhaskar, chief customer support-Technical at Circuit (Systems) India and Anil Kumar Challyil, technical service manager at Arrow Electronics India. Arrow Electronics is also introducing a new business model targeting emerging customers from micro, small and medium enterprises.
For Sunny Malhotra, president of Tomen Electronics India, access to credit has not been much of an issue despite a sluggish 2008 as they plan to move ahead with their capital investments for the coming year. They are, in fact, using the slowdown to strengthen their customer relationship.
Though the primary trend, as we see here, seems to be of organic growth (about 93 per cent), a small fraction is keen on acquisitions as well. Cermet Resistronics, for example, is planning to acquire a European company and sell its products in Europe under the brand name of the acquired company as it’s difficult to sell products in European market with an Indian brand name. A.V. Systems, as we have seen, also plans to hit the road with similar plans in the Middle East.
The author is a research analyst cum journalist at EFY
Methodology
For the purpose of conducting this survey, 60 companies were randomly selected. This sample is a microcosmic representation of India’s electronics sector. Senior technical executives from these organisations were asked six standard questions regarding:
- Impact of the global economic meltdown on their organisation
- Intensity of the impact
- Their counter-strategy
- Areas of cost-reduction
- Ways to increase sales
- Expansion plans
The responses obtained from the interviews were then collated and a trend analysis was done. The results of the analysis are presented here.
The Tough Ones
Out of the 60 firms we talked to, more than 20 shared concrete plans for their growth. From those we identified the top 16 with unique and interesting strategies. Hope you will find some that can be applied at your end too.
| APW President System | ||||||||||||||||||||||||||||||
We are introducing new products and innovations as part of our ongoing efforts to expand our offerings, identifying new customer requirements and increasing production and warehousing capacity to match these requirements. For example, previously we were supplying enclosures to our customers like IBM and TCS but now we are also providing a multilayer power solution. It includes data centre monitoring and planning. We have just completed the purchase of land very close to our existing manufacturing unit at Attibele (Bangalore) as part of our ongoing capex, plans and construction of the new plating facility and factory premises is expected to complete by August-September 2009.
Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine |
