GST Ready India

GST Ready India’s Latest News and Updates

Distribution Landscape in India Post GST

May 26, 2017

Most of the organizations succeeded in growing business primarily due to engaging with the right channel partner. Companies will take utmost care while appointing distributors to ensure that their product reaches at right place at right time.

Companies choose the best distributors from the market place based on evaluating distributor on 2 parameters

Distributor Output – Service in the Market
Distributor Input – Business Requirements
Both Input and Output are directly proportional to the business.i.e, In order to get the best business output from the distributor, organizations must have to look at whether their distributor’s business inputs are in line with their objectives.

Ideally any distributor should provide the best input in the business as he is fully aware that without proper input, the expected output cannot be achieved. Before that we need to understand in detail about the Distributor output and Distributor input.

Distributor Output – Service in the Market:

Companies look for the distributors who can provide the best output.

The following are the parameters that the distributor’s output will be measured.

1.Market Reputation:

This is the overall perception about the distributor by the retailers. Distributor gains reputation from the retailer based on the way he services the retailers, addresses their concerns, provide supplies etc…

2.Quality of Coverage:

Coverage is derived based on the frequency of covering the retailers, total number of retailers that the distributor supplies. The ideal distributor should have the best coverage with regular visits by their executives. Salesman should have permanent journey plan to visit all the retailers.

3.Quality of Service:

Timely settlement of credit notes to the retailers, proper credit to the retailers, addressing quality issues, providing merchandising material to the retailers etc come under quality of service. Ideal Distributor will provide the best in class of service.

4.Quality of Salesman:

The ideal distributor salesman will show enthusiasm and have good product knowledge. Salesman will behave professionally and he plays a vital role in increasing the business. He will be the face of the distributor and also the organization. So, it is essential to train and groom the salesman.

Distributor Input – Business Requirements:

The following are the 3 business requirements that the distributor must have and also provide as input in the business

Investment
Involvement
Infrastructure

Investment:

The ideal distributor will have right amount of investment in the business. The investment varies from industry to industry. Distributor should be financially strong and meet the expectations in terms of maintaining proper working capital.

Involvement:

The ideal distributor is who involves in the daily operations, review their salesman and actively participate in all the important discussions and show his intent in improving his business.

Infrastructure:

The ideal distributor must have right infrastructure in place. He should provide the right resources to improve the business and serve the market. Some of the infrastructure resources are computers, manpower, delivery vehicles etc…

All the above parameters are important and the ideal distributor should be strong in all these aspects.

Once the distributor is in place, it is the onus of both the parties to drive the business and achieve the set objectives collectively. In the process, either or both of the parties will develop sign of success or failure based on their experiences while achieving the objective.

There are 4 stages based on the state of prosperity or failure.

1st stage being the best and the 4th stage being the poorest. Mind you, every organization starts with stage1.It is up to the company’s management philosophy, people, quality of customers, policies etc. that will change the state of prosperity to failure or vice-versa.

Though it is not necessary that everybody need to go through all the stages. But, if an organization does not take necessary actions to control, it will go to the next stage. Some companies will thoroughly understand the situation and take corrective course of actions to change the state from failure to success.

Stage 1: Win-Win

The ideal situation where both company and distributor are happy and thus deliver optimum performance

Stage 2: Win-Lose

This is the situation where company is happy and distributor is not happy

Stage 3: Lose-Win

This is the situation where company is not happy and distributor is happy

Stage 4: Lose-Lose

This is the situation where both company and distributor are not happy.

Stage 1: Win-Win:

Any organization will start business with a Win-Win agenda. Both company and the channel partners will be happy in this stage and they produce wonderful results. In this stage, you will see the best camaraderie between them and everybody are aligned to a common objective. The ideal scenario for the distributors and company.

Stage 2: Win-Lose:

A real time situation of win-lose scenario where company win and distributor loses. This is a short-term win for the company.

As we all knew that every organization depends on both wholesale and retail distribution. The very purpose of wholesale is to ensure that they place the product in the areas where distributor presence is weak. This balances the distribution. If the wholesale start selling the product in the existing distribution network, it leads to cannibalization and this may create pressure on distributor profitability as both wholesaler and distributor start selling in the same area and thus no value addition.

Finally, you will start noticing the distributor losing confidence on the brand, no enthusiasm to sell and becomes demotivated. This is not good for any organization. This is a temporary win for an organization and lose to the distributor as company temporarily increasing sales by creating pressure in the system. But in a long run, if company does not move away from wholesale dependency, it will be a threat by creating more and more unhappy distributors.

Stage 3: Lose-Win:

If any company is going through the above mentioned situation for a long tenure, both distributor and wholesalers divert their interests to some other brands as they don’t see any benefit. Some of the companies during this stage does not understand the situation and they don’t recognize the demoralized channel and start finding gaps at the distributor’s involvement, infrastructure and investment. Rather than addressing the core issues, companies will start offering additional discounts, promotions to ensure top-line. Though company is growing, in reality it is a lose to the organization due to shedding margins. Distributors will be in a win situation as they are getting better margins and his bargaining power will increase due to company’s inability to control the price-war.

When the internal competition increases, wholesaler compromises on margins and start selling the product less than the distributor offered price to the market. Over a period of time, wholesaler finds a ways to improve his margins through bill trading, tax manipulation, export houses.

Stage 4: Lose-Lose:

Over a period of time, if company don’t take any control measures, company lose sales. Both distributor and wholesaler loses interest in the company. You can see extremely demotivated trade and it will be difficult to revive the situation. It will be a humungous task to appoint a competent and quality new distributor as nobody will come forward to take distribution.

” Now, we have a golden opportunity for those organizations who are going through stage2 to stage 4.we can revive the situation with help of GST.”

Time has arisen for the organizations to rethink about their distribution strategy due to GST.

“One Nation One Tax”: The GST (Goods & Services Tax) is based on the draft model of the Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014 proposed by Union Finance Minister Mr. Arun Jaitley.The Bill proposes to confer power on both the Center and the State to impose a uniform GST on the transaction of any Goods and Services in the country.

The GST is one of the biggest tax reforms in the country and addresses the following issues prevalent with current Tax regime:

To impose uniform taxation policy and procedures throughout the country irrespective of the goods/ services category.
To curb the indirect taxation on the sale or purchase of goods/services. This indirect taxation has crept into the system due to the separate taxation policies by the Center and States.
To reduce unhealthy competition among the States.
All these and then to increase the band width of the current tax base and raise compliance.
GST will change the dynamics of the distribution. The distributors of tier 2 & tier 3 towns are also going to get benefits as the net landing to all the distributors would become uniform. Though Involvement and Investment are essential and infrastructure will play as a key differentiator during post GST era. Any distributor who is having good investment, involvement but poor infrastructure are bound to suffer.

This infrastructure clearly makes them stand out to perform well post GST.

Post GST, It is expected that the price will be uniform across the country. In that case, local consumption will increase.i.e. Today wholesale market sell in any part of the country due to variation in tax structure between the states. We should also not forget bill trading and tax manipulations using exports houses.

With the help of GST, tax differentiation between the states will be void. This will encourage the upcountry distributors to sell more as the price will be uniform.

But we need to see what will happen to bill trading and tax manipulations using exports hubs based on the GST policy.

So, any organization should be focusing more on distribution than wholesale in the future.
Whichever company focuses on distribution than wholesale will be at added advantage.
Whichever distributor is having a better coverage will be at added advantage.
Whichever distributor has good manpower has the ability to utilize the network will have a better scope post GST.
Time has come to create a Win-Win. Organizations have to really rethink their distribution strategy and fix the gaps to get ready for the future.

This article was first published on LinkedIn by Ravikanth Vinnakota

Tags: GST, GST 2017, GST Bill, GST Council, GST Impact, GST Implementation, GST India, GST Latest News, GST Law, GST News, GST Rates, GST Tax Structure, GST Updates, Impact of GST

%d bloggers like this: