Economy, Business And Markets

Distribution Industry: Challenges, Solutions

Distribution Industry: Challenges, SolutionsDistribution Industry: Challenges, Solutions

The Second Conference of Iran Distribution Industry, held in Tehran last week, was attended by top government officials, members of Iran Chamber of Commerce, Industries, Mines and Agriculture, representatives of associations and guilds, academics in the fields of management, distribution system and marketing, and foreign lecturers.

During the two-day conference, experts discussed the role of distribution industry in the new economic climate following the lifting of western sanctions imposed on Iran over its nuclear energy program and explored strategies for bringing the industry up to speed to make the most of the increasing presence of foreign firms in the country.

“The distribution industry is still a fledgling, infant industry in Iran,” Donya-e-Eqtesad quoted the organizer of the conference, Saeed Jaroodi as saying.

He added that the industry is growing fast and accounts for about 8% of the GDP, which is more than the share of the construction industry.

According to Jaroodi, the industry is currently held back by the stagnation and unfavorable economic conditions, but is set to make a comeback by identifying and tackling the issues hindering its progress.

“The dispersal of distribution firms, retailers and chain stores has caused goods distribution costs to rise significantly. By merging the distributors and sellers, costs can be cut down to one-fifth of the current state,” he said.

According to Pedram Soltani, deputy head of Iran Chamber of Commerce, Industries, Mines and Agriculture, consumers will pick their desired products more meticulously and intelligently in the post-sanctions era, and this is where the service industries, especially the distribution industry, can play a major role.

Soltani believes that distribution firms must not view the competition in the new economic climate as a threat, because they can tap a new, sizable market by increasing the quality of their services.

He added that distribution firms must broaden their horizons and shift their view towards overseas markets.

Foreign investors are flocking to Iran due to the safety and security of investing in the country situated in a turbulent region. This creates a great opportunity for firms to absorb investments and meet the goods transportation and distribution demand of regional countries.

“A successful industry must move ahead of the market,” said Mahmoud Mohammadian, professor of commercial management at Allameh Tabatabaie University.

“The market will soon be flooded with foreign goods as we enter the post-sanctions era and this will open a strategic window for the distribution industry,” said Mohammadian, adding that foreign firms will look for low-cost, trustable distribution agents in the country.

Mohammadian pointed to the importance of improving the quality of distribution services in the country, as the traditional forms of retailing are transforming into online retailing, in which consumers “no longer go hunting for the products they want, but wait for them to be delivered at their doorstep.”

In such an environment, distribution agents must move towards B2C (Business to Consumer) methods of distribution and deal directly with the end user. In such an environment, service quality will be the only driver of competition.

The next challenge facing the distribution industry, Mohammadian said, is to overcome the Iranian firms’ tendency toward internalization of distribution channels, as firms are not satisfied with the quality of distribution industry’s services and intend to undertake the distribution process of their goods by themselves.

The continuation of this trend will keep the firms in “the Red Ocean, and leave no possibility for moving towards the Blue Ocean,” he said.

Mohammadian was referring to a book written by W. Chan Kim and Renée Mauborgne and published in 2005, in which they argue that companies can succeed not by battling competitors, but rather by creating “Blue Oceans” of uncontested market space.

In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. Blue Ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored.

In contrast, traditional competition-based strategies–Red Ocean–are not sufficient to sustain high performance, as practitioners of this strategy focus on what competitors do and then try to do better by grabbing a bigger share of the market in a zero-sum game in which one company’s gain is at another’s loss.

In a Red Ocean, growth is increasingly limited.

According to Mohammadian, distribution firms must regain the trust of manufacturers by offering quality services such as establishing standard warehouses for the storage of goods and implementing advanced distribution networks.