Chandigarh channel fight cartel formation

Distressed by the practice of cartel formation by distributors for specific
products, the channel community of Chandigarh has decided to boycott a set of
distributors engaged in cartel activity.

“For a while now, the market here has been plagued by the formation of
cartels by distributors. As a result, all of a sudden there is huge price
fluctuation on products of companies like Compaq or Lenovo. Now we are
discouraging this practice by not buying products from distributors who
encourage cartels,” informed, a reseller from Chandigarh.

When contacted, both Redington and Ingram refused to comment on the issue so
far.

How cartel disrupts

According to industry experts, abrupt decisions to form cartels create problems
for the channel. Cartels create chaos in the market when rates for a notebook
model are quoted to the end-user and suddenly when the order matures the dealer
finds that the cost price has increased.

During cartel formation, if a sub-distributor picks up 50 notebooks at DTP
without discounts, it would mean a loss of Rs 1,000 to Rs 1,500 per notebook as
and when the cartel is reversed and discounting starts again. (Considering a
discount average of two to three percent on each notebook at an average price of
Rs 50,000).

This amounts to Rs 50,000 to Rs 75,000 as and when the cartel is reversed.
The sub-distributor who picks up the new stock (after the reversal of cartel)
would be at an advantage.

Incidentally, this practice of cartel formation is not limited to any one
place. “This has been happening in Allahabad for the past four months also. It
has gone to the extent that we have declined to take orders from customers. We
have completely stopped buying from Ingram, Redington and Savex now. Ideally,
vendors should sit with these distributors and see why this is happening,”
informed an Allahabad-based reseller. Similar opinions are being voiced from
places like Raipur, Hyderabad, Udaipur and Kolkata.

Channel power

Channel have devised the following process to counter cartels:

• No purchase of products under cartel (Presario notebooks and desktops)
• Stock rot: They want the stock to pile up and rot at one of the
  distributors (For this quarter, Ingram has been selected for stock rot)
• Keeping in mind the interest of HP's Chandigarh and Ludhiana
  sub-distributors, channel has urged the principal company to bill the material
  directly to sub-distributors on demand draft basis with relevant distributor
  discounts and cash discounts