Eastern Front: The 'threat' from Kolkata

Much has been spoken about the eastern upcountry over the past 1 year about the improvements and growing market maturity in the channel ecosystem. As Bhubaneswar, Guwahati and some class-D cities in West Bengal have shown a growing potential and a stable hierarchical order, the performance, so far has been pretty impressive. In this context, it needs to be highlighted that during CY'10, when the channel ecosystem in Kolkata was shrinking and channel partners were repeatedly complaining about losses and a stagnated market, Odisha, Assam, Arunachal Pradesh and Mizoram posted healthy toplines and a stable PBT, although government supplies and projects are to be thanked for stepping in to their rescue.

On the other side of this rosy picture, the upcountry market across the East is having a gloomy scenario with the majority of the channel partners across Siliguri, Guwahati, Ranchi, Jamshedpur, Bhubaneswar and other upcountry areas highlighting the threat from Kolkata and the relative fall of the distribution segment.

Sometime back, Bhubaneswar and Siliguri complained over encroachments on their local trade from major distributors and retailers based out of Kolkata, even going to the extent of alleging under-billings and some unethical business practices. The allegations, although highly controversial as well as debatable has put into question about the growth of Kolkata and the ripples it is creating across the east on account of its expansion.

Recently, in Jamshedpur, some dealers complained of the lack of the regional and sub-distribution segment as partners in the area (mostly system integrators) prefer to bill their purchases from companies in Kolkata. The utter lack of the crucial sub-distribution segment has indeed created a power-vacuum in the ecosystem and the lack of this slice of channel partners in the city has rendered it at the mercy of Kolkata based companies. However, channel players in the city did not complain of any untoward issues with any of the Kolkata based companies. The same is with Ranchi where although the sub-distribution segment is quite prominent, the channels are more focused over retail and resell billings rather than risk their fortune into an all out distributorship venture. The same is the case with Tripura which, despite is proximity and geographical closeness with Guwahati is preferring billings from Kolkata.

Odisa, Assam and Bihar however, seems to be shielded from the 'threat of Kolkata' as a healthy distributorship forum and a set of firms dots its business landscape. The case, however, is not so pleasant in these markets even. Odisha and Bihar have long been complaining of the falling profits in distribution and the national distributors penetrating deep into the upcountry areas resulting in loss of territory in the Class C and D cities. Particularly for Bihar and Odisha, the sub-distribution segment catered to the nearby markets like Muzzafarpur, Bhagalpur, Sambalpur, Cuttack and other areas, but with the national distributors getting ambitious with their expansion plans, the mode of billing for retailers in these cities have tilted in favor of the direct billings from national distributors. In this case, even billings from Kolkata based firms have been rampant.

The situation, however, has another flavor in north Bengal, where the channel seems to be holding a grudge against Kolkata based companies. The concern, there however, is not about the falling sub-distribution segment, but about the lack of clarity on distribution firms operating in the retail segment, whereby a price war is raging on in the areas. Sometime back, leading partners in the area complained that some of the companies (in Kolkata) are playing a double standard game whereby they are claiming themselves as distributors (often national) to some of their partners, and on the other hand, are operating their own retail divisions and outlets. The problem, according to some partners in Siliguri wouldn't have been so difficult had these alleged firms (Kolkata based) not resorted to offering discounts and prices below the market standard.

As seen across the eastern corridor, firms based out of Kolkata have started playing a dominant role in major upcountry locals except Bihar whereby these companies control atleast 40% of the overall eastern upcounty market and 70% of core distribution business in these locations, but then, coming over to ethics and growth plans, are the companies (Kolkata based) really to be blamed for the gloomy scenario in the upcountry east?

Legally and in terms of practicability, every firm has its own right of expansion or contraction and branch operations unless it commits financial duplicity, particularly in terms of fraud (duplicate, anonymous billing) or enters into unethical business practices in the likes of information leakages, bribery and other defined malpractices and breach of conduct as defined by the Companies Act (1956), Industrial Disputes Act (1947), Consumer Protection Act (1986), Competition Act (2002) and related sets of laws and Acts. Given this backdrop, every firm in the country has its own right of self-determination about its business conduct.

The expansion of these very companies allegedly hampering market growth in the upcountry areas seems to be justified. But in the actual scenario and for the development of the channels business is it feasible and desirable?

One can spend hours or days or years debating over the subject, but the plain rationale states that there is nothing wrong with the policy that these companies are adopting or have adopted. Clearly in channels, there is no legal or logical policy defined to restrict a company from either geographic expansion or operating in multi-channels segment like reselling, distribution and retail but companies choose their own functional areas and mode of operations in its own right. It, however, is limited in its scope from some of the 'unwritten' laws in place and to an extent is governed by the treat of "boycotts" and other activities.

In a recent instance, in Guwahati, the majority of the channel partners rose up vehemently against a company accusing it of leaking sensitive data and further alleged a national distributor of operating directly into the retail segment through its subsidiary. The local association in Assam went to the extent of boycotting all activities with the two alleged firms but did not sought the legal route as it wasn't illegal for the national distributor, even if the allegations are proved to be true. Instead, as legally advised, the national distributor can file cases about harassment and key points related to the Competition Act (2002) against companies who have sought to boycott it.

The problem thus is with the legal set of laws and the market polarity. But in any case, no association, group or individual can legally force a company to come into terms with its own wishes and cannot dictate or stall expansion plans.

In short and as conclusive, it also needs to be stated that so far, east has a very poor record about market adaptability, market share and opportunities with major firms previously focusing over business only in Kolkata. Now, with the advanced business models coming in, it is commendable that these very 'Kolkata companies' have shown the guts to expand to other regions and control market share in areas where new ventures in the distribution segment are either not starting up or existing local distributors are losing their hold and focus.

Avishek Rakshit
avishekr@cybermedia.co.in