Channel outlook for 2010: Lessons learnt from recession

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Year 2009 was the year of learning for the Indian electronics industry. In the face of recession and economic uncertainties, organisations throughout the electronics value chain focussed on reviewing their priorities and business strategies. They instilled efficiencies and fortified their strengths to prepare for 2010. Acting rationally, many companies judiciously applied modern management strategies to old business practices to stir through the crisis. It was the survival of the fittest, and companies which acted smartly, braving all odds, are now incorporating what they learned from the crisis to ascertain a sustainable growth in near future.

Taking lessons from the recession, channel partners have now started looking at ways to diversify into newer spaces of electronics, adopting new technologies and improving business strategies. The channel fraternity feels that high demand areas like automotive electronics, consumers electronics, LED and renewable energy are the drivers helping the industry in recovering from the recession. Even though the demand is still distinctly below the 2007-08 level, they see the industry growing in 2010 and beyond.

By Sandhya Malhotra

Friday, March 19, 2010: Adding new products to existing portfolio

Commenting on the lessons learnt from the recession, Gujarat based Nitin Desai, owner, Navatek Systems, an importer and distributor of electronic components, says, “Our sales dropped by 20 per cent during the recession. But the power electronics sector has surely improved since then and is now leading the way to recovery. The crisis compelled channel partners to return to the most fundamental aspect of business—moving from valuations to value creation. Many of us were forced to diversify into new markets. For example, we added new product lines like LED lighting products and security cameras to our product portfolio in 2009.”

Agreeing to Desai, Jaipur based distributor of electronic components and security products Neelesh Saxena, proprietor, Hi Tech Systems, adds that more new security products like metal detectors, hidden camera detectors, hidden camera jammers, video conferencing equipment, LED based decorative office lights and fire alarm panels have been added to the company’s supply chain to compensate the drop in sales.

Adopting better marketing practices

With recession coming to an end and electronics, electrical and automotive industries picking up pace, channel partners are aggressively trying to tap wide customer base. Customer delight is the new approach that has emerged as part of their new marketing strategy. Additional warranty on products and services, on site service or telephone support and keeping service level a notch higher than competitors are some of the additional steps that the companies are taking to reach customers. “We are aggressively marketing our products and trying to reach customers by all possible means like exhibitions, advertising, personal demo, etc. We have recently opened a new sales office in Rohini which has helped expand our business significantly,” said SK Jain, managing director and CEO, Sumitron Exports.

Focus on higher ROI and lower TCO

The recession has also reinforced the idea that customers are not just looking for quality products and solutions but also at higher returns on investments (ROI) and lower total cost of ownership (TCO). According to Desai, principals as well as channel partners are now trying to provide products and services that can help customers in lowering their potential risk and increasing potential reward. Channel partners are implementing best management practices and providing more cost effective reliable products that ensure productivity gains for customers.

Adapting to fast changing technology

Saxena says, “The recession taught channel partners and principal companies the importance of being customer-centric, nimble and adaptive to fast changing technology and business concepts. Overall, the market performed better than expected in 2009. The situation could have been a lot worse considering the gravity of the global financial crises. There is no doubt that the electronics industry has emerged stronger.”

Market analysis

In 2010, distributors and partners will get the opportunity to consolidate and build business around consumer, manufacturer and small and medium enterprise segments. The key to their recovery and growth will depend on their focus on quality add-ons and understanding about the customer needs. Both distributors and partners will have to constantly update and brace themselves for the onslaught of innovations and technologies. Both parties in the supply chain will have to plan things in advance, taking market dynamics into consideration. The need to take informed and well thought over decisions will be greater than ever.

“We will see the electronics industry returning to growth in 2010, but it’s going to take some time for the market to match the revenues and rate of growth of 2007-08. Emphasis will be on balancing the focus on cost, risk and growth, with emerging and untouched regions fuelling growth,” opines Delhi based Vinod Aneja, proprietor, Premier Industries, a trading company dealing in solder wire and fluxes since 1989.

Cost cutting tactics

Channel partners have become more cautious in terms of making payments by taking cost cutting measures, for example—rather than recruiting salaried employees, many distributors are hiring employees on contract. Also, channel partners are hiring small dealers to complete projects by sharing the commission with them.

Market penetration

For most distributors, the focus in 2010 will be on deeper market penetration. Due to slowdown, many distributors and channel partners had curtailed their expansion plans. But now they are gearing up to invest in developing new markets.

Going by the current trends, the market is projected to grow in 2010. “In this growth phase, we will be offered latest innovations and technologies, but the onus will lie upon us to take informed decisions. Appropriate decisions will pave the way to our growth in the right direction,” says Anubhav Jain, project head, Jainsons Electronics, a suppler of LED lighting.

Support from principal companies

The unfettering support from principal companies saw channel partners sail through the global slowdown. “Our survival through the recession is mainly attributed to an excellent support and faith our principals put in us by providing competitive pricing and flexible credit terms. Also, we maintained good rapport with all our customers and took their suggestions and criticism constructively,” says Desai.

Agreeing to Desai, Saxena adds, “Our principal companies extended our credit limit and credit period for the next two years, without asking for post dated cheques. Hence, within four to five months of receiving the support we started doing a good business in Rajasthan and increased our sales up to 12 per cent in comparison to 2009.”

So, channel partners have learned quite a few lessons from the recession to survive and grow in 2010—the key one being the importance of working together as part of the supply chain. They understand that growth and survival are possible only if the whole electronics ecosystem works together. “Global economics has improved but not to the extent we would like it to be. Hence, channel partners have a cautious outlook for 2010,” says Aneja. Currently, some of the principal companies are planning to increase their product prices. So, its very important for channel partners to maintain the inventory and margins in the long run.

STRATEGIES TO COUNTER RECESSION

• Diversify product portfolio

• Explore alternate markets for growth

• Revive old customer relations

• Keep in touch with existing clients

• Reward existing customers with special discounts or gifts

• Bend your rules a little to accommodate smaller clients

• Move from valuation to value creation

• Increase your level of service

• Analyse market condition

• Try to delight your customers with extra services

• Understand customers’ needs

• Maintain low cost of working capital

• Control internal expenses

• Increase advertising budget

• Concentrate on big orders

• Weekly target and performance analysis

• Have patience

Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine

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