There is a steady growth in the Indian general purpose test equipment market. Its annual revenue of US$ 117 million in 2011 is expected to rise to over US$ 200 million by 2018, according to Frost & Sullivan reports. This represents a compound annual growth rate (CAGR) of 5.3 per cent and bucks the downturn experienced elsewhere in the world. Oscilloscopes account for a quarter of this revenue, followed by signal generators and spectrum analysers.
Monday, April 09, 2012: Factors driving growth
Several factors are giving an impetus to the growth witnessed in the Indian test equipment market. India is the third largest telecom market in the world, with the large scale roll out of both wireless and wire line communication infrastructure. India has over 850 million mobile subscribers (amounting to a 74 per cent penetration), and is expected to surpass China as the single largest market for mobile phones within the next quarter. Furthermore, the Indian government’s annual defence budget is equivalent to US$ 36 billion, making it the tenth largest in the world. This has fuelled considerable investments into advanced test technology. India’s comparatively high level of education has enabled it to become a hub for research and development. Once again, this has bolstered demand for state of the art test hardware.
How to source T&M equipment
The demand for equipment is on the rise, but the question is how best to go about sourcing it? Till now, rentals constituted a relatively small part of the total test equipment business generated within the subcontinent, but this is now starting to change. Already an established practice in North America and much of Europe, the value proposition that equipment rentals presents is now starting to gain traction in India as well.
Though, at first glance, direct purchases appear to be the most rational strategy for equipment sourcing, there are strong reasons why this is starting to lose its appeal in many scenarios. This has led organisations to consider other sourcing routes which better optimise their financial reserves. First of all, a number of additional costs will be accrued over the lifespan of the equipment that are not taken into account at the time of purchase. These include maintenance, repair, recalibration, equipment downtime, storage, transportation between sites, general logistics, loan repayments and disposal–all this, apart from the depreciation in value over time. When tallied, these additional costs could well add up to as much as the initial capital investment (as shown in Figure 2).
Benefits of rentals
The rental option is, therefore, getting more popular because it avoids the need for huge capital expenditure, long delivery lead times and rapid obsolescence due to advancements in test equipment technology. Research shows that in the test equipment domain, over 50 per cent of purchased equipment is either infrequently or never used after the initial reason for purchase. Therefore, there are huge benefits that customers can enjoy through the rental model.
Design and R&D departments are constantly looking for innovations in products and business models, and this option seems to be economical and cost effective, as customers have to pay only for the specified period of time the equipment is used. The rental option makes sense for short term needs, for a specific project or when there is uncertainty about the equipment being used continuously over its lifespan. With rentals, one has the flexibility to change or upgrade without the worry of costs or maintenance. Renting seems to be an acceptable concept for short term because in long term, say, over a span of four years, the customer ends up paying twice the price of the equipment.
Furthermore, modern test requirements are changing all the time, as new standards come into play. This means that the procured equipment may become defunct before it has been able to generate the funds necessary to pay back the investment made on it, as the need to upgrade to a higher spec model will cut its operational lifespan short.
Impacted by the current economic climate and with it becoming increasingly difficult to predict what their test requirements will be with any level of accuracy, companies are becoming reluctant to indulge in heavy CAPEX spending. This is as true of the Indian market as it is of any other place in the world.
Indian scenario and how to overcome limitations
Owing to the present market condition, companies in India, as in many other countries, are now looking for a rental option in order to satisfy their test equipment needs. They can even rent equipment from a company outside India and have the equipment shipped in from abroad. However, given the huge diversity of Indian culture and the number of different languages spoken here, for international rental firms looking to cater to the Indian market, a local presence will be a clear advantage. Though several global test rental players have tried to get traction in the region, most of them have not established offices in India. Instead, they are trying to engage with the customer base remotely, but unfortunately, they have achieved only limited success. Without people ‘on the front line’ they cannot liaise with clients easily, due to different time zones and the language barrier. Nor can they handle issues like getting the shipped equipment through customs, etc.
The growing sophistication of the Indian test market means that there are requirements covering the full gamut of products—oscilloscopes, logic analysers, power meters, spectrum analysers, thermal imagers, network analysers, etc. In order to meet the demands of the big international OEMs, contract manufacturers and systems integrators in the region, a broad portfolio is necessary. Rental firms, therefore, need to represent a large number of leading equipment brands, as well as products from smaller manufacturers for niche applications. Locally stocked inventory has to be backed up with access to equipment in warehouses elsewhere in the rental firm’s worldwide network.
This needs to be coupled with a high degree of technical expertise. Clients not only need advice on which models are best suited to meet their particular application, but often want ongoing engineering support once products have been specified and the rental term has begun—so that any unexpected problems that occur can be dealt with.
So, when you look at the average operational lifespan of a piece of equipment, the savings earned by eradicating the additional operational expenses discussed can easily bring down the total cost of ownership by 40-50 per cent. This, combined with the economic pressures companies are experiencing and the shorter technology life spans of testing equipment, make the rental approach more attractive.
India has still to fully embrace the concept of renting test equipment and experiencing the benefits that organisations in other parts of the world already do. However, the current economic environment and the various market drivers outlined in this article show that there is a clear opportunity for this to change.
Rajan Prabhakar heads Livingston India Pvt Ltd, an Indian subsidiary of the test sourcing specialist company, Livingston. An alumnus of IMA and IIT Kharagpur, he has over 30 years’ experience in the technology sector. After serving in the Indian Army, Rajan worked with Tata Teleservices (now known as Indicom/DoCoMo), Huawei Telecommunications and Primus Telecommunications.
Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine
