Price blues hit grey market

Kulbhushan Chawla has been watching his business dwindle for the past three years. In 1999 he had sold around 250 air-conditioners assembled in his small workshop in South Delhi's Malviya Nagar. This year he has sold six. "We now make only on demand," says Chawla, his dirty workshop reflecting the loss of business.

A Chachra and D Banerjee had made a living out of selling assembled personal computers in Nehru Place, the hub of Delhi's grey market for infotech products. But competition from branded players has led to a 50 per cent erosion in their business.

Is this the end of the road for unorganised sector operators like Chawla, Chachra and Banerjee? Statistics suggest they are losing out to the organised sector.

In the case of air-conditioners, the marketshare of the unorganised sector has shrunk from 50 per cent to 10 per cent in the past four years. The sector's share in personal computers has fallen from 54 per cent in the first quarter of 2002-03 to 34 per cent in the last. In the case of inverters, it is down to 65 per cent from 85 per cent.

The advantage enjoyed by the assemblers was the price, which was substantially lower than that of branded products. However, the big players have lowered prices in the past few years. A 1.5 ton, branded air-conditioner cost Rs 32,000 five years ago, while an assembler would charge Rs 21,000 for a similar unit.

Now, with the reduction in excise duties and increased competition, prices of both are around Rs 16,000. In fact, with a further cut in excise duties, leading manufacturers hope to come out with air-conditioners priced at Rs 10,000 in the not-so-distant future.

The price gap between the organised and the unorganised sectors is narrowing for inverters as well. A 750 volt-ampere inverter costs Rs 7,000 in the unorganised market, against Rs 9,000-9,500 for a branded unit. Three years ago, the difference was as high as Rs 5,000.

Similarly, while an entry-level personal computer like the Compaq Presario (Pentium-4 processor, 128 MB shared DDR system memory, 40 GB hard drive, 48X CD-ROM drive, Windows/Linux OS) with a free printer comes for Rs 36,000 after tax, an assembled unit with similar specifications is available for around Rs 32,500.

"Bigger players like HP, Compaq and IBM are targeting the most price-sensitive segment of the market -- domestic personal computer users and small- and medium-level entrepreneurs -- by slashing entry-level prices," Vinnie Mehta, executive director of the Manufacturers' Association of Information Technology, said.

Moreover, since assembled personal computers do not come with a warranty, customers prefer branded ones. HP, for instance, offers a one-year onsite warranty, which can be stretched to three years by paying an additional Rs 3,000. This ensures that all complaints are attended to within 48 hours.

This combination of low prices and easy finance offered by the big companies has made matters worse for the assemblers. "The drop in prices, coupled with an increase in finance options, has pushed up demand for branded air-conditioners," Ravinder Zutshi, director (sales), Samsung India Electronics, explained.

"Assurance of quality and after-sales service options have led to people shifting from unbranded to branded products," Salil Kapoor, head of the air-conditioners division at LG Electronics India, pointed out.