For years the world's computer manufacturers focused the bulk of their energy in Asia on China. But lately, China's growth has started to slow, and the industry's leaders have started to recognize the potential of the region's other giant market, India. This year, Hewlett-Packard (HPQ), Dell (DELL), Lenovo (LNVGY), and Acer (ACEFF) have all announced major initiatives there, making India one of their key battlegrounds. Best of all, the demand is coming not just from multinationals and big Indian companies, but also from consumers and small businesses. "All three segments of the market will grow at 25% to 30%," says Rajan Anandan, Dell's general manager for India. "That's a pretty healthy outlook."
Why the change? For starters, India's economy is booming, with growth running at above 9% annually. Moreover, the government has eased high tariffs on imported machines and parts that had helped keep prices high.
Over the past three years, the average cost of a Windows PC has fallen from $500 to $350, Microsoft (MSFT) estimates, helping India's market grow to about 22 million machines. And PC sales in India are expected to climb at 20%-plus rates annually through 2011, according to researcher Gartner (IT), compared with yearly growth in China of about 14%. (China, though, has some 110 million computers installed, vs. the 22 million in India. The higher base means consumers there are likely to buy 33.6 million machines this year, compared with 8.8 million in India.)
Tailored to the Local Customer
Better yet for the foreigners, India is proving an easier sell than China has been. The People's Republic has long been dominated by Lenovo, but in India, HP has overtaken local favorite HCL Infosystems (HCLFF). After a big push into smaller cities, the U.S. company now controls 15% of the market, nearly double the share of No. 2 HCL. In March, HP opened a new factory near Delhi, its second Indian plant, and over the summer it introduced a new line of servers designed for Indian customers, especially small businesses in secondary cities. "We have a lot of positive momentum," says Adrian Koch, HP's senior vice-president for Asia Pacific.
HP's rivals are doing their best to boost their own momentum. In August, Dell opened a factory in the southern city of Chennai, its first in the country. The company expects sales of $500 million this year. And this fall, Dell will likely introduce a new machine tailored to the needs of local customers, with a big push in portable computers. "In the consumer market, all the growth is coming from notebooks," Anandan says. But he notes Dell will depart from its traditional direct-sales model since Indians are less familiar with ordering computers on the phone or via the Internet.
India is one of the best overseas markets for Lenovo, which inherited a factory in the southern city of Pondicherry after acquiring IBM's PC division in 2005. Lenovo announced in July it will spend $11 million on a second Indian facility, in the northern city of Baddi, which will have an annual capacity of 2 million computers—twice that of the Pondicherry plant. And in August the company hooked up with Walt Disney (DIS) to introduce a desktop machine aimed at children.
Domestic Company Is Big Loser
However, Lenovo is also contending with the departure of South Asia Managing Director Neeraj Sharma, who quit last month to take a job at IBM (IBM). Meanwhile, Taiwan's Acer, which is acquiring Gateway (GTW) to build sales in the U.S., is also expanding its retail presence in India, forming partnerships with local electronics chains.
The big loser seems to be HCL. The company introduced notebooks just two years ago. And HCL skimped on brand-building for more than a decade; so today, Chips & Bytes, a retailer in south Mumbai, sells only about a dozen HCL machines a month, vs. about 100 from HP. But HCL is moving to regain its edge. The company in May launched an ad campaign depicting the way HCL technology touches people's lives. And it is partnering with Intel (INTC) to produce a low-cost notebook called the Classmate PC.
Among the biggest beneficiaries of the boom, of course, is Microsoft, and the software giant is doing what it can to keep sales in India growing. One stumbling block, says Microsoft India Chairman Ravi Venkatesan, is only about half of India's wealthiest households have computers. "Why is it that in China every parent believes that unless their kid grows up with a PC, the kid won't be successful, but not in India?" he asks. "It's the lack of content." So Microsoft has developed educational software with local partners, who will start selling PCs loaded with the programs this fall. "Our No. 1 challenge," says Venkatesan, "is to make the PC more compelling and relevant."