Chip makers eye small towns

• Last year, AMD sold its graphical processors to diamond-cutters in Surat, which helped reduce both the 30-36 hours it takes and the Rs 40 it costs to cut and polish a diamond. The processors improved the efficiency of the computerised cutters, as well as the accuracy and finesse of cutting.
• In Mysore, Freescale engineers helped Hexmoto launch an upgraded version of its Indverter power inverter that is 50 per cent smaller in size and costs Rs 20,000 compared to Rs 26,000 that it did earlier. Freescale engineers in collaboration with Hexmoto made a solar energy-driven motor that irrigates the fields during the day and lights up the village streets at night.
• Up north in Ludhiana, Intel helped New Swan Autocomp implement a new 3D design technology using solutions embedded with Intel chips, which allowed New Swan to conceptualise and produce more complicated components. Another solution developed with Intel’s partners halved New Swan’s inventory lead time.
• Last year, Texas Instruments (TI) developed a solar lantern using LED (light emitting diodes) as the lighting source. It costs Rs 1.20 per day to operate compared to Rs 2 for a conventional kerosene option. Target: the 80-million plus Indians who have no access to electricity.
• Engineers at NXP Semiconductor have developed a contact-less smart card solution, which will act as a villager’s virtual bank, since most financial institutions often don’t have a branch deep in the hinterland. Transactions will be facilitated by agents using phones with card readers.

These are examples denoting a shift in the strategy of the chip makers who are now seeking growth in the untapped market in the Indian hinterland: the teeming numbers of small and mid-size businesses operating in Tier II and Tier III towns as well as the untouched rural market,

Take TI, the Dallas, Texas-based semiconductor giant, for instance. Back in 1984, the company caused a flutter in Bangalore, then a pensioner’s paradise, when it opened a software centre and began sending back code—by shaky telephone lines—to its headquarters. Twoand-a-half decades later, TI’s India presence has grown to over 1,200 people and it has graduated from being a nondescript office to being a critical chip design location. Now, TI is looking to extend its Indian presence, this time as a market and that too beyond the large metro cities. The company has set up a dozen offices in industrial hubs such as Coimbatore and Nashik to target what it says is the next big market for its chips—the Indian Hinterland.

While TI began prospecting for Indian customers three years ago, its success was limited to large companies in large cities. Now, TI—and many of its global rivals mentioned above—are taking the next big leap by eyeing customers in small towns making an assortment of industrial and consumer equipment including pumps, electronic ignitions, solar lanterns and diamond polishers. “We prefer to catch a wave early, rather than try to jump onto it when it’s peaking,” says Biswadeep ‘Bobby’ Mitra, President and Managing Director, TI India.

So, how are TI & company selling their chips and solutions to the small town companies? TI for one is going direct setting up 12 sales offices in engineering hubs and using a hub-andspoke model to foray further into the hinterland. Besides, they’re leaning heavily on local partners and distributors to suss out new customers and industries for their products. “This is not about a day trip from Bangalore, with a salesman parachuting into a customer premise, airdropping a solution and leaving,” says TI’s Mitra.

Many companies in small town India also lean on the likes of TI and NXP to actually guide them by telling which chip or board to use, how to solve certain technical issues—signal to noise ratio for example—and providing a step-by-step blueprint for product development.

According to industry estimates, developing custom-made solutions usually take between six and 18 months to design, get customer approval and deliver. Initially, a team of engineers from Freescale, for instance, a local partner and the customer sit together and draw up a skeletal blueprint of what the product will look like, what technical features it will have and work out possible product costs. In the case of an inverter, for example, the product maker needs to decide how quickly the switch over will happen from mainline to back-up power, what the overall back-up time will be and how the heat and even sound can be kept down to a bare minimum. “New product specifications are shared by these customers and our field application engineers study them and suggest a viable chip to embed into them,” says Freescale India’s Sales Head Sanjeev Keskar. “This is followed by an often long-winded process of hardware schematics, customer approvals, software development and then production.”

But things are not always as simple. Most small and medium enterprises (SMEs) are notoriously tightfisted and often haggle for lower rates or push for cheaper chips. “They demand a lot of attention and extensive technical support right from the design to the prototyping stage,” says Padmanabha Gowda, India Head-Sales, Infineon Technologies. “We also need to connect them to the endcustomer requirement.”

Generally, selling to upcountry businesses needs patience. People often need help first arranging finance—for something as small as a LED-fitted solar lantern—and then want help getting customer references for their product line. This is where semiconductor firms lean heavily on local partners. For a company with even 10 offices in large Indian cities, there is little chance a company executive will have the same local knowledge as a partner.

But why are the local companies buying chips at all? Semiconductor makers say this has to do with many products getting “smarter” with chips embedded in them and many smaller companies getting exposed to the benefits of IT, both for improving efficiency and winning new customers. Given the poor state of electricity supply, some five million inverters are sold in India every year; there are some 22 million mom-and-pop retail stores in India and a small fraction of them use electronic weighing or cash machines. Overall, just 50 per cent of all SMEs—most of them in upcountry India—use any type of computing at all. Then, previously passive products such as electricity meters are getting chips embedded in them to make them tamper-proof as well as connect to a remote utility office.