Today, when everyone is betting on smartphones and tablets, Dell is not willing to give up on PCs and laptops. To understand why and also figure out the health of India’s computer hardware industry, The Dollar Business caught up with P. Krishnakumar, VP & GM, Consumer & Small Business, Dell India.

Interview by Vanita Peter D’souza | September 2015 Issue | The Dollar Business

TDB: How important is India for Dell? What’s your market share in the various segments you operate in India?
P. Krishnakumar (PK): From Dell’s point of view, India is one of the most important strategic countries. India is among the top ten countries we are looking at for growth. Overall, it’s in the top three countries in terms of revenue contribution. Its strategic importance for us can be clearly seen in the visions of our senior executives. Our CFO Tom Sweet had visited India in 2014 and was here again this July. Earlier this year, our Head of Enterprise Business Marius A. Haas had also paid a visit to the country. Jeffrey W. Clarke, who is the Vice Chairman and President of Client Solution segment was also here sometime back. All these people report directly to Michael Dell. Their visits clearly demonstrate the focus of Dell’s leadership team on the country. From a business point of view, we are among the top two in the segments we primarily operate in – consumer and commercial. In the consumer business, which I am responsible for, we are, today, present in more than 1,000 towns and cities across the country. We are also present in different formats, which allows a consumer to choose how he/she wants to purchase a product – directly from us, through a phone call or through our website; from an e-commerce platform; large format stores like Reliance and Croma; multi-brand outlets; or Dell exclusive stores. In terms of market share, in desktop and notebooks, ours is about 27%.
TDB: Reports suggest that Dell has set a $3 billion target for India. Tell us about your strategy to achieve it.
PK: When our CFO was here in 2014, he had said India was soon going to hit the $2 billion revenue figure. In fact, the way we have grown in the last one year, we are very close to that figure. Hence, later, during an internal review, we were set a new target. As far as plans to achieve the target are concerned, I can’t share it in the public domain. All I can say is that the plan has been broken down into products and segments.
TDB: How has your parent going private in 2013 affected your business in the country?
PK: It’s been very positive. Earlier, when we used to make investment decisions, we used to look at how they would impact us every quarter or every year. That was a hindrance. For example, stores don’t break-even immediately, but one needs to invest in them. Post privatisation, things have changed dramatically. We have seen great success in our top five markets, which include India as well, by focusing our resources on the consumer segment. Speaking specifically about India, in CY2014, we gained a close to 6.5% market share y-o-y. So, privatisation has helped accelerate our growth.
TDB: Which is the biggest of all the segments you are present in India? Which segments are you the most bullish on going forward?
PK: The consumer segment is the largest. But if you look at IT as a whole, then obviously, the commercial segment is the largest, because we have PC clients, we have enterprise and then we have services and consulting. In India, we are doing well in both consumer and commercial segments and, hence, are bullish on both of them. India is one of the very few countries, where both the engines are firing well and that’s helping us. Moreover, since commercial decision makers are also consumers themselves, one segment helps in leveraging the other.  

TDB: Do you only assemble at your plant in Chennai or is it also being used for end-to-end manufacturing, of at least some products?
PK: Let me explain you the way the IT industry works around the world. Different manufacturers manufacture different components, and brands usually just assemble them. There is not a single brand, which manufactures end-to-end products, say the motherboard, the processor and even the hard drive. So, in Chennai, what we have is a facility, where components that are specific to Dell are assembled to make Dell’s final products.
TDB: Is India also being seen as a low-cost manufacturing hub for your global sales? Tell us in details about your exports from India.
PK: At Chennai, we primarily work on desktops and commercial products. So, it is also being used to export the same to Europe, the Middle East and Africa. Currently, exports account for only around 5% of our production in Chennai, but we are the only one exporting from the country.
TDB: You have been a big critic of India’s inverted duty structure in some of the segments you operate in? Has the new Foreign Trade Policy (FTP) done anything to address the issue?
PK: An inverted duty structure is still prevalent in the hardware manufacturing sector. There is a difference of 4-8% in the products that are imported into the country as compared to those that are manufactured here. So, importers are benefitting at the cost of manufacturers. This anomaly exists thanks to non-aligned excise duty, basic customs duty and countervailing duty rates. If we want to increase the manufacturing of computer hardware in the country, we need to immediately correct this. All major companies present in India have the capacity to manufacture much more than what they are doing now. But their capacities are being underutilised only because of the existing inverted duty structure. In the last budget, the then existing inverted duty structure for mobile phones and tablets was addressed, which has resulted in a duty structure that favours local manufacturing. We have been constantly asking the government to extend the same to computers too. Similarly, in the new FTP, the government has reduced export incentives on computers from 5% to 2%. This, despite the FTP itself suggesting that this sector suffers from a disability of 8%-10%. The reduction in export incentives has led to a virtual stoppage of exports from our manufacturing facility in Chennai. I think, if the government addresses both these issues – an inverted duty structure and low export incentives – domestic manufacturing will grow exponentially.
TDB: Tell us a bit about the competition you face in India. Is it the same as that in the rest of the world or are Indian consumers a bit different?
PK: Globally, the PC industry is consolidating into three big players – Dell, HP and Lenovo. And the phenomenon is no different in India, given that a couple of players announced their exit from the segment last year. Of these three, while in some markets only two are present, in some others, all three operate. So, the competition we face in India is fairly similar to what we face elsewhere.
TDB: With technological advancement, PCs were first replaced by laptops. And then smartphones and tablets started replacing laptops. A lot of companies, like Samsung and Sony, have either shut or are in the process of shutting their PC business to focus on the smartphone and tablet market. What does Dell think about this transition in the market?
PK: I can’t comment on other’s strategies. But take the year 2013. Suddenly, low-cost tablets flooded the market and hence, for the first time, consumers started debating on what should be the first device that one should buy. But in the last 18 months, it has become clear to them that they, basically, have two needs – (a) content consumption (social media, entertainment, emailing and browsing) and (b) content creation (working on projects). Given this, if the usage is purely content consumption, then there is a tendency to buy a tablet or a smartphone as the first device. But we have found that if consumption increases, there is a tendency towards content creation, especially among the youths. And when it’s about creation, creators look for more powerful machines. They want wider screens and input device. We have found that people, with a higher tendency towards creating content, are still opting for laptops and desktops, rather than tablets.
TDB: What’s your take on the ‘Make in India’ campaign of the new government here? Do you think it has anything significant to offer to companies like Dell?
PK: We, at Dell, would want to see India as a knowledge economy. About 50% of our population is aged 30 or less. Only if they skill themselves, will we find more entrepreneurs coming up. The government cannot create all the jobs, but entrepreneurs can. Technology also helps people moving from villages to towns. It then helps them find jobs. If things work out along the lines of the government’s Digital India thought, if more government services get delivered digitally, the PC market will explode. And if India will need so many more PCs in the future, it makes sense to manufacture them in the country, instead of importing from outside. So, I think if the right steps are taken from a ‘Make in India’ point of view, the economy will be very positively impacted and so will be the industry.