NETWORK BUSINESS: Passage from India

Far from the hustle and bustle of Bangalore’s city life, on the calm shores of the Hebbal lake, nestles a plot where contract workers are applying the finishing touches on a modest looking two-storied building. This deceptively calm setting at Indian modem vendor MRO-Tek’s new global headquarters might hide aggressive global business plans. But, S Narayanan, the founding CEO of the 20-year old company, knows where he wants to go–the US, Europe and Asia. MRO-Tek has already opened business-development offices in North America, Korea and Japan, Singapore and Malaysia. It is just a matter of time before 16 path-breaking optical networking and Ethernet first mile equipment from MRO-Tek hits the global market place.

The Boom 



MRO-TEK was set up in 1984 in Bangalore’s Electronic City by two young engineers–Narayanan who had earlier worked in BPL and H Nandi (now the MD). The company started with line drivers and network terminals for DoT and was fairly successful. However, in 1996, MRO-Tek and Israeli major RAD set up a JV–RAD-MRO Manufacturing–to produce RAD’s datacom products locally, an alliance, which transformed MRO-Tek. By 2000, MRO-Tek had emerged as a key networking equipment provider in India with annual revenues of over Rs 100 crore. It enjoyed an impressive 67 percent market share in leased-line modems and was among the top vendors of routers and Layer 3 switches. Apart from RAD products, it had also forged alliances with other major global principals like Extreme Networks for switches, Zyxel for high-end leased line modems and Alvarion for wireless radios. The dramatic growth was fuelled by the then undergoing ISP roll-out in India–more than a 100 of the 300 odd ISP license holders were setting up network and operating services.

MRO-Tek, which had over a decade of wide area networking and telecommunications experience, was ideally placed to ride on this boom. MRO made the most of the positive mood of this period by going for an IPO. In October 2000, it raised Rs 23.8 crore from the capital market and got listed on Bombay Stock Exchange, National Stock Exchange and Bangalore Stock Exchange.

However, when the boom turned to bust for ISPs in 2001, MRO-Tek’s business and revenues were also hit, declining from Rs 125.43 crore during fiscal 2000-01 to Rs 81.27 crore during fiscal 2001-02. 

Need to Expand 



It was around fiscal 2001-02, that MRO-Tek felt the need to expand its business. The company already had two plants in its manufacturing facilities in Electronic City, and these were grossly unutilized. It had already proved that it could bring out competitively-priced quality products. The bottleneck was a flat demand in the Indian market. At the same time, worldwide, alternative last mile technologies like Metro Ethernet and backbone DWDM optical transmission were growing popular. 

Meanwhile, S Narayanan had always nursed a global dream. He had a steadfast belief that, given the right platform, Indian engineers could compete with the best in the world in building world-class electronic equipment. So, in 2002, MRO-Tek took its first step towards building a global portfolio of products. CS Ramakrishnan, now the VP marketing, who also takes care of R&D was chosen to take up the challenge of building an R&D team. A 35-member team was created to identify and develop products for the next generation network requirements of global carriers and enterprises. 

Global Strategy



MRO-Tek identified DWDM optical transmission and Metro Ethernet as two windows of opportunities. MRO-Tek’s analysis showed that telcos were looking for standardization of access, simple provisioning, SLA capabilities, bandwidth on demand, usage-based billing and most importantly lower costs (capex and opex). Enterprises on the other hand were more serious about QoS, scalability and security. 

MRO-Tek has kept this in mind even as it readies to launch a range of products globally. It feels there is a major opportunity in the Metro network space for a carrier-class Ethernet product that is also competitively priced. According to Infonetics Research, the global Metro Ethernet market was worth $2.5 billion in 2002 and is expected to grow to $5.7 billion by 2006.

Greenfield operators like Reliance Infocomm in India and FasWeb of Italy are expected to drive the deployment of Metro Ethernet, making it a strong alternative to other last mile technologies like DSL and Cable.

Gameplan 



Ethernet access aside, MRO-Tek is also targeting the DWDM optical space. It believes that its 20 years of experience in making and marketing network access equipment in India will help in its global foray. The Asia Pacific region in fact, has contributed the most to the Metro Ethernet market during 2002. Apart from Korea and China, India, the home country of MRO-Tek, is expected to be a major market for Metro Ethernet with new telcos like Reliance and Tata showing a great deal of interest in Metro network equipment. Reliance has already announced a major rollout in the coming months. Ramakrishnan believes that MRO-Tek is making its moves at the right time.

MRO-Tek’s product, eSona, will be extremely competitive compared to existing Metro Ethernet equipment vendors. It will be positioned in such a way that it will not be head-on with either large switch/router vendors or entrenched optical networking equipment vendors. A case in point is MRO-Tek’s FCAT, a modem that interfaces between a fiber ring and an Ethernet network and sits at the basement of a building connecting the fiber point with the Ethernet network that runs within the building. Thus, for large DWDM/SDH equipment vendors, MRO’s products will complement their products. Small wonder that the company is actually exploring partnering options with large vendors like Hitachi, Fujitsu, Ericsson, Alcatel and Siemens. MRO-Tek is even open to the idea of these companies OEMing their products for regional markets like Japan and Europe. 

Timeline



In order to translate its plan into action, MRO-Tek has entered into strategic relationships with Mentor Graphics, Tektronics, Rational Software and Lauter Bach for product design and testing and Agere, Broadcom, Transwitch, Infineon and Delta for sourcing the key electronic components. MRO-Tek’s urgency in bringing the product to market can be seen in the fact that MRO-Tek has invested in a brand new Philips advanced SMT line based on BGA technology. With that, the plant’s annual capacity stands at 120,000 units per year, of which only 20,000 units are being produced now. In fact, Ramakrishnan revealed that the new products were almost at the prototype stage. MRO-Tek is likely to be ready to launch its products either towards the end of this year or early next year–products which have the potential to take revenues beyond the Rs 200 crore mark by fiscal 2005-06.

But MRO-Tek knows that it is no easy task. To begin with, it is entering a space flush with major vendors like Cisco, Nortel, Alcatel and Tellabs. It also has to contend with other smaller and agile players like Enterasys Networks, Force 10 Networks, Foundry Systems, Atricia and Extreme Networks. These players already have significant customer references for their products and are already active in various markets worldwide. But then, Chinese vendors like Huawei and ZTE have often shown that in other market segments like DWDM and CDMA networks, when it comes to pricing and competitiveness, they can beat the best in the world. Another important factor would be how well MRO-Tek’s new products do in the local market. Though company executives say that they are testing out their products in some of the Metro networks in India, strong references from customers like Reliance or Tata will certainly help. Also important would be to tie-up with a global equipment vendor who would use MRO’s products to complement its carrier-equipment offerings–a route effectively used by startups like Juniper to expand rapidly in markets like Europe and Japan. 

Last but not the least, MRO-Tek can do well without negative media coverage like what happened early this year, when it fell foul of the customs department and news floated around that senior executives were taken into custody. Though a lot of this could be just hearsay, the bad publicity could very well affect the brandname and business potential.

Nareshchandra Singh Laishram