Vanishing Brands : Buried 6 feet under

Of some of the key trends which emerged in the channels community about 5 years back, was the inception of founding ‘own brands’ and the advent of imports created thereby. The sub-distributors (SD) were the first to enter the stage, sweeping in the component and peripheral market, with their own set of imports being distributed with the bunch of their own channel partners.

It was a welcome change, however, with the vendors too facing a bit direct competition from the trend, at that time. Although, after the span of 5 years, one can easily understand the market situation at hand and find little presence of these imported brands.

Of this lot of SDs, nobody resorted to manufacturing the components, accessories or peripherals on their own as this required a lot of risk taking as well as fixed capital investments; rather outsourcing it to Shenzen based plants was felt as more lucrative. The prevalent tax and import duty structure too was in line with the trend and SDs were making money then; but the insisting advent of the vendors into peripherals space indeed shrunk their market size.

"Chinese manufacturing was the most lucrative as well as sought after option, primarily on account of two reasons. Firstly, manufacturing is cheaper in China and secondly, they have the technology to cater to our desired cost structure", said Rajendra Seksaria of Balaji Solutions who has its own brand Foxin.

The likes of Foxin, Supercomp and Bitech, have, however, gradually lost their hold, primarily due to lack of manufacturing facilities.
The lack of own manufacturing and quality control resulted in some instances whereby the quality was compromised to bring down prices. The global price increase in copper in 2008 hit the UPS industry hard leading to some of the key importers compromising on the quality front to keep the prices stable. Although prices did increase then, the rise was not phenomenal.

The primary reason, according to most of the dealers (then dealing with these imported brands) was the factor of pricing which wasn't in tune with the quality of the product. Furthermore, the entry of key vendors like HP, Dell, Microsoft and others, resulted in a drastic change over the brand equation.

"Focus for the importers was always on the upcountry markets; metros were already saturated and there was little potential to introduce new brands", Seksaria said.

The upcountry market has always been the top priority for the importers and SDs venturing with their own brands; the most important reason being lack of market and brand knowledge. These markets are normally very price sensitive and people hardly differentiate between a global brand and an import, as long as the value for money is guaranteed. Cities like Patna, Bhubaneswar, Kolhapur, Goa, Agra and Vellore were priority markets then.

Another reason for the choice over upcountry was the factor of lack of vendor presence as well limited resources for the national distributors. "The national distributors previously billed directly to selected partners over whom they had confidence (like us) and these partners used to bill to other channel partners. The result was a clearly defined channel structure with the first billing partner featuring as the sub-distributor. As a result, the SD had the ease to do his tailor his business as well control volume to an extent", said Parikshita Das of Nigama Comptech and Services.

However, post 2008 slowdown, the national distributors realized their weakness in terms of market penetration and reach in upcountry areas and begin restructuring and re-strategising their hold. As a result, the national distributors began taking in more risks in terms of billing and credit period and also eased the norms of billing and partner profile and selection.

"Now, the national distributors are billing directly to partners and markets, however, 2 years back they were unwilling and are thus controlling the volume as well as market terms. SD business as a result suffered the most and their ability to deal with imports weakened", he added.

In terms of distribution, this factor features as the most important one, as none of the SD importers had any national distribution structure in place. They relied exclusively on their own set of partners and were thus limited in terms of both geographical reach as well as channels. The national distributors, however, being more organized and with at least 400 times the capacity of any large SD, was able to push itself into the channels often, reportedly imposing on the channel partners.

The increase of targets for partners as well as the restructured way of functioning again pulled up the revenues of Ingram Micro or Redington, but at the same time, confined the SDs to lower margins and battered their plans to increase penetration of their own brands.

"We used to deal with imported products from many SDs previously. But now, demand for these has fallen and consumer buying pattern has also changed. Assembled PCs have lost their market and the greater players like HP, Dell, HCL and Lenovo captured a good percentage of the peripherals market", said Bikram Sharma of M.B. Computers.

In another instance, dealers in small markets also complained of the lack of traction as well as an everlasting low demand which resulted in the shrinking of the market. On top of this, the enhanced boundaries of the national distributors dealt a death blow to imports.

"Naturally, the national distributor pushes for its own portfolio and HP components have gained enough market share besides becoming a popular choice. Customers are ready to pay a little extra now for quality assurance which the bigger brands give. On the other hand, the imported brands were no match compared to the aggressiveness of the national distributors", said Vinod Sharma of Computer World.

Supertron Electronics was one of the largest players in the components and accessories market with its brand Supercomp. However, at the present situation, both Supercomp as well as Solitaire (another brand) bounced back and the company is now not considering them as its priority.

"Imports and distribution are two different lines of business and requires different approach and strategy. In a single business unit, one cannot have these two different lines of business", said V.K. Bhandari, Chairman, Supertron Electronics.

Another prominent factor which led to the gradual decline of importers was the factor of after sales services. Imports required proper service centers and facilities which required a constant monitoring over sales and related activities. Although most of the importers began with much enthusiasm over post-sales services, it eventually declined as it called for a constant outflow of cash as well as circulating capital. Also, personnel maintenance was a cumbersome factor.

Products like UPS and other major components require a constant supervision over personnel and is a very cumbersome process. The case is more acute in remote and lesser known areas.

"We can bill to our partners in Class E cities but we also had to ensure that service facilities were there which was very tedious. Gradually, it led to the decline", said Debasish Biswas of
Technocrat Infotech who had an imported brand under the name of Bitech.

Although the peripherals and components segment suffered the most, with players like iBall, Intex and Tech Com becoming prominent alongwith the revival of Kobian, the imported brands segment did hold the upcountry market for some time, particularly in south and east India. Recently, Supertron tried to venture into the mobile phone import segment after its Solitaire and Supercomp brands lost focus and market share. Even in the mobile phone segment, the company had to taste failure shortly after its launch with upcountry markets being flooded by the pool of Karbonn, Micromax and other brands.

The primary reason for the failure in mobile venture by the SDs has been the fact that the channel structure, organization as well as the working model are different than the IT channels, which the SDs didn't ever have a clue of. Credit period issues, service factors as well as the "features" factor are considered to be the primary reasons for the failures in mobile phone ventures.

In terms of structure too, imported brands needs a dedicated team which can work on the strategies, marketing front and other key requisites. Taking into consideration the operational and corporate setup of the SDs, it becomes obvious that these players cannot afford to keep a dedicated team for the imported brands as their key focus has always been on distribution.

"Distribution comprises the main business line for the distributors; it is like bread and butter for them. On the other hand, maintaining a separate and dedicated team for imported brands is hectic", Bhandari added.

"Also, this set of business requires good planning and dedication from even the entrepreneur; being distributors, it is impossible for one to give due time to the brands; the result being the downfall of brands", said Biswas.

The primary factor which was responsible for the amalgamation of the distribution and imports manpower team, was the lack of vision, dedication and capital. So long, these importers had maintained that distribution through their partners would suffice and a separate distributor is not at all needed for the productline.

However, the notion has been proved wrong with time and now most of the SDs has to either terminate the imported brands or defocus on it.

The focus over brands and the trend 5 years back was indeed an adhoc decision by most of the entrepreneurs. It was rather a trend or an outbreak which spread rapidly across the country and in a very short span of time saw nearly 60% of the metro based SDs venturing into creating their own brands.
Start-up companies also came in like Chirag, Xenitis, Amar PC, iSyn, Simoco which focussed either on assembling imports or manufacturing domestic PCs and phones but lost traction in the retail space.

To sum it up, it can be said that India has indeed lost many of the channel brands in the last five years.