Skip to main content

Over-Distribution Overdrive

Over-distribution occurs when one dealer doesn't stock a particular product thinking other dealers have extra stock of the same product. If the other dealer too runs out of stock then suddenly demand exceeds supply

The impact of the zero duty regime on the information technology product market in India can be truly gauged only post budget 2005. The business will only grow once customs duty is done away with and VAT (valueadded tax) is implemented.

Once zero duty is officially announced, parallel distributors will have to obtain legal sanction or face extinction. However, there are two sides to the coin. On one hand, the official distribution stands to benefit from the plethora of products and brands that will foray into the market. But the market will have to suffer the consequence of over-distribution.

This phenomenon already exists in the market to a small extent. But post budget 2005 and swith the onset of zero duty it will get worse. But what is over-distribution? Analysts might say distribution is a function of market dynamics, which doesn.t leave any scope for issues like over-distribution. But reality is very different. That over-distribution exists is a cold reality that can.t be denied.

In India, a total of over four million units of PCs are sold every year. Of this, the genuine distribution channel accounts for 55 percent. Assemblers and small time players control the remaining market. The problem arises when manufacturers push the official distribution channel to capture 60 percent of the market share. But no market exists for the additional 5 percent goods that are dumped into the market. This in turn leads to a 5percent over-distribution.

None of the manufacturers are willing to lose even 1 percent market share. The manufacturers have been given targets by its parent company based on the .India Story.. Hence, they have to adhere to their own targets. The onus therefore lies on the distributor / principal to create market for this extra 5 percent. Else, resellers will stop stocking the product if they see no margins.

Over-distribution can also occur if in a particular month the supply is more than the demand, especially on low margin products. This occurs when one dealer doesn.t stock a particular product thinking other dealers have extra stock of the same product. If the other dealer too runs out of stock then suddenly demand exceeds supply.

Then each dealer rushes to meet the demand leading to over stocking. This in turn leads to over-distribution. Here again the distributor / principal has to step in to help the channel liquidate its stocks. But this is part of the business cycle. The issue of over-distribution needs to be tackled effectively before it reaches menacing proportions. This especially gains significance in the context of the upcoming zero duty regime.

With no restrictions on the number of brands or the products that can now come in, the market will be flooded with choice. Manufacturers and distributors need to sit down and put in place strategies to tackle this issue.

Comments

Post a Comment

Popular posts from this blog

Seven tips for recession proofing your data centre

The credit crunch and recession have put value-for-money at the top of the business agenda.  IT budgets, and more specifically data centre operations, have been among the first to bear the brunt of the cost-cutting axe.  Operational expenditure on top of high initial capital investment means CIOs must now cut cost and increase return on investments. However, reducing investment can damage an organization’s smooth functioning so how do you find initiatives that are cost-effective with a relatively quick payback period but not at the expense of disrupting the business? Know your Cost-Cutting Sweet Spots:   Maintenance and support accounts for more than 50 percent of an organisations IT budget.  In the initial phase, an audit team should identify all DCO assets deployed.  This will enable analysis of annual spending on servers and storage devices, network components, software licenses, applications, databases, and operating systems.  Overspend...
Post a Comment
Read more

IT Act languishes thanks to government negligence

The Indian IT Act 2000 turns two this month. However, rather than being part of the solution to the misuse of technology, its implementation seems to have opened up a Pandora’s box. In light of a recent Bombay High Court verdict on the lackadaisical track record of the Indian government in this aspect, we trace the loopholes in the Act With the recent spate of high profile cases involving the entertainment industry and the underworld, and with cases dealing with global terrorist conspiracies, the Bombay High Court has been in the news for one reason or another. However, last week saw a landmark judgement in the IT space, when a bench comprising Justices Ajit Shah and Ranjana Desai, severely censured the Union government for not appointing appropriate authorities to enforce right of remedy under the Information Technology Act (IT Act), passed by Parliament way back in 2000. Though this judgement lacked the drama and sensation associated with the more high-profile cases, in th...
Post a Comment
Read more

Indian billing vendors look outside India

A robust, world class billing system forms one of the most critical components of a telecom operator’s infrastructure, as it has a direct impact on the bottom line. Indian vendors however have received a lukewarm response from the domestic market despite the fact that their products are on the shopping list of international telcos. It’s a strange situation. Indian software solution providers are acclaimed the world over for delivering high-quality, low-cost solutions. But when it comes to products very few have been able to achieve any significant breakthroughs. Take the case of the telecom billing solutions space. Indian telecom operators have internationally reputed systems in place. But except for one or two exceptions, none of the major telecom service providers in the country have deployed solutions developed by domestic telecom billing solution providers. This despite the fact that most Indian solution vendors boast of quite a few international telecom operators on their cli...
1 comment
Read more