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B2b Purchase Practice in Indian Sub Continent : Opportunities and Trends

HITESH GUPTA asked:

Consumer market seems more bigger than B2B marketplace, but when it comes to actual figures, whether in terms of currency or quantity, B2B overpowers consumer markets. Whether conducted through face to face meeting or indirect channel, these organizations have to deal with complex purchasing and selling decisions, side by side handling many people for same account or project having many decision makers, influencers, end users, etc.

Further, these markets can be seen as divided into four categories:

• Commercial Market

o Sells raw material used in production

o Sells product which aid in production

o Sells maintenance supplies

• Trade Industry

o Wholesaler

o Reseller

• Government organization/ Public Sector Unit

o Under Central government

o Under State government

o Under Foreign government

• Institutions

o Hospitals

o Church/Temple, etc

o College/university

o Museum

o Not-for-profit organizations

B2Bmarketers have to develop marketing plans according to market they are dealing with. Now, in order to have a focussed insight of B2B marketing lets start with IT industry overview of India.

But before that lets have a look at some facts about India.

This is a country of big dimensions. It spreads over a geographical area of 3.29 million square kilometers and is about 2.5 per cent of the globe, which makes the country the seventh largest in the world. It has a population of over 1,000 million ranks which is the second largest only next to China. India is Asia’s third and world’s eleventh largest economy.

IT Industry Overview

According to Ministry of Communications and Information Technology, the year 2006-2007 witnessed a revalidation of the Indian Information Technology – Business Process Outsourcing (IT-BPO) growth story, driven by a maturing appreciation of India’s role and growing importance in global services trade. Industry performance was marked by sustained double-digit revenue growth, steady expansion into newer service-lines and increased geographic penetration, and an unprecedented rise in investments by Multinational Corporations (MNCs) – in spite of lingering concerns about gaps in talent and infrastructure impacting India’s cost competitiveness. The sector looks set to close the year at record levels, with the revenue aggregate growing by nearly ten times over the past 10 years.

The software and ITES exports from India grew from US$ 12.9 billion in the year 2003-04 to US$ 23.6 billion in 2005-06. It is estimated that total software and ITES exports from India will exceed US$ 31.3 billion during the year 2006-07. Software and services exports are likely to beat forecasts and exceed 32 per cent in dollar terms during the year 2006-07.

While the US and the UK remain the dominant markets for software and ITES exports, contributing to 67 per cent and 15 per cent of total exports respectively, firms are also keenly exploring new geographies for business development, and to strengthen their global delivery footprint. Banking, Financial Services and Insurance, and Technology (Hitech/ telecom) are the main verticals, accounting for nearly 60 per cent of the total; Manufacturing, Retail, Media, Utilities, Healthcare and Transportation follow-also growing rapidly. India offers a unique combination of attributes that have established it as the preferred offshore destination for IT-BPO. Over 2001-06, India’s share in global sourcing is estimated to have grown from 62 per cent to 65 per cent for IT and 39 per cent to 45 per cent for BPO. The visibly higher preference for India is driven by its unmatched superiority when measured across a range of parameters that determine the attractiveness of a sourcing location.

The outlook for Indian IT-BPO remains bright, and the sector well on track to achieve its aspired target of US$ 60 billion in export revenues by 2010. Key factors underlying this optimism include the growing impact of technology-led innovation, leading the increasing demand for global sourcing and the gradually evolving socio-political attitudes.

The process quality and expertise in service delivery has been a key factor driving India’s sustained leadership in global service delivery. Since the inception of the industry in India, players within the country have been focusing on quality initiatives, to align themselves with international standards. Over the years, the industry has built robust processes and procedures to offer world class IT software and technology related services. Today, India-based centres (both Indian firms as well as MNC-owned captives) constitute the largest number of quality certifications achieved by any single country. As of December 2006, over 440 Indian companies had acquired quality certifications with 90 companies certified at SEI CMM Level 5 – higher than any other country in the world.

The Indian IT-BPO sector is committed to extending its unmatched reputation in quality, to information security and is working on a four-pronged programme to achieve this objective. This comprises:

a) engaging key stakeholders (policy makers, industry players, enforcement agencies, etc.) to build a common understanding of the key issues relating to information security – in the context of global service delivery;

b) educating industry constituents about developments in information security policies and practices;

c) enactment of policy reform required to ensure compliance; and d) addicting in the effective enforcement of policy frameworks by encouraging the practice of periodic security audits and certification, developing and maintaining an incident response database and facilitating greater cooperation with enforcement agencies.

Notwithstanding the strong fundamentals (of large talent pool), there has been growing concern about parts of the available pool being unsuitable for employment. The Indian IT-BPO sector has taken the leads in ensuring that requisite remedial actions are undertaken in time to avoid any form of a talent crisis.

Training has become a regular and significant component in the induction process of all IT-BPO firms. Several firms have also established dedicated facilities and terms, for employee skill enhancement initiatives. The total number of IT and ITES-BPO professionals employed in India is estimated to have grown from 284,000 in 1999-2000 to 1,630,000 in 2005-06, growing by over 340,000 in the last year alone. In addition, Indian IT-ITES is estimated to have helped create an additional 3 million job opportunities through indirect and induced employment. Indirect employment includes expenditure on vendors including telecom, power, construction, facility management, IT transportation, catering and other services.

The domestic software market is also picking-up, showing definite signs of braking out of the trend of hardware linked growth with the contribution of software and services exceeding that of hardware for the first time in 2005-06. The total size of the domestic market is expected to cross to Rs. 37,800 crore in 2006-07, a growth of 28 per cent over 2005-06. Indian firms are gradually gaining ground and are in neck-to-neck pace with the MNCs. The Indian IT and ITES sector contribution to the national GDP is estimated to rise from 1.2 per cent during the year 1999-2000 to 5.4 per cent during 2006-07.

Production Profile

The software and services industry continue to be the dominating factor in the overall growth of the Indian industry. In 2005-06, the Indian software and services industry exports witnessed a healthy growth, its total exports reaching Rs. 104,100 crore (US$ 23.6 billion), an increase of 33 per
cent in dollar terms and 30 per cent in rupee terms over the previous financi
al year. This segment will continue to show a robust growth and the total value of software and services export is estimated at Rs. 141,800 crore (US$ 31.3 billion) in 2006-07, an increase of 36 per cent in rupee terms and over 32 per cent in dollar terms. The Business Process Outsourcing (ITES-BPO) sector has emerged as a key driver of growth for the Indian software and services Industry. As export revenues from ITES-BPO estimated to grew from US $ 6.3 billion in year 2005- 06 to US $ 8.3 billion in year 2006-07, a year-on-year growth of over 31 per cent was achieved. Consumer electronics sector is estimated to achieve a production level of Rs. 20,000 crore during 2006-07, as compared to Rs. 18,000 crore in the year 2005-06, thus achieving a growth over 11 per cent. The fast growing segments during the year were colour TV, DVD players, home theatre systems. The colour TV production has shoot up to over 12 million units during the year 2006-07. The flat segment CTVs now accounts for more than 50% of the total domestic TV production. The PC sales are expected cross 6.5 million units during the year 2006-07. The high growth in PC sales was attributed to increased consumption by Industry verticals such as Telecom, Banking and Financial Services, Manufacturing, Education, Retail and BPO/IT-enabled services as well as major e-Governance initiatives of the Central and State Governments.

Strategic Analysis

B2B customers / accounts are completely rational by nature, so they have to develop a proper B2B procurement plan, in order to do that strategic analysis is done to learn strengths, weakness, opportunities and threats so as to shape strategies that

• build strength

• overcome weakness

side by side allow firm to

• take advantage of market opportunities

• avoid business market threats

To start with lets have a look at External Analysis (looking outside the organization), which include General Environment and Competitive Environment.

General Environment

Factors overlap and development in one area may influence those in others like :

Political / Legal : Change in political environment, legal regulations like SEZ (special economic zone) development can also serve as a factor also.

Economic : Have much impact on day to day change in economic conditions like foreign exchange, etc. In case of exports/ imports the price effects do take place to a large extent. Alongwith this costing of product is also to be reconciled due to budgets and taxes (Central Excise, Customs duty, etc.).

Socio Cultural : Day to day changes in technology, life style, etc., changes the perception of people towards product/ service. So, demand changes due to change in market demand. Like in India around Diwali season demand for IT products and services increases which inturn increases the demand for more raw material procurement/ purchase.

Technological : Need latest and sophisticated technology products and machinery, so as to come out with low cost and better quality product/ service.

Environmental : This factor itself deals with, cost implications, public opinion and sites along with locations.

Legislative : One cannot go beyond laws, no matter from where, when, for whom, one is working or doing business with.

Now as far as competitive environment is concerned, companies like Wipro, Tata Consultancy Services, Infosys, Satyam, Nucleus, etc. altogether form the competitive environment, which provide same kind of product/ service(raw material) to other industries and are established since ages.

Also the home base of an organization plays an important role in shaping the advantage of an organization on a global scale.

So, lets have an analysis of suppliers, customers, competitors, supplementary as well as complementary industry through Porter’s Five Forces model.

Porter’s Five Forces model :

Bargaining Power with:

Vendors/ Suppliers : Due to availability of lots of vendors/ suppliers in the region of India, the IT organization has high bargaining power while procurement is done.

Customers : Though the product is to be provided at competitive rates to the customers in various industries but then also due to bulk demand the IT organization has some bargaining power.

New Entrants : As the IT industry in itself to provide competitive prices due to oligopoly market conditions, so is the low margin for new entrants alongwith difficulty in adjustment to the dynamic requirements, so the IT organization has some power over them also.

Substitute Industry : The market is driven by ever changing technology products / services. So, bargaining against substitutes can only be done through quality promotions.

Competitive Rivalry : Price wars continuously occur between competitors, which at times settles at constant price with approved quality or at premium services also.

Further, lets have a look at Critical Success Factors for the IT organization :

• Innovation

• Speed to market the product as soon as possible

• High Service

Further, as we know that the value chain analysis describes the activities the organization performs and links them to the organizations competitive position.

Value chain analysis describes the activities within and around an organization, and relates them to an analysis of the competitive strength of the organization. Therefore, it evaluates which value each particular activity adds to the organizations products or services. This idea was built upon the insight that an organization is more than a random compilation of machinery, equipment, people and money. Only if these things are arranged into systems and systematic activates it will become possible to produce something for which customers are willing to pay a price. Porter argues that the ability to perform particular activities and to manage the linkages between these activities is a source of competitive advantage.

Now, after this Value Chain Analysis can be seen as:

Inbound Logistics : Raw material in form of hardware, software, etc. through digital or vehicular means.

Operations : Mix of Software, hardware, infoware and peopleware to provide knowledge through product or service development.

Outbound Logistics : Product or service through digital or vehicular to reach to destination or customer’s warehouse/ factory/office.

Marketing and Sales :

• Through Trade Journals , website – www.infosys.com, search engines like www.google.com, www.yahoo.com, www.jayde.com, etc.,

• Registering through industry specific websites such as www.industrialproductsfinder.com, www.industrialleaders.com, www.trade-india.com, etc.,

• Taking part in exhibitions and trade shows like IITF, etc.,

• One of the most important thing is one to one marketing through sales representatives, which plays most important role in B2B promotions.

Service : Direct availability of representative whenever and wherever needed by the customers.

Technology : As seen before that high and sophisticated technology is required, so is the requirement for technology in other departments to a much greater extent.

HRM : Though HR plays a greater role in each and every organization as it is the resource which drives all the other resources of organization so is to be managed effectively and efficiently. Moreover, due to high attrition rate, HR is of much significance in overall organizational departments.

Procurement : This is one of the important areas which are being looked as in
significant since ages, but now with the development of Supply Chain Management, Just in Time, Kai
zen, etc. the need to procure right product / service, at right time from right place, at right price in right quantity is being understood by most of the organizations.

Firm Infrastructure : Infrastructure need arises in case of It organizations also. Office plays much importance alongwith requirement of large investment costs.

This is all about value chain analysis.

As far as Competencies are concerned, lets see what competencies are required:

• High R&D

• Quality of product as per specification

• Service to customer

• Low costs

• Availability product at any time

Core Competency :

• Early Innovation

• and flooding the market with that innovated product before time.

Now, all these as we know help in identifying strengths, weakness, opportunities and threats.

Which can be stated further.

Strength :

1. More Infrastructure

2. Brand Name

3. Superior Service Quality

4. Lowest cost in most of products

5. Proximity to Consumer/ Customer Industry

6. Vast Knowledge

7. High R&D

8. Skilled representatives/ manpower

Weakness :

1. Dependent on technology

2. Dependent on manpower.

3. Sells more quantities of low margin products.

Opportunities :

1. SOA (Service Oriented Architecture) and SAAS (Software As a Service) as new markets.

2. Switching of customers to better quality product so is the opportunity for increase in margins.

3. New technology requirements like enhanced graphics, speed, etc.

Threats :

1. TRAI and other IT regulatory norms

2. High taxes.

3. Competitors might also sense the opportunity.

So this is about the way to find out the exact company’s strategic position.

PROCUREMENTS IN BUSINESS TO BUSINESS MARKETS

To succeed in an increasingly complex business markets environment, companies should make a clear choice as to which strategy they decide to follow and be sure that the entire organisation is capable of supporting it. Essentially, companies or divisions of companies in business to business markets can follow one of four strategies.

• Price Strategy

o Lower price provider

• Like in case of common / outdated products/ services

o Leanest & Meanest organization

• Mostly for products required in continuous large quantities

• Product Strategy

o Good Products

• For high quality and technology products / services

o Regular Prices

• Prices compared with industry average

• Product + Strategy

o Most Comprehensive product and service combination

• As per urgent need, i.e. when, where and whatever is required

o Shift from price to added value

• Unique combination

• Organization Specific Solutions Strategy

o Constantly flexible to meet organizational needs

• Product and service as per customer / organizations expectations

o Integrate into vendor’s business processes

• Attach with profitable and long run vendor organisations

Strategy Implementation

Whichever strategy we choose, success depends on our ability to implement it consistently from start to finish and across all business functions. Let’s have a look at Business Markets Model which addresses strategy implementation in business to business markets in three steps: creating value, capturing value and delivering value.

1. CREATING VALUE

1. Vendor market insights: this depends on B2B strategy:

Commercial success demands an accurate understanding of vendors and their, today and tomorrow. Insights are best gathered through collaborative relationships with the vendor, getting “under the skin” of their business processes and objectives.

As the IT organization do, by integrating backward and forward with vendors as well as customers and their processes in order to create value as and when desired by them. Like when they change their process along with which their raw material requirements change, then organization also change its product availability and competitive price as desired. Moreover competitors are also being taken care off. Like, which product are they providing, at what price, to which organizations, etc.

Creation of value takes a different form depending on our strategy:

• “Price leaders” channel the creativity of their people to making the organization leaner and finding new ways to lower the price. Like technological innovation in processing, economies of scale, etc.

As can be seen in case of low cost, low quality or out dated products like CD’s, Floppy’s, etc. which is in high demand due to its lowest ever prices by the organization to its customers.

• “Product leaders” organize themselves to offer products/services with some features at a mid-range price. Innovation oriented product line like Blue ray disc in case of writing media.

• “Product+ (Premium/High End) leaders” augment their core product with features or services that testify to an understanding of the business while recognising the need for consistency and efficiency in delivering them.

• “Organisation Specific Solutions leaders” choose a value proposition that integrates itself in the business models of their vendors, and these organizations need to constantly reorganise for higher levels of satisfaction. Like IT organizations sometimes have to ask for products/ services with particular specifications. As for e.g. good quality floppy disc or writing media such as USB’s

The key drivers of growing complexity from a procurement perspective:

• Polarisation of vendor segments: Vendors are becoming more explicit on when they are prepared to deliver a premium and when not. Companies must be notice both the premium and value needs of vendors, simultaneously, yet many companies lack the capabilities to do so.

• Optimise procurement and distribution touchpoints: the growing number of procurement and distribution options, offered by vendors have made buyers better informed, more demanding and prone to ‘mixing and matching’ vendors.

• The return on commercial investments is dropping: the increasing number of media, marketplaces and networks is challenging the impact of traditional vehicles like trade magazines and exhibitions.

Many companies lack the skill to manage multiple media, develop ‘experiences’ and connect them to the bottom line.

2. B2B should be cross functional

Often, when managers in B2B companies are asked about their B2B activities, the answer points to the “brochure makers” – as if business to business marketing was only communications.

Approaching marketing as a business philosophy and not as a department, B2B companies enhance their customer focus and responsiveness, thereby improving their results.

3. Continuous innovation in B2B markets

While there are different ways to innovate, leaders need to focus the creative efforts on areas that support the strategy best. In B2B markets, innovating new products, creating cost-reduced versions or adding services or systems allows us to reach out to current and potential customers and beat the competition. Whether these innovations revolutionise or simply improve, it is critical that they meet our customers’ needs.

2. CAPTURING VALUE

Procurement isn’t what it used to be. It is ever more important to:

&bull
; focus on key customers within the organisation: Just as marketing is often misunderstood in B2B as being about brochures and catalogues, similarly CRM can be misu
nderstood as just a technology solution for keeping track of your customers. Internal customers are company’s strategic investments.

True CRM – the process of acquiring and keeping strategic accounts – is vital to your profitability and competitive advantage.

• Procure as an organisation: In B2B markets, the procurement approach and the required competences must be closely aligned to the chosen strategy. In organization, the procurement process and the competences of the purchase team are all very different if we purchase standardised products or if we purchase organisation specific solutions. As most B2B players are shifting away from a pure Product strategy into Product+ (Premium/High End), enhancing their core product with additional features and services, value procuring becomes a core competence.

Understanding not only the features and benefits of our enhanced product, but knowing what value and benefits it brings to our business will make us stand out from our competitors. This requires both an ability to have a value-based dialogue with our client, and the necessary influencing and organizational skills to represent our customers’ needs internally.

• get the price right: value-based pricing requires a detailed assessment of product/ service value. Without this, vendors can end up stressing points of difference that deliver little value to the organisation. Value presumption – assuming that any favorable points of difference must be valuable – should be replaced by close assessment of customer needs to get to the root of “what’s worth what” for them.

• align all departments: No matter how well thought-out the B2B Procurement concepts are, and how good the purchase team is, disconnects between these two functions lead to mixed messages reaching the vendor.

As a result, better alignment of inter and intra department teams will enable:

• sales force to move from product promotion to problem solving

• value propositions to create value from the company’s perspective

• purchase people to be equipped for better vendor dialogue with the right messages for the right people

• product/ service development team to create more accessible and useful procurement tools

3. DELIVERING VALUE

We’ve created a strong value proposition, and we are convinced of it. Now it’s time to deliver – and not once, but consistently. Our value proposition needs to be translated into skills, behaviours and beliefs.

Operational processes and structures – including the selection of and relationship with partners in the supply network – need to be constantly fine-tuned towards customer needs as well as profitability requirements.

Note : According to a global benchmarking study by Deloitte among 800 corporations, companies that have continually optimised their existing and new investments within the global supply chain structure are as much as 70% more profitable.

The survey identifies three key enablers:

1. Visibility – access to information regarding product, customer service and manufacturing costs, customer and product profitability.

2.Technology – an integrated and flexible technology infrastructure allows company to gain visibility and support changes in the network structure.

3.Top management support – the vast majority of the organisation’s branches most successful at optimising their networks have one executive in charge of the overall supply chain.

Findings and Conclusion

As per the study and findings, the IT organizations should develop a procurement process or better to say, B2B buying process in such a way that it provides profitability in long run as well.

Moreover, as per the analysis of IT industry, we can say that B2B buying practice requires the strategic alignment of entire value chain through formation of strategy which can be centric around:

• Price

• Product

• Product + strategy

• Customer Specific / Customised Solution

Alongwith Creation of value through:

• Vendor Insight

• Cross functional departments

• Continuous Innovation

After that, Capturing Value through:

• Focus on key customers within the organisation

• Procurement as an organisation

• Getting the right price

• Align all departments

And lastly, Delivering Value through:

• Visibility

• Technology

• Top management support

So, the organization’s should focus on its key procured products/ services like the most beneficial organisations in the industry in India and abroad..

Listening to the dynamic requirements and fulfilling them from time to time ahead of the competitors not just to stay in the race or win the race but also to change the rules of the game through innovation and change the market requirements as per the developments taking place in the marketplace.

Moreover, as Business to business markets involve more rational nature of buyers rather than impulse buying in case of Business to customers.So, the organizations should focus as well on these aspects through following proper procurement tactics, synergies and strategies as framed by organizational top management keeping in mind the strategic position of the organization.

Bibliography

1. Co-Author : Dr.S.L.Gupta, Professor & Academic Coordinator, Birla Institute of Technology, India

2. Anderson, James C. & Narus, James A. (2007). Business Market Management – Understanding, Creating and Delivering Value. 2nd ed. Pearson Education

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4. Dollinger, Marc J., Entrepreneurship Strategies and Resources, 3rd ed. Pearson Education

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13. http://www.mit.gov.in

14. http://www.iied.org/mmsd/mmsd_pdfs

 

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