Monday, 3 October 2011

The Power of Unity

Do you remember the story that we used to hear as children about the old man, who laid dying, calling in his children and giving them single sticks and asking them to break them into two, which was easier, and how at the end he gave them a full bundle of sticks and then asked the to break it, which was impossible?? 

Well, what I remember of the moral of the story, was that he advised them to always remain  united in order to stay strong so that none, whatever it may be, can destroy them.

In the business world of today, similar cases, are being followed everywhere. Take the example of the Cartels, which according to the Wikipedia:

cartel is a formal (explicit) agreement among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production.[1] Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve homogeneous products.

However, cartels do not entirely explain the phenomenon that I want to explain through this example of the story. Yes, the power of unity is clearly expressed in the industry containing Cartels -petroleum, but as stated above, it is an oligopolistic industry where these group formations are only formed keeping in mind the effect on various aspects such as pricing and other phenomenons. So, essentially, these formations are just present in order to follow and maintain good and profitable business practices.

Now, what I literally interpret here and want to send across, is the need that arise for the "smaller fish" to come up and unify against the onslaught of the "Big fish".

Recently, in rural retailing, we have read a case study on MahaGrapes, it is basically a Cooperative, which signifies the united strength of various small grape farmers who collectively are a part of this cooperative, which gives them the leverage to reach out to foreign markets such as Tesco and demand better prices. Such is the Power of Unity of these small farmers, who individually would have never been able to achieve that state. So, this is quite relevant in the industries where Cooperatives are not only prevalent, but are present in considerable size.

Now this can be related to the retail scenario in India, as well. With the changing retail scenario in India, where the "Big fish" of retail such as Future Group, Aditya Birla Group etc have sensed the lucrative scope in this industry and have set foot in it, the local kiranawalas, i.e. the "Small fish", have feared their own demise. In order to, face these forces, the kiranawalas have evolved. Installing latest IT technologies at the POS, giving their store the new visual appeal, getting rid of the 'counters' and letting the consumers have the freedom of movement, being more sensitive to the consumers's shopping list (Earlier, when a consumer came and asked for an ABC brand of soap, the kiranawala in order to drive margins would hand in an XYZ brand and say that the XYZ is better and is in great demand nowadays and hence, was the decider. Even though this practice is still being followed, but, kiranawalas have now evolved into better merchants, now that the consumer has more choice in the form of "organised" stores) ,etc. This was stage 1 of their combat.

 Now came the turn of organized players to match upto the kiranawalas. No doubt, the kiranawalas had the insights into the cycle of needs of the local consumer, but this was countered by organized retail in the form of  "Loyalty Card" programmes and huge IT investments which would track down "cycle of needs" for each consumer through the loyalty cards. Huge penetration within years of operation because of huge capital backing and free home delivery was also made possible.

The kiranawalas , on the other hand, have no further capital back-up and had no clue what to do next. So, now the next step shall be to resort to the "Bundle of Sticks" fable, i.e. they have to unite against the "Big fish" and even "Bigger fish" (in terms of FDI being allowed and foreign players entering the country).  This can enable them for "Collective Bargaining" power not only in terms of vendors but also in terms of government. Following this strategy, they go in for huge IT investments, standardization, improved back-end support, collective warehousing,  etc. In short, they can go in for sort of like a Cooperative model, in order to successfully stand against the Retail Giants.



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