Cartridge Revolution
The cartridge refilling and remanufacturing industry is set for a revolution with the entry of global players, investment by Indian players in quality manufacturing, and increasing customer awareness.
Six months ago, Venkatesh Srinivasan quit his plum post as vice-president at HDFC Bank to become a franchisee for the world’s leading cartridge refilling and remanufacturing (CRR) retail chain, Cartridge World (CW).
Explaining the reason behind choosing the slightly odd business, Srinivasan says, “I always wanted to be an entrepreneur. So when my brother returned from the States and told me he wanted to launch a business, I joined in. We spent a good one year researching various unique business opportunities, and after much ground work I zeroed in on CRR. The penetration of CRR in India is so low as compared to the global average, and the price differential so wide between OEM and non-OEM supplies, that we saw a huge
opportunity.”
Srinivasan has been proved right in his instincts. Within six months of launching the store in Mumbai, his business is now close to achieving operational break-even. “Next month we should break-even operationally. Our business is growing at 20 percent month-on-month, and at this rate we will hit a monthly turnover of Rs 10-12 lakh with a 25 percent net margin,” he discloses.
Srinivasan is not alone in his optimism about the potential of the CRR business. His peer in Kolkata, Amit Mehta, is so bullish about the business that within a span of 10 months he has opened two stores—the first one in January 2007 and the second in July. Plans are afoot to open two new stores within next six months. Mehta, who was engaged in his family business of tobacco export prior to taking the CW franchise says, “Quite honestly, I am surprised by the opportunities in this business. I didn’t expect to start the second store so soon but the word of mouth is so strong that we had customers coming from far-off areas to refill cartridges. Hence we decided to take the store close to the customer. Customer response also suggests that they are looking at a cost-effective and quality alternative to exorbitantly priced OEM supplies.”
Riding on this new breed of entrepreneurs like Srinivasan and Mehta, the $350 million Cartridge World is planning an aggressive expansion in India. The company intends to have 50 stores by the end of March 2008 and 250 by 2010. CW is one the fastest-growing retail franchises in the world with 1,575 stores in 52 countries, with one third of them located in the US alone.
“India is the fastest-growing market for us, and a largely untapped market. We are already ahead of our targets in India, and at this pace we see the country emerging as an important geography contributing 10 percent to our targeted global revenues of $600 million by 2010,” informs Mike Fuller, managing director of Cartridge World Asia Pacific, Middle East & Africa.
Adds Naveen Rakhecha, CEO, Cartridge World (South Asia), “The success of CW in India can be gauged from the fact that within a year of starting operations we have several of our partners doubling their franchise with us. There are at least three companies which have set up a second outlet, out of which Amit is now looking at expanding it to four.”
Independent cartridge remanufacturers are also seeing growing customer awareness and acceptance of their products, and are readying major expansion plans.
Chennai-based Black Magic has lined up investments worth Rs 15 crore over the next couple of years to expand its manufacturing capacity, increase footprint and build the brand. The company plans to up its capacity from 10,000 units per month to 25,000 by 2008. “A large chunk of the capacity addition will happen in the color remanufacturing segment which is expected to take off in a big way. We plan to double our footprint to 20 cities and spend a significant amount in brand building. We also have export ambitions,” says Gopi Varma, managing director, Black Magic.
Another remanufacturer who is bullish about the industry’s future prospects is Bangalore-based Quick Prints which recently inaugurated a 20,000 sq ft facility at an investment of Rs 2 crore with the capacity to manufacture 40,000 HP and Samsung cartridges. The company is also eyeing the export market in a big way and has tied up with two companies in Europe which will source Lexmark and Brother remanufactured cartridges.
Low Penetration
Worldwide, CRR contributes nearly 30 percent of the $60 billion worth of after-market cartridges sold, amounting to a staggering $18 billion and growing at a robust 20 percent. While in the US the non-OEM cartridges constitute 25 percent of the overall demand for after-market supplies, in Western Europe it’s as high as 32 percent, according to Lyra Research.
In India though the CRR industry has failed to make a major dent so far thanks to the lack of quality standards and an organized industry. The Indian after-market cartridge segment is estimated to be around Rs 2,400 crore, and growing at 35 percent, of which nearly 35 percent is contributed by non-OEM supplies. Regrettably, a large chunk of this market is made up of counterfeits and low-quality refills. Quality CRR players have managed to capture only 5 percent of the overall market.
“The most unfortunate part of the Indian CRR industry is that it’s not organized. The industry has been dominated by fly-by-night operators using spurious inks and spares which has created a bad reputation for the entire industry. Organized players too haven’t been unable to create a strong national brand for their products,” says Deepak Jalihal, managing director, Soft Tree. According to him, out of some 15,000 CRR suppliers in the country, only 110 remanufacturers and 250 refillers are serious players with quality brands, proper manufacturing facilities and trained manpower. Printer vendors (OEMs) have exploited the unorganized status of the industry to label it as counterfeit, thus creating a strong negative bias among customers.
Seeds of change
To address this, serious players have now formed an industry association called ICRRA (Indian Cartridge Remanufacturers and Recyclers Association) with a three-point agenda—to provide respectability and legitimacy to the business, lobby with the government and other influential industry bodies to promote the industry, and infuse quality standards to make it world-class. “The entire emphasis of our association is on ensuring the adoption of the best-quality standards. We would make it compulsory for our members to have ISO 9000 and 1400 certifications. They will also have to implement STMC (Standardized Test Methods Committee) certification, a global standard for testing and evaluating the performance of toner printer cartridges,” says Jalihal, who is also the secretary of ICRRA. Also, the lure of the Indian market is attracting several global players to the arena, and this could help create a positive perception of the industry.
Static Control Components (SCC), the worldwide leader in the manufacture of spares and inks that go into the remanufacturing of cartridges, has already announced aggressive India plans. The company makes some 13,000 different parts including drums, inks, casings and chips for 1,200 different toners and cartridges which are supplied to remanufacturers.
“India is immensely attractive on two counts—one, its vast, cost-conscious population that is fuelling the demand for CRR, and two, its lower labor cost and large technical resources which makes it a potential export hub,” says a spokesperson for SCC India.
The company already has two offices in India at Mumbai and Delhi, and plans to open offices in more cities soon. It has a large budget dedicated to the marketing of CRRs, and has been holding joint customer seminars with its partners to enhance customer awareness about the price-performance benefits of remanufactured supplies. It is also planning to rope in large stationery suppliers like Kores, Camlin and Prodot to sell remanufactured cartridges from local players.
SCC has also collaborated with ICRRA to provide technology training to manufacturers to improve their manufacturing processes and the quality of their products. ICRRA members will be provided rigorous training at the company’s UK center in cartridge remanufacturing.
Changing customer perception
The entry of retail chains like CW, Office Depot and Staples is expected to provide further credibility to the CRR industry and create positive customer awareness. While Staples has already signed an MoU with Indian retailer Future Group to open shop-in-shops at their Big Bazaar and other outlets, Office Depot has entered into a similar agreement with Reliance Retail. Both these office supplies specialty chains sell a large number of CRR products.
“Undoubtedly, the entry of retailers like Office Depot and Cartridge World will change the negative perception among customers about the use of alternative supplies. The presence of companies like SCC will help improve quality processes and bring them on par with global standards,” says Manoj Khanna, president, CMDA, one of the oldest associations representing the interests of the computer media industry, and also a remanufacturer selling under the CompuCover brand.
Varma also expects big retailers to boost the local remanufacturers. “Bigger retailers will eventually source products from local manufacturers, and this will help in creating a strong ecosystem.” Agrees Rakhecha, “Mass retailing is contributing to creating a positive customer perception which then creates a positive influence in tapping corporate customers. That’s the reason we have been focused on the retail customers in our first year. Our retail franchise requires partners to have stores on a hi-street and on the ground floor to ensure good visibility. We are already seeing the number of footfalls and repeat customers increasing at our outlets.”
Srinivasan says that the CW strategy is working. “Recently, a top manager from Shopper’s Stop came to refill a Canon cartridge for his personal printer from our store. A fortnight later we got a call from them evincing interest in signing up a contract for regular supplies. Today, the company is one of our largest enterprise customers.” Srinivasan is also running a pilot with his erstwhile employer HDFC Bank in the use of CRR. “Currently, HDFC has agreed to experiment with CRR in two of its branch offices. If they find the price-performance satisfactory they would sign up for an enterprise-wide contract with us,” he discloses.
Remanufacturers are trying every marketing trick in the book to convince the customer. Says Varma, “We have to go all-out to undo the bad reputation of the industry caused by the negative campaign run by printer vendors. We offer all our customers free repair or replacement in case there is printer failure due to the use of our products. But we haven’t had any such instance in our history.”
Varma has recently bagged a very large contract from Reliance Money for its offices throughout the country. L&T is another blue-chip company that has a rate contract with Black Magic for the last three years. “Our hard work is finally paying off. Enterprises are getting convinced about the significant cost-performance benefits of CRR, and there is a growing acceptance of it,” he adds.
Even the government sector, one of the highest consumers of printing supplies, is turning receptive to the use of recycled cartridges. “Many government departments use CRR but they are not sourced through the official channel. Just like in the developed world, the government should make it mandatory for all its offices to allow the remanufactured products category in their tenders; this will further encourage the industry and provide a level-playing field,” says Jalihal.
Remanufacturers also see India emerging as an export hub for CRR with the right policy impetus from the government.
The availability of a large pool of technical skills and low labor costs favor India as an outsourcing hub for the remanufacturing of cartridges. According to analysts, the labor cost of manufacturing a toner cartridge in Europe is around $5 while the same toner if made here can cost as low as 25 cents.
“In Europe the salary norm for a skilled worker is around $15 per hour. With the best of manufacturing processes a single resource can manufacture not more than three toner cartridges in an hour. In India the same resource will cost Rs 5,000 per month,” explains Jalihal. He believes that such high cost arbitrage creates a strong case for outsourcing to India. “We expect that large remanufacturers around the world may see value in creating captive manufacturing bases here. That way they can partake in the domestic growth story as well as enjoy the benefits of low-cost exports. This will then help create a strong ecosystem,” says Jalihal.
Black Magic is also seriously looking at exports. “We have begun selling our products in Saarc countries. For exporting to Europe and the US you need to have scale, which we are currently building. By 2010 we plan to have a strong export focus,” adds Varma.
Industry watchers believe that the Indian CRR industry needs to take a factory outlook to manufacturing building scale and employing quality processes; currently they operate more like workshops. “What we probably need is an SEZ similar to China which has developed Zhuai as the global manufacturing hub for CRR. There are more than 500 remanufacturers in the city, with many facilities producing more than a million units every month,” says Jalihal.
Many in the industry believe that providing an industry status could help in eradicating the menace of counterfeits, and that once the industry is recognized, regulatory compliance will ensure adoption of best practices.
However, to do that, Jalihal says that the government needs to change its regulation of not allowing the import of used empty cartridges—an essential for recycling. “Current laws don’t allow for the import of used empty cartridges because they are classified as e-waste,” he informs.