All is not fair In Business

Every game has its own rule and it is the responsibility of players to
maintain a code of conduct and utmost discipline so that there is a room for
everyone to survive and prosper. But sadly it is becoming increasingly evident
that instead of working in cohesion, a lot of these players are working in
isolation, thereby leaving themselves open to a whole host of problems.

Just like every other industry, the IT vertical too is witnessing a lot of
unhealthy business practices, which leads to an imbalance in the entire channel
chain. And in most cases it is the smaller partners at the bottom of the channel
pyramid who are at the receiving end.

These unhealthy practices may be in the form of vendors and distributors
dumping stock with the partners by way of offering them lucrative discounts and
other schemes or partners overlooking their credit limits. Here are some of the
most common business traps that partners fall into in their quest of increasing
their topline. Needless to say, these should be avoided as they can have
long-term repercussions.

Malady: Absence of a uniform credit policy

In a value chain, the vendor in association with the distributor, dumps
goods on the partner who has to make the payment in cash. Later it is this very
sub-distributor who has to sell the product to another reseller on credit. Often
these resellers delay their payments either due to delay from the customer's end
or because they have other expenses to meet. In turn the sub-disti's payment is
stuck. This happens because a uniform credit policy is not implemented in the
spirit by the dealer.

Talking about this malady, Ambareesh Dixit, Head-Business Communication
Products Broadcast and Professional Products Division, Sony elaborated, “There
are certain reseller partners who handle various government, corporate and large
accounts and at times when these customers delay their payments (ie make
payments after a gap of four to six months) the partners fall short of cash in
hand and correspondingly delay payments from their end as well.”

Side effects/results: Not sticking to the credit policy can lead to a number
of complications in the business. Some of the side effects are cheque bouncing
and bad debts. Besides, it leads to irregularity in the business churn. If this
happens regularly, the partner runs out of liquidity in his business.

Sharad Agarwal of Indore-based Pioneer Computers stated, “Every year it is
because of such unethical practices in the business that we face bad debt
problems. This loss is almost 25 percent of our revenues.”

Jodhpur-based Arvind Modi, CEO, Bits & Bytes mentioned, “Having a good credit
policy makes all the difference. All one needs to do is be disciplined otherwise
surviving becomes difficult. The policy has to be formed and implemented in the
same spirit. But often because of sales pressure people tend to forget the
rules.”

Remedy: Discipline is the key to addressing this issue. A credit policy has
to be streamlined and should be uniform. Ideally a 14-21 days credit period is
good enough for the industry and a fair one that should be adhered to. In
addition it is very important that every partner is registered with an
association or body so that their customers who may have defaulted or do not
hold good reputation in the market is spotted easily.

Modi sighted another remedy to the problem. “One can take a post dated cheque
from the concerned party well in advance at the time of billing and this will
put pressure on the reseller who in turn will ask their clients to make payments
on time. This is because the credit period differs from vendor to vendor and
product to product.”

Malady: Month-end dumping

At the end of every month, vendors and distributors offer discounts to
partners to clear inventory. For eg laptops are offered at Rs 1,000 lower than
their usual price. To grab better margins, earn handsome profits or at times to
achieve their target, the partner falls into a trap and ends up overstocking (ie
accumulating more goods than he can sell in the market).

Again this happens owing to two reasons, either the vendor or the distributor
resolve to reach a particular growth figure and further pressurize the partner
by dumping stock in his godown or because the partner in order to attain the
number one spot in the industry and for fame, ends up overstocking.

Side effects/results: Overstock-ing in the first place adds to pressure on a
part of the dealer and leaves before him unrealistic targets. He finds it
difficult to achieve the target in due time and thus gets carried forward.

R Mahesh, CEO, Ozone Computers, Coimbatore added that in case of dumping of
stocks, dealer has to realize the fact that how much a market can take so that
he does not get into over distribution. If a vendor or a distributor puts undue
pressure then the dealer should have the courage to say no to that particular
vendor or distributor. He has to learn to say no to orders. They need to
understand the tricks of the trade.

Puneet Datta, Senior Manager Marketing-Business Imaging Solutions, Canon
denied that vendors force certain targets on the partners and while buying all
they need to keep in mind is the capital outflow and inflow besides envisaging
certain profits out of the stock they plan to buy.”

Remedy: One of the solutions to this problem is that once in every three
months, the partner should stop stocking. The partners should also tell his
distributor or vendor to either extend the credit limit because it would later
lead to payment defaults.

Malady: Undercutting and selling

Undercutting takes place when a few dealers unite and after mutual
understanding lower the price of certain products and sell the same to their
customers. This practice affects the margins of other partners who might be
selling the same product at higher prices and leads to an unhealthy business
environment.

Side-effects/results: Under-cutting affects the margin operating price (MOP)
as it goes down. Thus the partner loses out on his margins. Further more it
leads to unhealthy competition in the market apart from being a violation of the
consumer rights.

Remedy: In the first place, dealers themselves have to be disciplined and
refrain from selling products at prices lower than what was originally decided
upon by the market. Besides an association or an effective body can look into
this matter and resolve the issue. The association can ensure that every dealer
sticks to a particular price and does not offer any products to their reseller
partners or customers at discounted rate.

Ajay Singla, President, Panipat Computer Dealers Association mentioned,
“Business does not merely run on paper and hence it is important that payment
issues be dealt with utmost discipline. An association can play a major role to
resolve the payment issue as they can keep a check on the market practices and
faulty partners.”

Malady: Cartel formation

Cartel formation is a practice where a certain price is decided for a
particular product and select partners are given the liberty to sell at this
slightly lower price whereas the same product is offered to other dealers at
higher prices.

Side effects/results: This practice leads to unhealthy environment in the
industry and creates animosity between partners.

Remedy: In case of cartel formation the entire distribution chain has to be
disciplined. However, vendors like Sony see cartel formation as an easy way to
achieve the revenue figures they desire to achieve. Dixit mentioned, “From an
ethics perspective it is incorrect to indulge in cartel formation but looked at
from the vendors/manufacturers perspective, the one who gives the company more
volumes will definitely be given more discounts and incentives.”

Pooja Sharma

poojas@cybermedia.co.in