Two-tier’s here to stay

The distribution model currently prevalent in the IT Industry in India, has

many unique characteristics compared to distribution models followed by other

more mature industries such as FMCG, consumer durables etc. The broadbased,

2-tier model of distribution was introduced in India in 1995-96 by Tech Pacific

and found immediate acceptance by large IT MNC companies such as HP. These

companies were establishing operations in India and were looking for a

distribution solution, which they were familiar with as well as, comfortable

with.

In the initial years of distribution, the roles of all partners were clearly

defined and synergistic. Vendors were considered to be the owners of the brand

and technology, and they were expected to market their products, create end-user

awareness and demand, and provide after-sales support for their products.

Distributors, on the other hand, were expected to manage the supply chain

efficiently, ensuring low-cost and efficient logistics and warehousing, credit

management, geographical coverage and channel development. Finally, channel

partners were expected to manage end-user relationships, provide solutions to

the customer and deliver after sales support on behalf of the vendor.

Over the last six years, this model of distribution has matured and undergone

many changes, and today the model is poised at a critical juncture with

questions being raised about its effectiveness and efficacy. The Dell model and

its success in some markets have raised questions regarding the role of channels

in the IT industry. The regional distributor model versus the national

distributor model is another hotly debated topic in industry circles today. The

traditional clearly defined roles of the vendor, distributor, and channel

partner no longer seem relevant today, and questions are being asked about the

value that each tier in the supply chain is adding to the business.

In my opinion, it is the answer to this question, i.e. "What value-add

do we bring to the business?" which will determine the future role of

distributors and channels in the IT industry. The traditional value add of a

distributor viz., credit, logistics, warehousing, fill rates and information

management are no longer considered to be sufficient. These are now considered

as essential hygiene factors and both vendors and channel partners expect

distributors to play a much larger role in the supply chain.

In short, the traditional distribution organization will have to establish

new processes and services, which add sustainable value to their vendors and

partners, and re-establish their relevance in the supply chain. For channel

partners the extreme competitiveness in the market, the threat of vendors going

direct all add up to a situation where they need to do some serious

introspection and develop strategies to protect their business in the future. To

my mind the four pillars of a successful strategy would be:

n Focused

business model



n Specialization



n Skill sets



n Own your customer

To summarize, the two-tier distribution model is here to stay. However, this

model is currently faced with some serious questions with respect to their role

and value add in the supply chain. It is organizations that are able to clearly

articulate their value proposition and deliver the same to their

customers/partners who will survive.

K Jaishankar



The author is CEO of Tech Pacific India