OPI Europe Special: India

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A new, old frontier

 

by Stephen White
Ashok Srivastava says India is a golden opportunity but be wary of a bumpy ride.
Ashok Srivastava sounded like a proud tourist guide when he told OPI Europe 2008 conference delegates that now is the time to do business in his country.
"Office products in the US and Europe is a mature business, but India is a country with limitless potential," he enthused.
"India is one of the fastest growing economies in the world, has an English speaking population greater than the whole of Europe with the highest working population in the world, and is number one in the global retail development index. Its projected GDP by 2050 is €44 trillion ($69 trillion)," he added, reeling out a set of figures in a whirlwind that almost takes the breath away. "It is also the youngest nation in the world, with over 890 million people below 45 years of age. India is the future’s biggest market for office products."
India’s staggering growth has been markedly different to the other great hope of most industries, China.
Where China has invested in manufacturing, India has complemented its massive agricultural base with a concentration on service industries and IT, proving them to be easily exportable commodities while trading on its use of English and a progressive attitude to foreign investment in those sectors. It has also managed to bridge the gap between the tiger economies and the West that in hindsight – and with its historical position as a trading hub in mind – it was uniquely able to do.
With high growth in the service, IT, ITES, biotechnology, telecoms and retail sectors, the creation of jobs in those sectors and annual salaries across the board growing at 15 percent year on year, there is a swell of urban dwelling, brand-conscious, smart consumers that, according to Srivastava "reject cheap products and are looking for quality".
However, he warns that only companies that are innovative will be successful.

 

And, he points out, India is not an easy place to do business for companies that have grown in the structured environs of the US and Europe. While last year it was elevated to second place in AT Kearney’s foreign direct investment Confidence Index (read ‘The growth of a nation’, OPI, issue 170) because of its well-documented economic perks, in terms of understanding the regional subtleties and culture, companies should beware of falling into the trap of entering on the back of exponential number crunching.
"India could be re-named the United States of India. There are 30 states, each with its own demographics," Srivastava explained. Retail is dominated by independents and despite the influx of larger stores like his own Office 1 outlets and the newly installed Staples, they are flourishing. "The unorganised sector of the industry accounts for 95 percent of trade and they are growing by 10 percent."
The market is dominated by regional distributors operating on narrow margins down to wholesalers which control the stock inventories and sell directly to independent retailers and customers. In India, direct selling means just that. Rather than touching via an online portal, for example, customers are on the phone, buy in cash and expect a fast service: "Firms are used to supply within the hour."
"There is a dependence on multiple suppliers in the current system and the gap between MRP and net landing to retailer is as high as 30-40 percent," Srivastava pointed out.
However, the rapid growth of the organised sector of retail chains means that habits are re-shaping the market, priming India’s progression towards a more familiar model for western companies. "Market operating price keeps fluctuating, pressure on margins is on the rise, as are imports in key categories with the major Indian manufacturers entering into organised retail," he explained. "The faster the supply channel grows, the less powerful the wholesaler will become." And hopefully provide clarity for those uneasy with an industry in a state of flux.
Star categories
In terms of product categories, some are growing at the rate of 30 percent such as office furniture, toner, cartridges, electronics and computer hardware.
Srivastava estimates the office furniture business is worth €1 billion. The country is a global leader in furniture imports and with a rationalisation of import taxation and the ever growing demand for office space this is set to continue to grow.
The market for ribbon, toner and ink cartridges is estimated at €380 million. Hewlett-Packard (HP) has by far the highest market share and owns 1,000 original cartridge stores. Cartridge World, meanwhile, launched five eco-friendly stores in April, offering remanufacturing and recycling and taking its total number of stores in the country to 32.
A trend for smaller urban housing in India’s sprawling cities has spurred on the sales of notebook PCs such as Sony’s Vaio. "The notebook market is growing much faster then desktops, with the SOHO sector being a major factor. People want portability rather than mobility. Desktop growth is likely to come from small and medium-sized enterprises. HP is the market leader with 21.6 percent market share followed by HCL at 12.3 percent and Lenovo at 10.3 percent," Srivastava said.
In terms of printers, Xerox has also identified the SME segment as one of great potential and recently announced that it had chosen India to head its global launch of eight mono printers and MFPs ahead of the rest of the world. "SMEs in India will spend $9.7 billion on IT this year (an increase of 22 percent over last year)," said the company. Carl Bothner, Vice President and General Manager of the desktop multifunction and printer business unit at Xerox Office Group, added: "India is a strategic market for Xerox and has the right characteristics in terms of business opportunity – a market that is growing, and one that we believe holds the potential to be an engine of growth for the company. It is also amongst the fastest growing SME economies in the world."
Overall, the demand for office products is expected to double from €6.4 billion in 2007 to more than €13 billion in 2012, despite the gloomy forecasts from other global markets. Said Srivastava: "Growth in India has been consumer-led, and I do not expect it to suffer like other countries. Think of India as not just a country with limitless potential but also as one that is recession-proof!"