Assemblers Under Threat

With Samsung and LG launching their own brand of PCs, the assemblers have
come under a serious threat. At the moment, the threat is not so menacing
because these new vendors of PCs have kept the prices of their machines between
Indian and MNC PC brands.

The current PC pricing structure is such that MNC brands are considered the
costliest, while Indian brands are priced slightly lower. Assemblers usually
have a price advantage of two to three thousand rupees compared to Indian brands
and hence, price-wise come next to them.

But one is very well aware of the tendencies of the Korean companies who tend
to crash prices to achieve the required volumes. One has seen this happen in
monitors, printers, CD-ROMS and other peripherals.

Thus, there is no guarantee whatsoever that this will not happen in the case
of PCs. So, when Samsung and LG crash their prices, these may very well equal
the prices of Indian brands or even go lower than them and match the prices of
assemblers.

It is this scenario that worries assemblers who are on tenterhooks. The
moment the prices of Samsung and LG PCs match to those sold by assemblers, the
latter will have to run for cover because the mindshare of Samsung and LG among
end-users is enormous because of their presence in the consumer durables
segment.

Besides the mindshare, the Korean companies have huge amount of funds for
promotional activities. Samsung and LG have used the money power to create a
spontaneous top-of-the-mind recall for their products in the country. On the
other hand, assemblers survive only on word-of-mouth publicity which can readily
take a beating before the media blitz.

Samsung and LG enjoy another major advantage vis-a-vis the assemblers because
they manufacture peripherals and are in a position to bundle these with their
PCs at attractive prices. When they do so, assemblers will have no plus points
left with them for end-users to flock to them.

Except perhaps for one plus point, which is, service.

Yes, service would continue to be the biggest asset of assemblers because
customers would be comfortable and confident of getting prompt service from the
next-door neighborhood assembler rather than the franchisees of Samsung and LG
situated far away from them.

The assemblers will have to build on the service aspect and strengthen it
further to ensure that they are ready to face the onslaught of PC price
reduction by Samsung and LG. The final battle could very well be between price
and service.

In the case of Samsung and LG, their service would always come at a price
because they would be operating through their franchisees. Even if the prices of
their PCs would match to those of assemblers, when it comes to service, the
assemblers would have an advantage because they don’t have to bear the
franchising cost. And Korean companies would always have the overheads of
running their organizations in India and repatriate profits to their country.

sylvesterl@cmil.com