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June 2, 1998


HCL Infosystems

Operation Little Boy: How HP plans to kill the assembled unbranded PC business. Despite the Budget! Email this story to a friend.

The Union Budget has been a bit harsh on the foreign PC brands in the country. With the new duty structure, importers of PCs have lost the edge to those assembling them in the country.

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This is bound to tell on companies like Hewlett Packard that have set their heart on capturing the burgeoning small-office-home-office segment.

Yet, despite the negative effect of new duties, industry watchers believe this year will see the foreign brands beating the Indian companies to the first position. The Budget may only soften the blow.

To bear this out is the story of Hewlett Packard. It is so focused on the SOHO segment that it has begun what it calls the 'Small Business Enterprise Initiative'.

The initiative is based on the premise that a lot of small businesses are not computerised and should therefore be coaxed into going in for 'management information systems' and solutions for their IT needs.

J T Jacob, country programmes manager (SME), Hewlett Packard India, has been quoted as saying that small businesses that need one or two PCs make the biggest chunk of the market.

These outfits go to retail stores to buy products. And the reseller pushes only the boxes and not solutions. It is this weakness of the reseller that HP is going to feed on, he explains.

Departing from its role as a mere pusher of IT hardware, HP is tying up with vendors to provide solutions along with the hardware. In effect, HP would offer the SME customer a 'total package of solutions' depending on its requirements.

But unlike large businesses that go in for known brands and bulk orders, the SME in India buy assembled and unbranded products that comprise, what has come to be called the grey market.

The compulsion for avoiding the big brands defines the makeup of the highly price-sensitive Indian market. How does HP plan to overcome the trend? Especially, given the fact that its products are priced more than some of the well-recognised brands in the competition?

Jacob has thought this over. "We did some research over the last couple of months and it showed that an SME customer is willing to switch brands for a 5 per cent difference in price whereas he won't switch a reseller even for a 15 per cent difference in price. This shows that if we can convince the reseller, then our task becomes much easier and therefore the success of our SME initiative would depend on a large reseller base.''

So, with its focus on resellers, HP is setting up manpower in all the five metropolitan cities of the country to train resellers and inform customers of the new package.

Another offering in line is something quite competitive that most IT majors do not offer: Finance.

HP would also offer finance schemes for SMEs. And it would be unlike the existing practice where some companies offer finance only for the hardware. HP is promising finance for the entire solutions package.

HP's zeroing in on the SMEs has also drawn up some intra-segmentation within the SMEs. Small offices would be ones with staff strength of 1 to 9; small businesses would comprise 10 to 49 staffers; medium sized companies would mean 50 to 499 staffers and large businesses would be those with over 500 employees.

In targeting the small offices and businesses, HP faces the task of creating awareness about the need for IT solutions, especially in cases where traditional modes of operation are a deterrent.

Jacob is convinced that a small business will not realise the need for being networked or getting an Internet connection unless it is exposed to the Web and the message-driven home that is indeed user-friendly and an effective management tool.

So, again the reseller would be pivotal in generating the right business from the right customer. This is something that has not happened till date. Therefore, the primary targets, according to Jacob, "would not be the general SOHO consumers or businesses with MIS departments and IT managers. They would instead be all the SMEs who do not have MIS''.

Because the whole initiative would revolve around an effective reseller base, Jacob claims that over the past few months HP has conducted interviews with about 600 resellers, both HP registered and others. Of these, 200 resellers were found to be offering solutions that are SME focussed.

"We are going to increase this base over a period and our initiative would involve joint planning with the resellers,'' Jacob explains.

The reseller emphasis would be coupled with a customer database, which would be built gradually. Aiding it would be an India reseller Web site open for customer access.

The game plan includes complementing this with end-user programmes to get resellers to form a virtual MIS for the customers and offer low interest rates on finance.

The idea behind such a pushy approach is "A corporate knows what it wants to buy, but an SME wants to see the product before it buys it."

Jacob points out that in a high-growth industry like information technology, where SMEs would account for over 450,000 units, (projected unit sales in 1998), even if a company has a lead of six months, it is worth the effort.

All IT majors, some time or the other, would have to launch such an initiative: "Compaq and IBM already have SME initiatives abroad but, here, nobody has yet done what we have. But everybody is bound to do it.''

Even if others launch similar initiatives, apart from HP having a head start, it would also have the advantage of having the maximum number of IT products under its belt, from PCs to notebooks to printers -- where HP leads the market -- and scanners.

Others who don't have such a wide range would have to tie up with other manufacturers to produce a solutions package like this one.

- Compiled from the Indian media

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