Growing the logistics network means building partnerships with the right people
Growth of the global logistics network is fraught with increasing difficulty. Large BRIC country governments have recognized their power in the channel, and have raised the stakes for import and export requirements and regulation. There is also considerable debate among experts as to the path this will take. Some believe India will continue to grow, while many point to the many untapped domestic markets in China and Brazil. BRIC countries all have significant import challenges. Quite a number of Western companies have been buying domestic Chinese, Brazilian, and Indian companies to get access to their distribution networks. But others note that this approach has become very expensive and that “there are no more bargains out there. If you want to be in China to gain a foothold through acquisition, you should have been there 3 to 4 years ago” (noted a global pharmaceutical executive to me recently). In fact, there is increasing evidence that Asian growth is slow, and will continue to slow in its rate of growth. Moreover, Chinese companies have started to buy domestic Western companies.
To begin to establish a domestic international distribution network without investment, organizations are exploring opportunities to build network partnerships. Consider the example of this organization model described by one executive:
We work with many accounts: service-driven customers, large accounts, small accounts- and multiple flavors, but it is only inside the infrastructure that you can really begin to differentiate your setup and costing. Our approach was to introduce the “indirect channel approach”. This involves direct shipping of products to distributors, which allows you to generate savings. You take those savings, and you put them on the table, and tell your distributors that they can share in these savings if they will work with you to change their processes. We bring the promise of the savings to drive the underlying change principles in developing market countries. And that gets things going! Seeing the savings on the table gets customers going, distributors going, as they see the strategic advantage of a different working environment. This strategy allowed us better reach to our customers, by using existing distributors who already have a presence in countries like India and Russia. These distributors allow us to get a better reach into the market, but at a cost of having them handle our product. The only way to do that effectively is to eliminate touch points into the supply chain going in to that country – what we call the direct chain. It is costing you money to unload a container, so the idea is NOT to touch it, and to ship it directly to the distributors. But the only way not to touch it is to control the sales process, and to control your marketing process, and look for consistent growth for volume flexibility inside the model. [Business Services Executive]
In another example, a German company Symrise closely collaborates with more than 1,000 vanilla farmers and “the entire procurement process takes place locally, from cultivation and harvesting, to the fermentation of the beans, all the way through to extraction”. The company partners with NGOs, development organizations, and farmers’ associations to ensure “that its projects in the areas of environmental protection, income diversification, nutrition, health and education continue to blossom over the long term”. Symrise benefits from these activities by receiving reliable access to top-quality raw materials.[1]
Organizations will need to continue to find networked solutions in response to the continued growth of their global footprint, which surely will continue due to the appeal of large mass markets in BRIC countries and beyond.
[1] http://scmresearch.org/2013/01/13/creating-added-value-beyond-corporate-boundaries/