The global economic crisis which impacted the world?s IT industry in a big way has not only altered the operating model of the top technology giants in several ways, but has also made them re-look at their strategies for emerging economies like India. These geographies not only offer great untapped potential but also acted as a saviour for these companies when they were wrestling with recession and saturation at the same time in the key economies such as the US and the Europe. Numbers say it all.
An analysis of the financials of some of the top IT firms such as Intel, IBM, Dell and Hewlett-Packard shows that during the fourth quarter of the financial year 2009 (which was though much better than the couple of quarters preceding them), these companies reported the highest growth in the Asia Pacific region compared to other markets. Though critics may argue that the whopping growth being registered is over a low base, the fact remains that these geographies were growing even when other markets reported a drop in numbers.
Consider this: Hewlett-Packard, which reported revenues of $31 billion for the quarter ending December 2009, said that its revenue was up 9% in the Americas (to $13.6 billion) and 1% in Europe, the Middle East and Africa. The Asia Pacific region, which still contributes below 20% to the company?s turnover, grew by 26% to $5.4 billion. The company revenue in the BRIC countries (Brazil, Russia, India and China) increased by 41% over the prior-year period, while accounting for 10% of its total revenue.
Similar is the case with IBM which reported revenue of $27.2 billion, up by a meagre 1% (not adjusted for currency) for the fourth quarter ending December 2009 against the same period last year. Though the Americas? still contributes almost one-third of its revenues at $11.1 billion, the region showed a decrease of 3%. While revenues from Europe/Middle East/Africa were up 2% and stood at $9.7 billion, its Asia-Pacific revenues increased 6% to $5.8 billion. Though the change in not very significant, the contribution of the US has come down from 42% during the fourth quarter of 2008 to 40% during the fourth quarter of 2009. Technology
analysts are of the view that as the US and the Europe will take time to bounce back from one of the deepest recessions, the geographic matrix of the IT companies will continue to shift with Asia Pacific, especially the BRIC nations contributing a larger chunk to their topline.
For the world?s largest chipmaker Intel, the dynamics has already altered in favour of the Asia Pacific with 57% of its revenues coming from that region. During the last quarter, Intel reported a 31% jump in its Asia Pacific revenues while the contribution of the region has gone up from 49% to 57% within one year.
Kapil Dev Singh, industry consultant and former country head of IDC, says, ?One is not surprised for this trend (high growth in emerging markets) has been going on for several years now, but the slowdown has really fast tracked it. Though the US and the Europe will continue to enjoy the dominant share in terms of revenues for many more years to come, the emerging nations will continue on the high growth trajectory and will slowly represent a larger chunk despite their current low base.?
Sandeep Aurora, director, sales and marketing, Intel India says that in any emerging market, the rate of IT adoption is low which makes them all the more attractive. ?In India , there are huge opportunities in the education, healthcare and government space. Moreover, the small and medium enterprise along with the consumer segment is now taking to IT like never before,? he adds. Considering that the developed economies have pretty much saturated their appetite, this untapped potential in countries like India is a big opportunity for everyone.
At the same time, these geographies are not easy to crack and companies have to go all out to grow the market. It involves everything, right from educating the consumer to launching market specific products, Aurora reveals. For instance, when Intel launched the low-cost chip Atom, several new products were created around it, creating a completely new category of netbooks and nettops in the industry. ?This is working very well for educational institutions and small and medium businesses as these products are in their affordable range,? he adds.
Also interesting is the case of Dell. According to the company?s fourth quarter results, its BRIC country revenue grew 72% from the year ago period and was up 13% sequentially. Moreover, the company said that Brazil and China demonstrated strong sequential growth, while India was also positive but more moderate. Though BRIC countries still make up for only 11% of revenue for the company, the growth registered in this region is significant.
In order to get a foothold in this market, Dell too had to work out a completely different strategy, which involved several changes in the way it was operating for so long. Over a year back, Dell rejiged its strategy globally to create four different segments?large enterprise, small and medium enterprise, consumer and public sector. This focused approach has paid off well in India also and Dell has become the number two PC player in the country.
Diptarup Chakraborti, principal research analyst with Gartner, says, ?The saturation in the developed world is anybody?s guess. In the US, the PC penetration is over 900 PCs in 1,000 people, while in India the number is around 70 in 1,000 people. Looking at this, companies are not only being forced to devise consumer centric strategies but are also looking at how they get the enterprise segment to spend more on IT.?
The global financial crisis has pushed IT companies to go back to basics, and forced them to look at the real drivers of sustainable growth. With improvements made to their business strategies and a strong focus on emerging economies like India, these tech titans are well-positioned for growth in the times to come.