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Global Scenario
Test & Measurement
(T&M) is one of those segments which has no clear boundary
lines. It depends on how one defines it. According to an
estimate, which takes into account all electronic measuring
instruments from multimeters to specialized test sets, and from
diagnostic software to T&M-related consultancy and training,
the total global market for T&M was $16 billion in 1997. But
even this figure looks small when one considers the fact that the
total T&M revenue of Hewlett Packard was to the tune of $4.3
billion in 1997. A more realistic figure would be $18 billion,
out of which about $3 billion will be revenues from
communication-related T&M products and services. This,
however, should not be confused as the market for the vertical
segment of telecom. On the other hand, it includes a large
percentage of Defence T&M purchases which are related to
communications. In fact, traditionally Defence has been the
biggest market for T&M.
It is only during the early Nineties that
telecom started posing a challenge to the undisputed position of
Defence as the #1 vertical segment for T&M vendors. The
reasons were primarily two.
One, the wave of liberalization started
sweeping over telecom markets in nations. And this gave rise to a
competitive market, where being one up became a constant need
than a fashion. The telcos–old and new–wanted to
improve their services in all manners possible, without incurring
very high costs. That created a need for optimizing network
performance. And T&M was taken in a more serious manner.
Second, the telecom networks started carrying a
lot of data traffic. A minimum level of quality, which is
desirable in a voice network, became an absolute necessity for a
data network. That prompted the operators to go for T&M in a
major way.
Since then, T&M has evolved as a more
dynamic, technology-savvy, and fast changing industry. Once
considered a low-tech industry, T&M is today considered to be
in the forefront of technology. Some of the new trends in the
T&M industry are listed here.
Shorter product
life-cycles: For the first time,
technology is changing so fast in this industry. This has
resulted in the product life cycles getting reduced like never
before. Of course, there is a relative difference. While
specialized test sets are changing very fast because of a change
in technology, general measuring instruments like oscilloscopes
and spectrum analyzers are comparatively stable.
On the forefront of
convergence: By the very nature of
their business, the T&M companies address a diverse set of
customers and provide them with diverse solutions. This allows
them to constantly work at integration of technologies at the
core level. A logical fallout of this work is a strength in the
emerging area of convergence. In fact, after the semiconductor
companies, it is T&M companies that are championing the
convergence phenomenon. Both Hewlett Packard and Tektronix are
today major names in convergence. The next to watch is Wandel
& Goltermann.
From hardware to
software: With more and more
T&M functionalities being built into software, the T&M
companies are realizing that a strength in software is an asset.
This particular aspect of the changing trends in global T&M
business is expected to be beneficial for India, because of the
country’s inherent software strength.
From product selling to
consultancy: This is a trend having
far reaching implications. From product manufacturing and
selling, the T&M business is fast changing into a consultancy
business. With more specialization and greater degree of
sophistication, many users are finding it convenient to outsource
the whole T&M operations. This has created a market for
consultancy business. With the users looking at T&M companies
as experts, it has become necessary for these companies to build
expertise even at the front-end. This has turned the whole
T&M business into a consultancy business.
The new phase of M&A:
believe that in the next three to four years the global T&M
industry will go through a restructuring phase through a number
of Mergers & Acquisitions (M&As).
As the market becomes more competitive, there
will be pressure on smaller companies. Similarly, the established
companies will need to expand their product and service ranges in
order to effectively serve their customers. This will drive the
need for M&A from both ends.
The first phase will be marked by acquisition
of the T&M divisions of big telecom equipment companies by
the established T&M companies. This phase has already
started. Examples include Fluke’s acquisition of
Philips’ T&M division and Tektronix’s acquisition
of Siemens’ T&M division. The next phase will see small
companies having strengths in niche areas being acquired by
bigger companies.
Many companies will compete with each other, as
HP and Fluke do in USA and some Asian markets like China.
Indian T&M: A Brief
Background
The Indian T&M industry, to
a large extent, banked on the Defence purchases till sometime
back. However, DoT has also emerged as a major buyer of these
equipment, after the telecom revolution began in India when Sam
Pitroda drove the process during Rajiv Gandhi’s time.
By the early Nineties, the top four players had
entered India through joint ventures and distributors. These were
HP, which had a joint venture with Blue Star; Wandel &
Goltermann, which had a JV with Forbes Gokak; Tektronix, which
had a JV with Hinditron; and Rohde & Schwarz, which had a
liaison office.
After the National Telecom Policy, Indian
telecom market suddenly got labelled as "lucrative" and
a lot of the telecom companies entered the country. That is the
time when more T&M companies looked at India with tremendous
interest. With cellular, paging, and VSAT services opening up,
the existing foreign players also had good business. Many of them
bought shares from the partners and turned the JVs into
fully-owned subsidiaries. While HP had done that earlier, both
Wandel & Goltermann and Tektronix did that in 1994-95. Rohde
& Schwarz converted its liaison office into a wholly-owned
subsidiary.
What, however, is noteworthy is that none of
their Indian partners said goodbye to T&M business. Looking
at the market potential and the expertise that these Indian
partners had built in by that time, many of these started
scouting for new partners. That was no big job as many foreign
companies were looking to enter India. Also, some of them, which
already had a presence, were looking forward to strengthening
their businesses and were keen on signing new partners. The two
years 1995 and 1996 saw a lot of new companies entering India
through distributors. The trend still continues. Among those
companies which entered the Indian market at that time were
Anritsu Wiltron, Chase, Digitech, ElectroData, Exfo, Frederick
Engineering, GN Nettest (Elmi, Navtel, and Laser Precision
divisions), Harris, Sunrise Telecom, and Tekelec. Among major
companies who changed their partners were Marconi and Wavetek.
Tekelec also opened its liaison office.
However, the actual demand was not so large at
that time. Many cellular operators got their T&M equipment
bundled with the GSM equipment, which were supplied by the GSM
vendors and were purchased overseas. This, however, is changing.
This period also saw the emergence of certain
small Indian companies which took to T&M. While a few like
Meera Agencies and Mekaster concentrated largely on the
tender-driven DoT market and have built a foothold in the
price-sensitive market, companies like Subex and Fastech focused
on technology and support, and developed core competence in
these. However, all through these years, no company has been able
to touch the tremendous mindshare that Hewlett Packard has got.
The Market Today
Voice & Data
reach a figure of Rs 145 crore ($36.25 million) by the end of
financial year 1997-98. That is a mere 11.6 percent increase from
last year’s market size of Rs 130 crore. Extremely
unimpressive, when one considers the fact that the base is so
small. The reasons behind this meagre growth are as follows.
- T&M equipment sales have a direct
co-relation with infrastructure equipment sales and
installation. Little infrastructure was built by the
telecom industry last year. While the circle cellular
operators had almost completed their infrastructure
building during 1996-97, only a few operators in the
metros expanded their networks. Similarly, only a couple
of basic service providers did start building their
network. DoT also had completely stopped equipment
procurement in 1996-97, which affected the market in
1997-98. - The recession in overall economy affected
the cash-flow, leading to controlled spending by
corporate users. This had its impact on the corporate
VSAT and corporate services markets, which, in turn,
affected the datacom T&M market. - The average Indian user is still unaware
of the need of T&M equipment. It is absolutely
essential that in order to develop the market, the users
in segments where T&M is still seen as a luxury need
to be educated. The industry still does not give proper
time and energy to creating the awareness. One reason
could be that most T&M companies in India are too
small to afford these activities. The casualty is the
market growth.
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market too.
- The utilities started purchasing T&M
equipment. And they will make significant contribution to
the growth in demand for T&M equipment, as many of
them will be building infrastructure this year. - The Indian network operators, who were
importing their T&M equipment along with other
infrastructure equipment have now begun to buy from local
companies. This will give a major push to the sales of
T&M equipment in India. - A lot of global technology companies set
up their research and design centres in India. The trend
is likely to continue. These have traditionally been the
best users of T&M equipment, as T&M for them is
critical. This emerging market, if properly addressed,
will open up new opportunities. This is likely to emerge
as a major segment in the next three-four years.
The Users
The users of communication
T&M equipment can be broadly divided into five
categories–DoT, Defence, private operators, the telecom
manufacturing sector, and others. The decision making processes
and priorities of all these segments differ from each other.
DoT: The Department of Telecommunication
is, and will continue to remain, a major buyer of T&M
equipment. DoT–jocularly called Department of
Tenders–takes the tender route. L1 and technical evaluation
are the criteria for buying. That means price and
specification–sometimes only on paper–are the major
influencing factors.
However, even DoT is likely to change, as it
faces competition from private operators. It has shown early
signs. The global majors–who were not giving a thrust on DoT
sales–are now looking at this market again.
Defence: Though a government buyer,
Defence forces are strikingly different from DoT when it comes to
T&M equipment purchase. Product quality is sacred. And not
too many risks are taken. Some companies which have consistently
provided a better quality of products enjoy a high mindshare in
this segment. Hewlett Packard and Rohde & Schwarz are two
such companies. It is a market which takes time to penetrate.
Private Telcos: Private telecom
operators–particularly the cellular operators and private
basic service providers–have usually bought their T&M
equipment bundled with infrastructure equipment. It was only last
year that many of them made their purchase in India. Their
decisions have been influenced in many cases by the traditional
association of their foreign partners with some T&M vendors.
In other cases, brand and support features influence the
decisions.
Telecom Equipment Manufacturing: Another
price-sensitive segment, this however, provides hope for small
and price-competitive companies. This segment does not attach
much importance to brand. However, support and product features
are still important criteria for them. The purchase by this
segment is heavily dependent on DoT orders and government
policies.
| Seven Mantras For The Industry |
| 1. An aware customer is a better customer. |
| 2. Even in T&M, co-operation within the industry helps. |
| 3. Building a brand is not an exercise in luxury. |
| 4. An Indian user might be price-sensitive, but he will not compromise on anything for price. |
| 5. No other strength can be an alternative for lack of good support network. |
| 6. T&M is moving from products to knowledge. Even in India. |
| 7. Businesses are done. They do not happen. T&M is no exception. |
Others: Others include the utilities,
the corporate users, and the emerging research segment, among
others. These segments are all different and require different
kinds of strengths and strategies for the T&M companies. But
one thing that is common is that these are still nascent users
and a lot of market development activities–education being
the most important–is required in these segments.
Though the T&M industry is almost unanimous
that price and product features are the most important criteria
for the Indian buyer (see survey), study of the actual market
conditions shows that this is certainly not true in two of the
major buyer segments–the Defence and the private operators
market. While product quality is the most important criterion in
the former, brand and proper local support are essential to be
successful in the latter. It is only in DoT and the telecom
equipment manufacturers segments that price is the virtual
deciding factor. Increasingly, the market composition will move
from the price-sensitive buyers to quality sensitive buyers.
The Industry Today
Anyone would think twice before
calling an industry, with barely 20 players, as a highly
fragmented one. But that is exactly what Indian T&M industry
is. The reasons are primarily three.
- The present market size is too small to
accommodate so many players - Many players have just been testing the
market for more than three years. There is no commitment. - They all differ from one another
completely in size, character, focus ... the
companies–forget similarity–are hardly
comparable to each other.
However, these are not the real problems. The
major problem is the thoroughly disorganized character of the
industry. The players do not even think like an industry. This
was OK when business meant quoting an L1. But with professional
buyers, this is becoming a serious threat to industry’s
growth. And it is likely to affect all, including the more
serious players.
| T&M Industry Survey The first First, though small, the T&M Second, the intra-industry Third, T&M, though a vital segment The second question again–asked by Because, the list of companies who The survey gives an insight into their Now, over to the survey results...
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A lot of industry issues follow from this
chaos.
- The availability of information in a
disorganized industry is very low. Even, information
research becomes extremely difficult. In the absence of
any information, the prospective players take their
business decisions based on guesstimates. T&M
industry certainly looks very niche and attractive from
outside. More often than not, it might be deceptive. - Most equipment–in fact all in the
high-end–are imported. So the business is heavily
dependent upon government import policies and duties.
T&M is an industry whose interest is hardly pursued
by anyone at the policy makers’ level. - Even customer education becomes much
easier, if there is a strong intra-industry co-operation.
In a nascent market, it is extremely important.
From a company’s point of view, what is
needed are focus, support, and a conscious brand building. Focus
helps a company to build expertise and learn how to adapt fast to
the changing market conditions. T&M being a highly
specialized market, the ability to change fast is a must for any
company. That can be achieved through focus.
Focus also helps a company to remain lean. A
lean organization is an absolute requirement in businesses like
consultancy, which T&M is fast moving to become. To succeed
in the long run, a company needs to build expertise in the area.
That can be achieved through constant training, retraining, and
active manpower retention policies. This is going to be critical
in the near future. Focus is a must for achieving this.
The customer has become demanding. This, along
with the geographical spread of the market, has also created a
need for spreading the support network. Many companies are today
focusing on that. The survey, that we conducted among the
industry, clearly indicates that most companies today realize the
importance of focus and support.
But most players still do not understand the
importance of brand building. In uncertain situations, brand is
the only thing that a company can rely upon. In bad markets,
companies with high brand equity generally increase their
marketshare. It happens everywhere. In every industry. It
happened in Indian T&M. HP’s marketshare in 1997-98
increased in a bad market. Good becomes better and bad worse in
bad markets. A few companies like Subex and Fastech which have
invested on brand-building are gradually beginning to reap the
harvest.
Shakeout Or No
Shakeout?
Is there going to be a shakeout
in the T&M industry soon? The industry does not agree. About
58 percent of the respondents in our survey said that no company
would withdraw from the T&M business. But alarming is the
fact that the rest 42 percent feel it is likely to happen.
Voice & Data feels though some kind
of consolidation will be there this year, a shakeout is not
imminent. The reason is simple. Many players are still in a phase
where they are testing the market. They might decide not to
enter. But that is not a shakeout.
However, judging from the industry mood, it is
safe to say that some kind of readjustment is likely after
1998-99. Since 1997-98 was an exceptionally bad year for the
entire economy, not many companies are willing to take the hard
decision based on the performance in that year. In other words,
they would like to wait and watch for another year.
But lot depends on how the industry will behave
in the marketplace. If it continues to hope for business, things
will go from bad to worse. Educating the customer is the more
immediate priority than driving the prices down. An uncertain
time is not the best time to drive down the prices.
Intra-industry cooperation is a must.
Of Players
Marketshare.
Mindshare among customers. Reliability. Range. Support.
Respect among competitors. Leadership in product
categories. Consider any parameter. One company emerges
winner throughout. No big task guessing the name, it is
Hewlett Packard.
As a good leader, it should take the initiative in
educating the customer through the entire industry
participation.
Forecast:
Will continue to be on top.
Rest Of The Majors
These are global leaders who have built their names as
leaders in certain types of product categories, or
certain segments of users, known for their quality
products. And have high mindshare among their target
buyers. Four companies in India come in this category.
All of them have different strengths—Rohde &
Schwarz, which has a high brand equity among wireless
users and Defence; Tektronix, which has even better mind
share than HP in high-end general instruments, is now
diversifying into other T&M areas, and has a strong
presence in India; and Tekelec, a player which entered
India quite late but has shown its commitment by opening
its office at a particularly bad time; and Wandel &
Goltermann, the only company other than HP which has such
a wide range of products and a good mindshare.
the short run and educate the users, develop new markets
times ahead, when market situation improves
These are small Indian companies that have taken T&M
business seriously and have been trying to develop
expertise in the area. Though success is coming to them
in bits and pieces, these have been able to build a good
reputation. Next, these have to go in for partnerships
for support and then build up the range. Examples of this
category are Subex and Fastech.
Continue with the focus even after they grow. And that is
not as easy as it looks
Forecast:
Good, when the users will be more aware.
Price Smart
These are companies, which have developed an expertise in
supplying T&M equipment at a low-cost. Not
surprisingly, these have got good success in DoT segment.
Some of them have also developed technical expertise.
Some also have strong bonds with their principals.
Companies in this category include Meera Agencies,
Mekaster, and Henley.
more professional buyer segments
times ahead, unless they become more professional
This is a major chunk. These are typically big Indian
companies with diversified interests. T&M happens to
be one, sometimes even getting a step motherly attitude
from the parent company. However, some of them have
excellent support network. And most of them have good
experience and understanding of the Indian market, being
early into the T&M market. These are the companies
which can go either way, when the market situation
improves. They might offer tough challenges to the global
majors or may just say goodbye to T&M business.
Examples include AIMIL, Blue Star, Forbes Gokak,
Hinditron, VXL Engineers, and the like.
Getting more
focused
Forecast:
Uncertain
Swadeshi Lot
These are players at the low-end general instruments
which are local manufacturers. Companies like Aplab and
Meco. The former is a respected name in the market it
addresses.
markets through marketing partnerships
BJP government at the centre, their future probably is
better than ever.
Companies whose positioning in India is still not very
clear to us. They are reputed names, but there is nothing
in India based on which anything can be said about them.
Companies like Allen Telecom Group and Harris are
examples.
Brand building in India
Forecast:
Uncertain