Demonetisation: The dilemma of cause and effect is hampering Indian technology brands

Although the country is moving towards digital modes of transactions, the simultaneous ban on high value currency notes has hit sales in several sectors.


On 8 November, Prime Minister Narendra Modi announced the withdrawal of high denomination Indian currency. Over the next couple of weeks, the ‘fight against corruption and black money’ transformed into a push for a digital economy. It made perfect sense. India is a land of mobile phones. Among the largest market in the world. It is estimated that India has a little over a billion mobile phones.

Internet penetration in India is increasing at a phenomenal rate. In fact, over the next 5 years, Internet penetration in India is expected to grow by close to 40 percent. As per And what better fillip can the devices and financial transaction segment receive in a market of 1.25 billion citizens than a move to a digital economy.

Given the demography of the Indian Internet landscape, ecommerce and mobile transactions ought to be of utmost priority. On one hand, it seems like the best move that we've restricted cash and placed a great deal of emphasis on digital transactions. Users ought to have adapted mobile devices considering it would be the preferred mode of payments and transactions. However, according to recent reports, reality presents us with a stark contrast. Foxconn, Micromax, Intex, Lava and Karbonn are reportedly witnessing either a rise in inventory (or a fall in sales).

Although the country is moving towards digital modes of transactions including Internet banking, and e-wallets, the simultaneous ban on high value currency notes has hit sales in several sectors. The worst hit, it turns out are budget devices that sell via brick-and-mortar channel set-up. It'd be interesting to see how brands such as Xiaomi and OnePlus have performed since the days of demonetisation, especially considering that Indian brands such as Karbonn, Lava and Intex are going through a bad patch.

The report says between 10 to 40 percent of the workforce has been put on bench. We reached out to 3 Indian device manufacturers – Lava, Intex and Karbonn. There has been an apparent impact of lower volumes and a general overall decline in the smartphone market in India. According to an IDC report, the smartphone market declined for the second consecutive quarter, yet managing a 5 percent growth year on year.

A difficult market

The mobile devices space is a difficult market to be in. It’s an overtly saturated market, which is currently battling it out – not on the specification front, but it’s an all-gloves-off price battle. The constant churn of mobile phones, coupled with the sheer number of brands competing against each other makes it a ferocious battle to win. Brands such as OnePlus, Xiaomi or LeEco have been focussing on mass online sales through major ecommerce players such as Amazon, Flipkart or their own online channels. Typically, transactions through portals have been driven through plastic money or Internet banking. Since the crackdown on high denomination cash, ecommerce companies have halted the popular cash on delivery option. These factors together also could impact the order rate of devices through online channels.

Cash, the preferred mode of payment

We spoke to a couple of mobile phone sellers, and the pattern is varied. For low value devices, the preferred mode of transaction is usually cash. This is possibly due to limited access to plastic money (debit and credit cards). Now that cash is a precious resource, the availability of cash to splurge on gadgets seems like a luxury. However, in large format retail stores, sales patterns don't seem to be impacted as a result of demonetisation since most transactions are digitally enabled.

We reached out to Lava, and they were rather candid about the challenges faced, and responded to our queries. The official spokesperson said, “Due to impact of demonetisation, we have halted the production of mobile phones for next 10 days. The staff, at the manufacturing units, has been sent on leave for this period. We are monitoring the situation closely and hoping it to improve – which is primarily dependent on government's strategic plan to infuse sufficient cash in the system or make the country digitally enabled. We are waiting and watching and will plan our next course of action based on how situation improves or deteriorates.”

Commenting on the move of demonetisation, Intex said, "The demonetisation process is an unique initiative undertaken by the government. Although, the process may have a short term impact across sectors, however, we are confident that in long term the process will bring numerous positive benefits to the economy, impacting positively across all sectors. We believe that initiatives like digitalisation of currency is going to drive an increase in the demand for mobiles & smartphones across country including rural housing India. We are very positive that the economy will bounce back as the benefits of demonetisation drive start coming in with more money in circulation and in banks, better distribution of income and a vigilant and honest system in process which is pro development. We also believe that the cluttered market will be more organised after this step." The company refused to divulge any number or details regarding employees placed on bench.

Even the PC segment seems to be hampered due to the cash crunch. Lenovo reported a fall in PC sales by up to 20 percent. The series of patterns draw attention to ripples in the technology industry, and indicate a fall in business. Currently, fintech seems to be the only sector gaining from demonetisation, consumer facing businesses are seeing a lull in sales due to lesser disposable cash. Hopefully, this problem would ease with widespread adoption of digital POS systems or mass adoption of e-wallets. As of now, cash – or the lack of it – seems to be a reason for concern.

 


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