De-Mystifying the Indian Aftermarket
- By Atul Tibrewala
- Jan 01, 2010
In the aftermarket industry, India is an unknown quantity. With one-sixth of the world population, an enviable 7 to 8 percent GDP growth rate, and more than 250 concurrently growing cities, India is on the radar of every OEM and supplier of aftermarket consumables. But virtually all companies vying for a slice of the Indian market are struggling with the approach that they need to adopt to become viable in the Indian market.
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The Indian aftermarket, like many developing markets, is very fragmented. There are hundreds of small stationers, mom-and-pop stores and roadside refillers vying for the business of a very price-sensitive customer. With very poor statistical data on the actual market size and even poorer statistics on the share of the aftermarket (reman and refill), the jury is still out on what the total market size is (figures range from 25 to 35 billion) as well as the percentage of aftermarket business (again, figures range from 30 to 50 percent).
The only thing that can be said with certainty is that the market is huge, growing exponentially and there is a thriving aftermarket, but it is largely unorganized with severe quality issues.
If we look at the global aftermarket industry over the last decade, India is standing today where Brazil was four to five years ago. Both belong to what is termed as the “BRIC” group (Brazil, Russia, India, China) and it is safe to assume that India will also mature over the next two to three years and become a significant market that cannot be ignored.
The signs are already visible with parts of the industry getting organized. There are a few franchise models already active in India, which is the first sure sign of a maturing market. In the last two to three years, these franchise models have managed to set up approximately 200 to 250 stores collectively, and compared to similar franchise operations in other countries, the pace at which these have come up is far higher than any other country. However, given the price-sensitive nature of the Indian consumer and the unhealthy competition from the innumerable small refillers across India, how successful these franchises will be compared to their overseas counterparts has yet to be seen.
There is also a move by many small players in the industry to become more professional and organized. The majority of these players are erstwhile ribbon manufacturers or importers and suppliers of cartridge consumables who are reinventing themselves to increase their revenues by getting organized. Some of these enlightened players have also gone through training for STMC certification, although presently there are just a handful of companies taking these steps. These are small yet very significant steps in the evolution of the remanufacturing industry in India.
International players in the reman industry have been flirting with India for the last three to four years. They have been experimenting with different approaches to penetrate the market with mixed results. The most common approach and also the most logical has been to appoint a distributor. But in the absence of any national large player in the distributor business, the penetration by these distributors has been mostly regional. To tap the Pan-India market, some overseas players have tried to appoint multiple distributors. But this has led to competition in their products – there being no clear demarcation of markets among distributors. Some distributors have resorted to unhealthy practices like pawning off sub-standard products under the label of respected manufacturers, creating a bad reputation for the branded products. Frequent changing of distributors has added to the market being in a confused state.
Manufacturers have even resorted to selling through distributors as well as directly to the consumer, undermining the authority of their own distributors. The manufacturers need to have a very clear-cut and consistent policy to send out the right signals to the market if they want to succeed.
The OEMs have launched a huge number of printer models in India over the last three years to cater to various segments and take advantage of the blistering pace of growth in the Indian economy. This requires distributors of parts, toners and inks to stock a large number of SKUs in small quantities. Since these distributors are small and their market coverage is limited, they are unable to stock all the SKUs, leading to a constant gap between demand and supply.
Very few international manufacturers of aftermarket consumables have really tried to establish their own direct presence in India or open depots in India to cater to the huge number of small aftermarket players. This has spawned a large number of importers who import in bulk from various overseas consumable suppliers and retail locally giving long lines of credit. Once again due to the price-sensitive nature of the market and the lack of any quality control, different grades of products are available at different price points. The local companies have no option but to buy whatever is available to meet the immediate demand. The consumables that are entering the Indian market are from both reputable and not-so-reputable manufacturers, compounding the quality problem and giving the reman industry a bad name. The end result is that the end user never gets a consistent quality product, as the parts, toners and inks in the end product keep changing. The India consumer is, therefore, a very dissatisfied consumer.
The OEMs and the remanufacturers co-exist happily at the moment. There is no single player in the reman industry that can create a large dent in the OEM market share of the aftermarket. At the same time, the OEMs understand that the retail consumer will at some point shift to the reman aftermarket. The OEM strategy is to tap the quality-conscious enterprise customer and leverage their international relationships with the multinational customers to retain market share. They are happy pushing the printers to the retail customers (individual, SOHO and SME) through the retail chains that have sprung up, grabbing whatever consumable business the SOHO, SME and individual customer pushes their way. The OEMs are also happy to leave the servicing of old and obsolete printer models to the fragmented refilling industry as they no longer want to service them.
But India is poised at an inflection point. The slowdown from October 2008 has actually given a boost to the reman industry in India. Die-hard OEM customers have been forced to experiment with the remanufactured cartridges to reduce their costs and several have made the switch for good. We are seeing more and more customers making this switch. The number of organized players is also growing and the awareness and visibility created by the franchisee chains have fuelled this process.
For the Indian market to mature faster and for players to tap into this golden opportunity, there are certain things that must happen:
- International players must set up a direct presence in India.
- Depots must be set up at least in the four key regions to cater to Pan-India.
- Local refillers need training and education programs to significantly improve the quality and thereby the market penetration.
- The industry needs to come together on a single platform (currently there are multiple groups) and work toward growing the market as a whole rather than as individual businesses.
- The “trader” mentality that exists today among the players must be replaced, and they must start visualizing themselves as serious remanufacturers.
- Unhealthy price competition as well as unhealthy trade practices must be addressed by the reman association.
- The industry must take a leaf out of the functioning of developed markets as well as markets similar to India like Brazil, where getting organized has delivered a huge upside to individual companies and the industry as a whole.
- The local reman industry needs to adopt certain standards of manufacturing as well as ethical practices.
- There is a crying need to collect accurate market data to help the industry target growing segments.
- Large trade shows are crucial to attract many international companies to showcase their products.
How fast these changes will happen is anyone’s guess. But to ignore the Indian market is to ignore the biggest growth market in the global aftermarket.
Contact Atul Tibrewala at atulcartridgejunction.com
This article originally appeared in the January 2010 issue of Recharger.