Sales Channels for Targeting Base-of-Pyramid Markets in India

DISSERTATIONof the University of St.Gallen,

Graduate School of Business Administration,Economics, Law and Social Sciences (HSG)

to obtain the title ofDoctor Oeconomiae

submitted by

Kadri Vunder Fontana

from

Estonia

Approved on the application of

Prof. Dr. Christian Belz

and

Prof. Dr. Torsten Tomczak

Dissertation no. 3486

Druckerei Irchel, Zürich, 2008

ii

The University of St. Gallen, Graduate School of Business Administration,

Economics, Law and Social Sciences (HSG) hereby consents to the printing of the

present dissertation, without hereby expressing any opinion on the views herein

expressed.

St. Gallen, May 14, 2008

The President:

Prof. Ernst Mohr, PhD

iii

Acknowledgements

I would like to thank my supervisor Professor Christian Belz, for challenging

discussions and excellent advice. Without his encouragement, inspiring guidance,

confidence and his academic example, this thesis could not have been written. My

profound gratitude also goes to my co-supervisor, Professor Torsten Tomczak, both

for his great example in the scientific world and his stimulating remarks.

My gratitude for the help, support and encouragement, and the love and care of my

husband Patrick, is inexpressible. He has accompanied me along the path of this

thesis, patient but always urging me on, cheering me on the way, listening to partly

obscure thoughts and making the time working on it fun and tolerable.

Zurich, January 2007.

Kadri Vunder Fontana

iv

Table of Contents

List of Exhibits .................................................................................................... viii

List of Tables .......................................................................................................... x

Abbreviations......................................................................................................... xi

Summary .............................................................................................................xiii

Zusammenfassung .............................................................................................. xiv

1 Introduction.................................................................................................... 1

2 Research Background and Conceptual Foundations ..................................... 5

2.1 Definitions and Background Information ............................................ 5

2.1.1 Marketing Channels............................................................................. 5

2.1.2 Business Model ................................................................................... 8

2.1.3 Key Success Factors ............................................................................ 8

2.1.4 Base-of-Pyramid (markets, distributors)............................................... 9

2.1.5 Global Marketing of Industrial Chemical Goods ................................ 10

2.1.6 Emerging Economy, and Emerging Market........................................ 16

2.1.7 India .................................................................................................. 17

2.1.8 Composites ........................................................................................ 19

2.2 Literature Overview and Discussion................................................... 22

2.2.1 Challenges in International Marketing Management .......................... 22

2.2.2 Marketing Channels in Emerging Regions ......................................... 23

v

2.2.3 Business Model Aspects in Emerging Regions................................... 29

2.2.4 BOP Market Opportunities and Challenges........................................ 33

2.2.5 Trends in the Chemical Industry ........................................................ 39

2.2.6 Industrial Chemical Goods Distribution in Emerging Regions ........... 46

2.2.7 Glass Reinforced Plastics in India ...................................................... 47

2.2.8 Summary and Conclusions Based on Literature Analysis................... 51

2.3 Objective of the Work and Research Questions................................. 54

2.3.1 General Business Model and Dimensions for BOP-CM ..................... 55

2.3.2 Internal Key Success Factors ............................................................. 56

2.4 Research Requirement – Substantial and Original Contribution to

Knowledge ....................................................................................................... 62

2.4.1 Practical Relevance............................................................................ 62

2.4.2 Theoretical Relevance........................................................................ 64

2.5 Conceptual Framework....................................................................... 66

2.6 Scientific Methodology and Research Design..................................... 67

2.6.1 Research Process ............................................................................... 69

2.6.2 Sampling and Data Collection............................................................ 71

3 Results and Discussion ................................................................................. 79

3.1 Customer Segments and Value Chain Description ............................ 81

3.2 Customer Needs ................................................................................... 86

3.2.1 Unorganized BOP-CM Customer Needs ............................................ 86

vi

3.2.2 Organized BOP-CM Customer Needs................................................ 89

3.3 Unorganized BOP-CM Distributors’ Business Model ....................... 92

3.3.1 Business Strategy............................................................................... 92

3.3.2 Development of Business Strategy..................................................... 92

3.3.3 Strategy Implementation .................................................................... 94

3.4 Organized BOP-CM Distributors’ Business Model ......................... 106

3.4.1 Business Strategy............................................................................. 106

3.4.2 Development of a Business Strategy ................................................ 106

3.4.3 Strategy Implementation .................................................................. 107

3.5 Internal Key Success Factors of BOP-CMs Distributor .................. 113

3.5.1 Internal Key Success Factors for Targeting Unorganized BOP-CMs 113

3.5.2 Internal Key Success Factors for Targeting Organized BOP-CMs.... 115

4 Conclusions and Further Research Areas.................................................. 120

5 Literature.................................................................................................... 122

Appendixes ......................................................................................................... 132

Appendix A. List of Explorative Interviewees ............................................. 132

Appendix B. List of I Round Interviewees ................................................... 134

Appendix C. List of II Round Interviewees.................................................. 137

Appendix D. List of III Round Telephone Interviewees .............................. 139

Appendix E. Interview Questionnaire .......................................................... 140

Appendix F. Company Profiles..................................................................... 144

vii

F.1. DSM N.V. & DSM Composite Resins AG ........................................... 144

F.2. Euroresins AG...................................................................................... 146

F.3. BASF-Finlay (Pvt) Ltd. ........................................................................ 148

F.4. Imkemex Int. Ltd.................................................................................. 149

F.5. Satyen Polymers Ltd............................................................................. 151

Curriculum Vitae ............................................................................................... 153

viii

List of Exhibits

Exhibit 1-1. The research process. ........................................................................... 4

Exhibit 2-1. Typical channel structure, industrial products (Jain 2000, pp. 445). ..... 7

Exhibit 2-2. The world economic pyramid (Prahalad and Hammond 2002). .......... 10

Exhibit 2-3. EU 15 chemical industry consumption structure. % of chemical

domestic consumption. Source: Cefic (2007a). .............................................. 15

Exhibit 2-4. Geographic breakdown of chemicals sales 2006. Source: Cefic (2007a).

...................................................................................................................... 40

Exhibit 2-5. Extra-EU chemicals trade flows with major geographic blocs in 2006

(in EUR billion). Source: Cefic (2007a)......................................................... 41

Exhibit 2-6. World chemical sales, percentage shares. Source: Cefic (2007a). ....... 42

Exhibit 2-7. Cost structure of the EU (EU15) chemical industry 2006. Source: Cefic

(2007a). ......................................................................................................... 43

Exhibit 2-8. Distribution business in the composites industry in Western Europe

(CorneeLeplat 2005)...................................................................................... 44

Exhibit 2-9. Composite distributor’s strategic options (CorneeLeplat 2005). ......... 46

Exhibit 2-10. Unsaturated polyester resins market by applications 2006. Source:

DSM Composite Resins (2007). .................................................................... 48

Exhibit 2-11. Main market regions for composites in India. Source: Compare

Infobase Pvt. Inc. (2006). .............................................................................. 49

Exhibit 2-12. Indian market by regions. Source: DSM Composite Resins (2007)... 50

Exhibit 2-13. Indian market for unsaturated polyester resins by customer type.

Source: DSM Composite Resins (2007)......................................................... 51

ix

Exhibit 2-14. Concept for a channel structure and channel drivers in emerging and

BOP markets. ................................................................................................ 53

Exhibit 2-15. Research questions........................................................................... 55

Exhibit 2-16. Business model concept for a distribution organization. ................... 56

Exhibit 2-17. Conceptual framework. Dimensions of potential enablers, i.e.

dimensions of iKSFs are in red. ..................................................................... 66

Exhibit 2-18. Structure of research ........................................................................ 71

Exhibit 2-19. Interview phases and objects. ........................................................... 76

Exhibit 3-1. Value chain for car repair putty market. ............................................. 82

Exhibit 3-2. Value chain for a section of boat building market – fishing boats....... 83

Exhibit 3-3. Value chain for general-purpose market. ............................................ 85

Exhibit 3-4. Customer needs according to market type in order of importance....... 90

Exhibit 3-5. Warehouse of Resins & Chemicals in Goa. ........................................ 96

Exhibit 3-6. Glass fiber cutting facility at the warehouse of Link Enterprise.......... 96

Exhibit 3-7. Business model of unorganized BOP-CM distributor. ...................... 105

Exhibit 3-8. Distribution organizations’ business model for targeting organized

BOP-CMs.................................................................................................... 112

Exhibit F.1.-1. DSM N.V. business groups and clusters....................................... 145

x

List of Tables

Table 2-1. Definition of chemical sectors and their weights in overall chemicals

production. Source: Cefic (2007, pp. 33). ...................................................... 13

Table 2-2. Economic macro indicators of India. Source: The Economist, 2007...... 17

Table 2-3. India according to the five contexts framework..................................... 19

Table 2-4. The hybrid grid: elements of a hybrid marketing system (Rowland and

Moran 1990, pp.148). .................................................................................... 27

xi

Abbreviations

av - Average

bn - Billion

BOP - Base-of-Pyramid

BOP-CM - Base-of-Pyramid Converter Market

BXL - Benelux

CEO - Chief Executive Officer

CH - Switzerland

CHF - Swiss Francs

CSF - Critical Success Factors

EBIT - Earnings Before Interest and Taxes

E.g. - Exampli gratia

et al. - Et alii

etc. - et cetera

EUR - Euro

FDI - Foreign Direct Investment

FRP - Fiber Reinforced Plastic

GDP - Gross Domestic Product

GRP - Glass Reinforced Plastic

HQs - Headquarters

xii

iKSF - Internal Key Success Factors

KSF - Key Success Factors

kt/a - Kilo tonne per annum

MC - Marketing Communications

MD - Managing Director

M&A - Mergers and Acquisitions

M&S - Marketing and Sales

m - Million

MNC - Multinational Corporation or Company

NGO - Non-Governmental Organization

pp. - Pages

R&D - Research and Development

Rs - Rupee

s. - see

SLA - Service Level Agreement

UK - United Kingdom

UPR - Unsaturated Polyester Resin

USD - US Dollar

vs. - versus

xiii

Summary

This thesis describes business models and the internal key success factors for

distribution organizations that target base of pyramid converter markets (BOP-

CMs) with industrial chemical goods. The study has been conducted solely from the

perspective of the distribution organization.

Following the introduction, the second chapter of the thesis gives an overview of

the literature relating to the subject and identifies gaps in current research streams.

Based on the literature analysis, a basic business model is developed and

suggestions are made for possible internal key success factors for distribution

organizations targeting BOP-CMs. A discussion of the relevance of this model from

both a theoretical and practical perspective concludes the second part of the thesis.

The third chapter focuses on the design of the research – methods used, process and

sampling. The grounded theory method, developed by Glaser and Strauss (1967),

was used for gaining an in-depth understanding of the phenomena under

investigation. The interviews were carried out in parallel with comparative analysis.

The fourth chapter discusses the results and findings of the research. Based on the

interview results and practical and theoretical comparisons, generalized business

models are developed for two main categories of distribution organizations –

distributors targeting organized BOP-CMs and those targeting unorganized BOP-

CMs. For each type of distributor, generalized internal key success factors are

defined.

The thesis concludes with a description of the aspects of a generalized business

model that are applicable for a distribution organization targeting BOP-CMs.

General KSFs (Key Success Factors) and business model aspects that are relevant

include efficient direct sales, disruptive innovation in products and processes,

diversification, and relationships and social contracts. Moreover, this part of the

thesis gives suggestions to Multi National Corporations regarding the set up of sales

channels in India in order to reach BOP-CMs.

xiv

Zusammenfassung

Diese Doktorarbeit beschreibt Businessmodelle und interne

Schlüsselerfolgsfaktoren für Vertriebsunternehmungen, welche auf die

Verarbeitungsmärkte der Basis der Wirtschaftspyramide (Base of Pyramid

Converter Markets - BOP-CMs) für industrielle, chemische Güter abzielen. Die

Studie wurde einzig aus der Sichtweise der Vertriebsunternehmungen heraus

durchgeführt.

Anschliessend an die Einführung verschafft das zweite Kapitel dieser Arbeit eine

Übersicht der sachbezogenen Literatur und zeigt vernachlässigte Themen in der

aktuellen Forschung. Basierend auf der Literaturanalyse wurden ein grundlegendes

Businessmodel entwickelt und Vorschläge für mögliche Schlüsselerfolgsfaktoren in

Vertriebsunternehmungen, welche auf die BOP-CMs abzielen, formuliert. Das

dritte Kapitel konzentriert sich auf die Gestaltung der verwendeten

Forschungsmethoden, Prozesse und begründet die Stichprobe. Die von Glaser und

Strauss 1967 entwickelte, grundlegende Methode (Grounded Theory) wurde

verwendet, um ein vertieftes Verständnis der untersuchten Phänomene zu erhalten.

Die Interviews wurden parallel zur komparativen Analyse durchgeführt. Das vierte

Kapitel diskutiert die Resultate und Befunde aus der Forschung. Basierend auf den

Ergebnissen aus den Befragungen und den praktischen und theoretischen

Vergleichen wurden verallgemeinerte Businessmodels entwickelt für zwei

Hauptkategorien von Vertriebsunternehmungen: Unternehmungen, welche auf

organisierte BOP-CM’s abzielen, und solche, welche auf unorganisierte BOP-CMs

abzielen. Für jede Kategorie von Vertriebsunternehmungen wurden

verallgemeinerte interne Schlüsselerfolgsfaktoren definiert. Die Arbeit wird mit

einer Beschreibung der Aspekte von verallgemeinerten Businessmodellen

abgeschlossen, welche anwendbar sind für Vertriebsunternehmungen, welche auf

die BOP-CMs abzielen. Allgemeine Schlüsselerfolgsfaktoren und relevante Aspekte

aus den Businessmodellen beinhalten effektiven Direktverkauf, disruptive

Innovationen bezüglich Produkten und Prozessen, Diversifikation sowie

Beziehungen und soziale Verträge.

1

1 Introduction

For various reasons, Multi National Corporations (MNCs) have started to explore

business opportunities in emerging markets and in Base-of-Pyramid (BOP) markets

(Arnold and Quelch 1998). Such reasons include, among others, leveraging of

competencies and opportunities, realizing growth ambition, securing long-term

sustainability of a company, meeting corporate social responsibility targets (DSM

Next Congress 2006), and seeking innovation and organizational transformation

(Prahalad 2004b). Khanna, Palepu and Sinha (2005) even state that if Western

companies do not develop strategies of engagement across their value chains with

developing countries, they are unlikely to remain competitive for long. While

MNCs are increasingly viewing low-income markets in developing countries as

potential sources of future growth, there is almost no empirical research on

strategies for pursuing these opportunities (London and Hart 2005).

According to various authors (Balu 2001; Hart and Christensen 2002; Dawar and

Chattopadhyay 2002; Arnold and Quelch 1998), BOP markets in general cannot be

served directly by producers due to high cost-to-serve and a lack of or absent

infrastructure. Innovative ways of marketing need to be developed for MNCs to

successfully reach market and customer segments that cannot be served

conventionally through the direct sales channels of firms, such as BOP markets.

Marketing innovations and new technology development efforts by major

corporations in developed countries do not suffice for BOP markets as they

disregard the needs, circumstances and lifestyles of these markets.1 Prahalad, who

has conducted extensive research in the area of BOP markets, concluded that the

selection and design of the sales channel is one of the key factors for successful

marketing to BOP (Prahalad 2004). Still, he does not address the issue of the

selection criteria or processes. Moreover, there is no literature available on the

distribution channels serving the BOP markets with industrial goods, their set-up,

design, or critical success factors.

1 Both studies are based on consumer goods marketing.

2

Extensive scientific literature exists for the design and management of sales

channels. However, this is dominated by work written from the producers’

perspective and the perspective of top management (Li and Cavusgil 1995, pp.

253). In order to understand and design local processes that have typically been

performed directly by sales partners, research needs to concentrate on the level of

sales partner companies before searching for solutions at the principal level (Gupta

and Govindarajan 1994, pp. 455; Belz and Reinhold 2001, pp. 221; Renz 1998, pp.

79; Stewart 1995). The scientific research to date does not provide adequate

answers from the sales partners’ perspective to questions arising from the sales

partners’ selection, cooperation, and set-up and design issues despite the fact that

considerable work has been done in related areas of research, such as partner

cooperation, and relationship maintenance problems (Schmitz 2005, pp. 1-6). In

summary, the problem areas of the sales partner choice are known in practice, but

there are no widely known methods, nor scientific proposals for solving these

matters. Deficiencies in both scientific research and practice therefore indicate a

research gap, which enables the definition of the general objectives of the current

work.

The dissertation at hand focuses on describing the channel set up and business

model(s) for distribution organizations in order to reach Base-of-Pyramid Converter

Markets (BOP-CM) for selected industrial chemical goods in India. Furthermore,

the work aims to clarify the internal Key Success Factors (iKSFs) for such

distribution organizations. As a secondary goal, the dissertation seeks to make

suggestions for western chemical goods suppliers for the selection and/or

configuration of their marketing channels and distribution organizations for

reaching BOP-CMs.

As a starting point selected down-the-value-stream business chains (unsaturated

polyester resins used in the composites industry) of DSM Composite Resins were

chosen. DSM Composite Resins is a part of Royal DSM N.V. – a global life science

and chemicals company with headquarters in the Netherlands.

3

The well-known Grounded Theory method, which was developed and detailed by

Glaser and Strauss (1967), was used for gaining an in-depth understanding of the

phenomena under investigation.

A survey of the literature revealed potential properties and categories that are

relevant in the current work. Moreover, the scientific literature and my own

experiences were used for making theoretical comparisons and for examining the

data in the subject research, as not all properties were directly evident from the

gathered data (Strauss and Corbin 1998, pp. 80).

Structure of the research

With the help of the scientific literature and practical knowledge gained from DSM

(Step I in Exhibit 1-1), a basic business model for a BOP-CM distribution

organization is described. This was taken as a basis for verification in practice as

shown in steps II and III in Exhibit 1-1. Verification was carried out by interviews

and observations in three blocks. The interviews were carried out in parallel with

comparative analysis. Based on this, a generalized business model was developed

and generalized key success factors defined. Lastly, suggestions are made regarding

the set-up of sales channels in India in order to reach BOP-CM-s (Step IV, Exhibit

1-1).

4

Exhibit 1-1. The research process.

I FIELD WORK (Interviews,

Observations, etc.)

a) DSM & down the value chain

distributors in India: Imkemex,

Basf Finlay.

b) Satyen & down the value chain

distributors in India: Suntech,

Link Enterprises, etc.

Business

Model

I

Business

Model

II

and iKSFs

Comparative Analysis

DSM

Strategy

and

Existing

Business

and

Literature

Analysis

I II III IV

II

III

5

2 Research Background and Conceptual Foundations

The following is an explanation of the most important definitions, along with the

definition of the scope and framework of the research project and chosen methods.

The latter is based on analysis of the existing literature relating to topics handled in

the current dissertation.

2.1 Definitions and Background Information

2.1.1 Marketing Channels

Channels are organized structures of buyers and sellers that bridge the gap of time

and space between the manufacturer and the customer (Jain 2000, pp. 444).

According to Kotler et al. (2003, pp. 523, 551), the marketing intermediaries

between producers and final users (marketing channels) perform a variety of

functions such as:

- Merchants or distributors – wholesalers and retailers who buy, take title to

and resell the merchandise;

- Agents – brokers, manufacturer’s representatives, sales agents – search for

customers and may negotiate on the producer’s behalf but do not take title to

the goods;

- Facilitators – transportation companies, independent warehouses, banks,

advertising agencies – assist in the distribution process but neither take title

to the goods nor negotiate purchase or sales.

Companies use intermediaries when they lack the financial resources to carry out

direct marketing, when direct marketing is not feasible, and when they can earn

more by doing so. The use of intermediaries largely boils down to their superior

efficiency in making goods widely available and accessible to target markets. The

most important functions performed by intermediaries are information, promotion,

6

negotiation, ordering, financing, risk taking, physical possession, payment, and title

(Kotler et al. 2003, pp. 551).

The decision to develop an internal distribution network, or hire a firm to distribute

the firm’s goods is not just internationalization-related. In many industries, there are

market segments that cannot be served by a firm’s own sales force directly for

reasons related to cost-to-serve, geographical reach, and supplier flexibility (order

size, changes, payment terms, etc.). In such cases, the sales partners both in

domestic and foreign markets increasingly serve the role of a solution provider

which is additional and complementary to the existing sales channels to reach

customers otherwise not reachable. As an example, in the composites industry,

about 30% of the West European composites market is served by distribution

companies that provide a one-stop-shop concept by representing the whole product

range necessary for making a composites part (CorneeLeplat 2005, pp 3).

According to CorneeLeplat (2005, pp 2-6), this part of the market could not be

served by the producers directly due to more complex needs of the customers for

system solutions, flexibility (payment, planning, etc.), technical service of the

system, or the logistical complexity that cannot be handled by the producer

companies (small order sizes, combined deliveries, etc.). Both the efficiency and

efficacy of the sales activities in domestic and foreign markets could be

significantly improved if the right sales channels are chosen to suit the needs of the

various customer segments.

Channel Structure. Decisions about channel structure are based on a variety of

factors. To a significant extent, channel structure is determined by where

inventories should be maintained to offer adequate customer service, fulfill required

sorting processes, and still deliver a satisfactory return to channel members (Jain

2000, pp. 445). Exhibit 2-1 shows a typical channel structure for industrial products.

7

Exhibit 2-1. Typical channel structure, industrial products (Jain 2000, pp. 445).

Types of Distributors in the Chemical Industry. In view of the chemical industry, a

distinction can be made between specialized distributors focused on a specific

industry segment and offering complete solutions to meet the needs of such markets

(e.g. composites distributor); general chemicals distributors offering a wide range of

bulk materials at large volumes and relatively low margins; general distributors

offering mostly ancillary items; and traders who focus on one major product line

instead of industry (CorneeLeplat 2005, pp. 17). The system is complex, comprising

many distributor- and sub distributor networks.

A general chemicals distributor is a distribution organization that buys, takes title to

and resells the goods, has its own warehousing facilities and often also distribution

hubs, and own a “car park”, making it possible to arrange the distribution of goods

in house. They resell a broad range of materials ranging from base chemicals to

specialized products used both in laboratories and in industry. A general chemicals

distributor does not target a specific industry branch or market segment and is not

able to provide system solutions in most cases. For example, a general chemicals

distributor has synergies through the large quantity bulk chemicals business -

purchasing power (quantity rebates) and logistics through bulk full truck deliveries

directly from manufacturing plant to the warehouse.

MANUFACTURERS

BUSINESS CUSTOMERS

Agent or Broker

Industrial Distributor Industrial Distributor

Agent or Broker

8

A specialized distributor is a distribution organization that buys, takes title to and

resells the goods, has its own warehousing facilities and resells a broad range of

products targeted at a specific industry or industry segment. For example, there are

distribution organizations specialized in the composites market. Such distributors

have composed their whole product portfolio in order to satisfy the needs of

composites part manufacturer – products ranging from resin, glass, additives to

application hardware like brushes and rollers and other ancillaries like rubber

gloves etc. A specialized distributor offers, in general, system solutions and

provides technical support to some extent.

Principal is a term used to refer to the manufacturer of the key products in a

distributor’s portfolio that are distributed by the distributor. Such products typically

generate 70-80 % of the distributor’s turnover and margins. Many companies apply

a key account management approach to managing principal relationships.

A supplier is a company that supplies value added complementary products to the

distributor’s portfolio, which comprise only a relatively small part of the total

portfolio. Such products offer potential growth and improved margins.

2.1.2 Business Model

Business Model describes the structure of product-, service- and information flows

and the roles of the participating parties. This includes potential benefits and

sources of revenue to each of the parties (Johnson and Scholes 2002, pp. 496). In

the current context, business model refers to the structure and processes of the

distribution business, including the various relationships between the different parts

of the business in the value chain.

2.1.3 Key Success Factors

The strategic capability of any company to serve a market or market segment is

defined by customer value, which in turn is defined by the product offering

9

(including service) and consists of two aspects: first are the Qualifying Factors

(QF) - threshold product features that all potential providers must be able to offer if

they are to stay in a particular market or market segment. Second are the Critical

Success Factors (CSF), also called Key Success Factors (KSF), which are the

product features (or features of the offering) that are particularly valued by a group

of customers, and therefore the organization must excel to outperform competition

(Johnson and Scholes 2002, pp. 147). They will differ from one market segment to

another.

Core Competencies (CC) are company internal activities and other factors that help

to meet the KSFs and hence provide competitive advantage (Johnson and Scholes

2002, pp. 147).

Internal KSF (iKSF) of a company are herewith defined as the aspects of business,

business model or marketing which have the most significant influence on the

achievement of company objectives related to market share, growth and turnover.

Internal KSF contain, but are not limited to, factors like company Resources and

Core Competencies.

2.1.4 Base-of-Pyramid (markets, distributors)

Base-of-Pyramid (BOP) also referred to as rural markets by various authors, is a

common term for the group of individuals in the world who have a daily disposable

income of less than USD 2.00. 65% of the world’s population earns less than USD

2000 per year – i.e. 4 billion people (Prahalad and Hammond 2002). In India,

86.2% of its population lives under USD 2.00 per day (Alon 2006; Prahald and

Hammond 2002).

10

Exhibit 2-2. The world economic pyramid (Prahalad and Hammond 2002).

Base-of-Pyramid Converter Market (BOP-CM) comprises herewith of the producers

of goods and services which are supplied to BOP individuals, whereby the

producers purchase various chemical goods for converting them into end products,

e.g. agricultural markets - farmers purchasing fertilizers, pesticides, feed additives

for production and sale of agricultural products; construction markets – paints,

coatings purchased by construction workers for building houses, etc. Such

converters are small in size and are targeting customers in the lowest income group

- BOP market segments.

A BOP distributor is a distribution organization that sells goods to BOP-CM.

2.1.5 Global Marketing of Industrial Chemical Goods

Industrial goods markets, also called business-to-business or B2B markets.

Industrial goods are defined here as goods and services supplied by organizations

for the production of further goods or services that are not destined for consumption

by the end customers (Backhaus 2003, pp. 9; Belz and Reinhold 1999a, pp. 10).

Industrial goods markets comprise business buyers who buy goods for their utility

4,000

2,000

100

Population in millions

< USD 2,000

USD 2,000 < 20,000

> USD 20,000

Purchasing power parity (in US dollars)

11

in enabling them to make or resell a product to others; they purchase products to

make profits. Business marketers must demonstrate how their products will help

customers achieve higher revenue or lower costs. Advertising plays a role, but a

stronger role is played by the sales force, price and the company’s reputation for

reliability and quality (Kotler et al. 2003, pp. 9). Demand in the business market is

derived form the demand in the consumer market and fluctuates with the business

cycle. Nonetheless, the total demand for many business goods and services is quite

price inelastic. Business buyers often buy directly from manufacturers rather than

through intermediaries, especially items that are technically complex or expensive

(Kotler et al. 2003, pp. 206).

Chemical industry and -goods. The chemical industry is involved in the production

of chemicals and is comprised of many smaller industries including:

petrochemicals, agrochemicals, pharmaceuticals, polymers, paints, and oleo

chemicals. These chemical industries are involved in the processing of raw

materials obtained by mining and agriculture, among other supply sources, into

materials, substances, and chemical compounds that are end products or are used in

other industries (Wikipedia 2006a). The industry produces active ingredients for the

pharmaceutical industry, organic chemicals for use as basic building blocks in the

manufacture of consumer and industrial goods, plastics, perfumes, surface coatings,

dyes and pigments, and fertilizers (Burgess et al. 2002). Chemical goods can be

divided into commodities and specialties.

A commodity is an undifferentiated product whose value arises from the owner's

right to sell rather than buy. Examples include: bulk chemicals such as sulfuric acid,

styrene, benzene, also many derivatives like some plastics, are considered

commodities. In the original and simplified sense, commodities were things of

value, and of uniform quality, that were produced in large quantities by many

different producers; the items from each different producer are considered

equivalent. It is this underlying standard that defines the commodity, rather than any

quality inherent in the product (Wikipedia 2006b). Commodity markets are markets

where raw or primary products are exchanged. These raw commodities are traded

on regulated commodities exchanges, in which they are bought and sold in

standardized contracts (Wikipedia 2006c). Trading of commodities – using brokers

12

to link buyers with commodities sellers in the purchasing country (Czinkota and

Ronkainen 2002, pp. 735). For example, for plastics commodity trading there is an

E-hub - a virtual market place for the commodity. Information and trading

available at http://www.plastics.com/, and http://chematch.com. Further links can

be found under: http://www.chemindustry.com/. From the company-internal

perspective, commodities could be a classification of its own products, depending

on the sales volumes, generated margins and allocation of promotion budgets–

commodities are usually high volume, relatively low margin products which are not

being promoted heavily and they are viewed as undifferentiated products.

Specialty goods have unique characteristics or brand identification for which a

sufficient number of buyers are willing to make a special purchasing effort.2

Specialty goods do not involve making comparisons; buyers invest time only to

reach dealers carrying the wanted products. Dealers do not need convenient

locations; however, they must let prospective buyers know their locations (Kotler et

al. 2003, pp. 412). On the other hand, specialty goods from the perspective of a

company typically refer to items with lower sales volume but with higher margins,

are highly promoted, or might generate income for services, such as co-

development projects, special delivery conditions, installation, consignment stock

on a supplier’s site, a dedicated reactor for the production of a specialty chemical,

or on-site training and testing among others (Kotler et al. 2003, pp. 415; Koning-de

2006). Specialty chemicals is a term used to describe a part of the chemical industry

comprising the following sectors – fine chemicals, paints and inks, and crop

protection chemicals. Table 2-1 serves to illustrate the chemical industry

classification which is used by the European chemical industry association Cefic

and gives an overview of the relative weight of the various industry sectors.

2 In the case of business markets, it could be sufficient to have only 1 buyer.

13

Table 2-1. Definition of chemical sectors and their weights in overall chemicals

production. Source: Cefic (2007, pp. 33).

Note: Weighting factor = 2006 value of production.

The current research focuses on the market sector “Plastics”.

Characteristics of chemicals industry. Witcoff and Reuben (1996, pp. 19) identify

a number of characteristics of the chemicals industry listed below. Also Moretti

(1999) identifies similar characteristics when focusing more specifically on the

specialty chemicals side of the industry:

- Maturity and its consequences (the market is nearing saturation, technology

is well diffused and barriers to entry are low);

Chemical sub-sectors Weight, % Weights, %

1. Petrochemicals 16,0

2. Polymers 18,6

Plastics 16,0 86,1

Synthetic Rubber 0,8 4,4

Man made fibers 1,8 9,5

3. Basic inorganics 8,1

Other inorganics 4,0 49,5

Industrial Gases 1,7 20,8

Fertilizers 2,4 29,7

4. Specialty Chemicals 19,2

Auxilliaries for industry 10,0 52,0

Dyes and pigments 2,1 11,0

Crop protection 1,3 7,0

Paints and inks 5,8 30,0

4. Pharmaceuticals 27,9

5. Consumer chemicals 10,1

14

- Participation in international trade (chemicals is truly a global industry);

- Competition from the developing countries;

- Capital intensiveness and significant economies of scale apply (particularly

for commodities);

- Criticality and pervasiveness (chemicals is critical to the economy of a

developed country);

- Freedom of market entry (in case capital is available turnkey plants can be

readily purchased);

- Strong regulation (particularly for environmental protection and individual

safety);

- High research and development expenses (the industry relies on engineers

and technologists);

- Dislocations (i.e. the industry is vulnerable to random events).

Chemical industry products are used in various industries. As an example, Exhibit

2-3 demonstrates the chemicals sales in EU to the various end markets.

15

Exhibit 2-3. EU 15 chemical industry consumption structure. % of chemical

domestic consumption. Source: Cefic (2007a).

Global Marketing of Industrial Chemical Goods refers herewith to the marketing

mix decisions for chemical goods in the international (global) context. Obtaining or

maintaining a top position in core markets is becoming more difficult for chemical

producers, especially in highly competitive markets with little product

differentiation. Some firms say it is necessary to make significant investments-in

R&D, M&A, building new plants in high-growth markets, or forming alliances with

other firms to become a leading player, or at least, to maintain current standing in

the chemical industry (Walsh 2006).

16

2.1.6 Emerging Economy, and Emerging Market

An emerging economy, also called an emerging market refers primarily to a third

world country, which fulfils the following criteria. First, the country enjoys the

prospect of substantial economic growth. Secondly, it has recently been opened to

foreign direct investment and its trade liberalization process is irreversible. Third, it

has an institutional infrastructure that facilitates marketing transactions. However,

the efficiency and the effectiveness of this infrastructure fall far short of comparable

infrastructure in an advanced economy (Rahman and Bhattacharrya 2003; Arnold

and Quelsch 1998; Khanna and Palepu 1997; Cavusgil 1997).

It is also typical that only a small portion of the population in an emerging economy

accounts for a large proportion of national income, unlike advanced economies. To

take India as an example, 20% of the population accounts for 34.1 % consumption

of the country’s goods and services. These people can also be accessed easily

because they live primarily in urban areas, possess the necessary education and

consumption experience, and have the means to afford costly foreign goods and

services (Rahman and Bhattacharrya 2003).

According to Khanna, Palepu and Sinha (2005), many MNC are struggling to

develop successful strategies in emerging markets partly due to the absence of

specialized intermediaries, regulatory systems, and contract enforcing mechanisms

– so called institutional voids: 1) companies can’t find skilled market research firms

to reliably inform them about customer preferences so that they can tailor products

to specific needs and increase people’s willingness to pay; 2) few end-to-end

logistic providers, which allow manufacturers to reduce costs, are available to

transport raw materials and finished products; 3) before recruiting employees,

corporations have to screen large numbers of candidates themselves because there is

a lack of search firms that can do the job for them, among many more.

17

2.1.7 India

Table 2-2 shows some key information about India for understanding the economic

environment for doing business in the region.

Table 2-2. Economic macro indicators of India. Source: The Economist, 2007.

(a) Actual.

(b) Wage earners in the textile industry.

Annual data 2006(a)

Population (million) 1,095

GDP (USD billion; market exchange rate) 923

GDP (USD billion; purchasing power parity) 4,312

GDP per head (USD; market exchange rate) 843

GDP per head (USD; purchasing power parity) 3,936

Exchange rate (av) Rs:USD 45.3

Labor costs per hour (USD) (b) 0.74

Historical averages (%) 2001-05

Population growth 1.5

Real GDP growth 7.8

Real domestic demand growth 7.8

Inflation 4.5

Current-account balance (% of GDP) 0.2

FDI inflows (% of GDP) 1.1

18

Alon (2006) illustrates additional relevant information for evaluating the potential

of emerging markets:

Genuine domestic savings (percent of GDP): 9.0

Urban population: 280,102,267.4

Total urban market potential for services, USD: 26,357,557,857.8

Total urban income spent on services, USD: 941

The next table illustrates India according to the five contexts framework by Khanna,

Palepu and Sinha (2005).

Political structure: The democracy is vibrant. The government is highly

bureaucratic. Corruption is rampant in state and local governments.

Pol

itic

al a

nd

soci

al s

yste

m

Civil society: A dynamic press and vigilant NGOs act as checks on politicians

and companies.

Ope

nnes

s Modes of entry: Restrictions on Greenfield investments and acquisitions in

some sectors make joint ventures necessary. Red tape hinders companies in

sectors where the government does allow foreign investment.

Workers market: The trade union movement is active and volatile, although it

is becoming less important. Trade unions have strong political connections.

Lab

or M

arke

ts

Market for managers: The country has a highly liquid pool of English-

speaking management talent fuelled by business and technical schools. Local

hires are preferred over expatriates.

Debt and equity: The local banking system is well developed. Multinationals

can rely on local banks for local needs. Equity is available for local and

foreign entities.

Venture capital (VC): VC is available in some cities and for the Indian

Diaspora.

Cap

ital M

arke

ts

Accounting standards: Financial reporting, which is based on a common-law

system, functions well.

19

Financial distress: Bankruptcy processes exist but are inefficient. Promoters

find it difficult to sell off or shut down enterprises.

Product development and intellectual property rights (IPR): Some local design

capability is available. IPR problems with the United States exist in some

industries. Regulatory bodies monitor product quality and fraud.

Supplier base and logistics: Suppliers are available, but their quality and

dependability varies greatly. Roads are in poor condition. Ports and airports

are underdeveloped.

Prod

uct M

arke

ts

Brand perceptions and management: Consumers buy both local and global

brands. Global ad agencies are present, but they have been less successful than

local ad agencies.

Table 2-3. India according to the five contexts framework.

2.1.8 Composites

Composite materials (or composites for short) are engineered materials made from

two or more constituent materials with significantly different physical or chemical

properties and which remain separate and distinct on a macroscopic level within the

finished structure. Most composites are made up of just two materials. One material

(the matrix or binder) surrounds and binds together a cluster of fibers or fragments

of a much stronger material (the reinforcement). In fiberglass, the reinforcement is

provided by fine threads or fibers of glass, often woven into a sort of cloth, and the

matrix is a plastic (Wikipedia 2007).

Fiber Reinforced Plastics or Polymers (FRP) include wood (comprising cellulose

fibers in a lignin and hemicellulose matrix), carbon fiber reinforced plastic or

CFRP, and glass reinforced plastic or GRP (Wikipedia 2007).

Composite materials are used in high-performance products such as aerospace

components (tails, wings, fuselages, propellers), boat and scull hulls, bicycle frames

and car bodies and under the hood applications. Other uses include fishing rods and

storage tanks, windmill blades, and many more.

20

Composite materials and fiber-reinforced plastics are used interchangeably in the

context of this work.

Unsaturated Polyester Resins (UPR) (in the contexts of current work also used

interchangeably with Resins) are synthetic resins with similar properties to natural

resins—viscous liquids capable of hardening used for making composite parts as a

matrix (binder) (Aurer and Kasper 2003). Main application markets where UPR is

used include

(1) Automotive (car body parts, engine covers, bumpers, fenders, etc.);

(2) Civil and industrial tanks and pipes (civ TAN, civ PIP, ind TAN, ind PIP).

Civil pipes and tanks are used for sewage and water applications. Industrial

tanks and pipes are used for high corrosion chemical industry applications

such as chlorine tanks;

(3) Car repair putty (PUE). Putty is a generic term for a plastic material similar

in texture to clay or dough typically used in domestic construction and repair

as a sealant or filler. In the context of the current research, putty refers to car

repair putty;

(4) Boat hulls and decks, swimming pools – in the current work these

applications are collectively called marine applications (MAR);

(5) SMC/BMC refers to parts that are manufactured by a specific technology

called SMC or BMC molding. Such parts are used mostly for high series

automotive and water tank panel applications;

(6) Artificial stone and marble (AST) is an application where natural stone is

mixed with resin and molded in a form to make items such as wash basins,

bathtubs, floor and wall tiles, etc.;

(7) Roof tiles;

(8) Windmill blades and generator covers (WMB).

21

General Purpose (GP) resins are resins that are used for a variety of applications

that do not require high performance and are usually hand-manufactured such as

statues, window-, door- and mirror frames, decorative applications (artificial rocks,

springs, etc.), tiles, floor grids, signs (traffic signs, advertisement panes, etc.) and

many more. These resins are usually low cost and manufacturers do not require

specific resin know-how.

22

2.2 Literature Overview and Discussion

2.2.1 Challenges in International Marketing Management

Various authors address research stream issues related to international market entry

and expansion strategy, however primarily from a MNC perspective while

investigating MNCs (Li and Cavusgil 1995; Sarkar and Cavusgil 1996; Cavusgil et

al. 2005). According to Kotler et al. (2003, pp. 28), both international markets and

marketing are changing radically. The latter is a result of major societal forces such

as technological advances, globalization and deregulation. Such major factors have

created new behaviors and challenges including: (1) Customers increasingly expect

higher quality and service and some customization. They perceive fewer real

product differences and show less brand loyalty. They can obtain extensive product

information from the Internet and other sources, which permit them to shop more

intelligently. They are showing greater price sensitivity in their search for value. (2)

Brand manufacturers are facing intense competition from domestic and foreign

brands resulting in rising promotion costs and shrinking profit margins. To

accustom to such changes in the economy, Kotler et al. (2003, pp. 28-29) has

identified major marketing themes: relationship marketing, customer lifetime

value, customer share, target marketing, customization, customer database,

integrated marketing communications, every employee a marketer, model-based

decision making, and last but not least, channels as partners – from thinking of

intermediaries as customers to treating them as partners in delivering value to final

customers. Moreover, recent research streams present other major themes for global

value generation, such as: global equity, customer, and channel equity, and

innovativeness (Cavusgil et al. 2005).

Marketing in emerging markets. Various authors (Khanna and Palepu 1997;

Khanna, Palepu and Sinha 2005; Khanna and Palepu 2006; Arnold and Quelch

1998; Prahald 2002) have done extensive research on how business is conducted in

emerging markets and have identified various factors that are critical for success.

The majority of their research was based on MNCs and large local conglomerates

(such as Tata, and Mahindra & Mahindra in India). As an example, they identify

that all successful companies work around institutional voids. Such companies

23

develop strategies in emerging markets that are different from those they use at

home and often find novel ways of implementing them. They also customize their

approaches to fit each nation’s institutional context. Moreover, they argue that

conventional marketing approaches from developed markets are not applicable in

emerging markets and need to be rethought. From here it follows that the key topics

identified in the previous section are not always relevant or applicable in the context

of emerging markets.

According to Khanna and Palepu (2006), most emerging markets are composed

from four distinct groups: 1) a global customer segment that wants products of

global quality and with global features – that is, offerings with the same quality and

attributes that goods in developed countries have – and is willing to pay global

prices for them; 2) a “glocal” segment that demands products of global quality but

with local features (and local soul) at less-than-global prices; 3) a local segment that

wants local products with local features at local prices; and 4) a bottom-of-the-

pyramid segment, as C.K. Prahalad calls it, that can afford to buy only the most

inexpensive products. (Prahalad and Hammond 2002). Khanna and Palepu (2006)

call this construct ”the four-tiered structure of the market“. They argue that when a

developing country opens up, MNCs rush into the global tier, and local companies

dominate the local tier. They identify three key marketing strategies to the success

of local companies in the markets – to exploit understanding of the product markets,

to build on familiarity with resource markets (labor, logistics, etc.), and to treat

institutional voids as business opportunities. Adding to that, excellent execution and

good governance are particularly valuable in newly industrializing countries.

2.2.2 Marketing Channels in Emerging Regions

Scientific works have dealt, for many years, with the design and management of

sales channels, although the focus is typically from the producer perspective and the

perspective of the top management (Li and Cavusgil 1995, pp. 253; Arnold and

Quelch 1998; Khanna and Palepu 1997; Khanna, Palepu and Sinha 2005; Khanna

and Palepu 2006; Belz and Reinhold 2001; Weber 2000; Weber 2001; Wilkinson

1996). Many of these works focus on the relationship between the distributor and

24

principal. Cavusgil (1998) has developed a general framework for international

partnering, and suggests a ten-step process for selecting international partners.

Stewart (1995) and Gupta and Govindarajan (1991; 1994) state the following: „...if

researchers’ intent is to understand strategic processes within MNCs, then focusing

only on corporate “induced“ (i.e. centrally managed) processes would run the risk

of overlooking important and directly relevant phenomena. Further, it would seem

that the study of autonomous processes would need to be conducted first at the level

of the subsidiary and only secondarily at the level of the parent corporation (Gupta

and Govindarajan 1994, pp. 455).

Arnold (2000) has found that in emerging markets, MNCs have realized that it

makes sense in the long run to continue working with independent local distributors

who handle the sales and distribution system even after the international companies

have taken control of the marketing strategy and major global accounts.

Independent local distributors often provide the best means of serving local small

and medium accounts. Still, many authors have described the general problems (a

high level of dissatisfaction with actual outcomes relative to expectations) for

international business through distribution channels (Kotler et al. 2003, pp. 400;

Belz and Reinhold 2001, pp. 27; Arnold 2000; Schmitz 2005; Hitt et al. 2000). The

results of the study done by Weber (2000) indicate that business marketers perceive

distribution to be the weakest link in the marketing chain.

Arnold and Quelch (1998) conducted their research from the MNC perspective and

focus on strategic marketing decision aspects. They highlight discrepancies between

the assumptions underlying traditional models and practice in developed markets

and the distinctive dynamics of emerging markets in order to help corporate

executives in both large and small firms develop new frameworks to support their

emerging market strategies. They focus on four main marketing decision-making

areas – timing of entry, market assessment, product policy and partner policy. They

argue that the distinctive marketing environments in these countries require

rethinking of accepted wisdom and suggest alternatives to the partner policy

customarily adopted in developed international markets. According to Arnold and

Quelch (1998), there are fundamental differences in “partner policy“ between

developed and emerging markets. Distributors in developed markets undertake a

25

defined range of functions such as warehousing or product sorting, for which they

are well qualified. However, intermediaries in emerging markets often perform

additional marketing functions such as selecting target markets or a promotion

strategy, which would otherwise be controlled by the international company

through its subsidiaries. The distributor is in fact a local marketing organization,

made necessary by the company’s lack of local marketing knowledge and operating

capability. According to Arnold and Quelch (1998), a successful channel strategy in

emerging regions would include adapting the approaches employed in developed

markets such as:

- Industry experience – it is not always necessary to have a partner already

experienced in the principal’s business;

- Direct selling – in emerging regions, direct selling is necessary because of the

relative lack of distribution and communication infrastructure, and is feasible

due to the availability of low cost sales personnel;

- Local autonomy – disruptions in sales, and marketing matters can be avoided,

and sales growth can be managed more effectively if the MNC avoid delegating

all marketing policy to a local partner in favor of defining clearly the tactical

decisions that the local partner controls;

- Exclusivity – multiple partners, either for different geographic regions or for

different product lines, may mean some loss of control, and increase in

administrative complexity, however, multiple partners may be preferable if more

rapid market penetration is required. For firms following a multi-tier product

policy involving new products with which the partner is progressively less

familiar and therefore less able to accelerate the pace of market penetration, such

a policy is more appropriate.

According to Khanna and Palepu (2006), multinational companies enjoy an edge in

the intermediaries business because they bring expertise, credibility and experience

to the table. However, emerging-market companies can become competitive for

three reasons: 1) many intermediaries are people intensive, so running them requires

familiarity with the local language and culture, 2) intermediaries are information

26

intensive, and it takes local expertise to access scattered information and analyze

data of variable quality, and 3) governments consider some institutions, such as

media, banking, and financial services to be of national importance and they often

prohibit multinational companies from setting up those institutions or force them to

collaborate with local companies.

Trends in channel structure and strategy. Today, with the proliferation of customer

segments and channel possibilities, more companies have adopted multichannel

marketing (Kotler et al. 2003, pp. 545; Webb and Hogan 2002). Multichannel

marketing occurs when a firm uses two or more marketing channels to reach one or

more customer segments. This happens both in industrial and consumer product

distribution. By adding more channels, companies can gain three important benefits

such as increased market coverage, lower channel cost (selling by phone rather than

personal visits to smaller customers), and more customized selling (adding a

technical sales force to sell more complex products or equipment.).

Table 2-4 illustrates a hybrid marketing channel system and the tasks to be

performed.

Channel structure is influenced by various variables such as the countries’

economic development, social taboos, ethical standards, local, state and federal

laws, geographic size, population patterns, typology, cultural traits, changing

lifestyles, and technical advances (Jain 2000, pp. 448; Mallen 1996). For example,

mass retailing in many segments has become feasible because of development of

automobiles, highways, refrigerated cars, cash registers, packaging improvements,

and mass communications such as television (Jain 2000, pp. 448). Moreover, in

traditional linear supply chains (business model), the product flows in a linear

fashion through the chain. According to Johnson and Scholes (2002, pp. 496-498),

the advancement of information processing is transforming business models in both

the private and public sectors. Therefore, also information and services may exist in

branches of the chain. Many complex e-commerce models are emerging out of

traditional business models based on innovation from traditional approaches

(mainly on level of integration of activities) – e-shops, e-procurement, e-mall, e-

auctions, value chain services (e.g. payment systems, logistics), trust services (such

27

as supplier or customer certification or vetting), third party market place (web-

hosting), information brokerage (e.g. search engines), virtual communities,

collaboration platforms, value chain integrators.

Table 2-4. The hybrid grid: elements of a hybrid marketing system (Rowland and

Moran 1990, pp.148).

From a strategic point of view an important decision in any of these e-commerce

business models is the extent to which the customer gains or perceives better value

for money. In doing so, they will threaten the position of some organizations and

provide opportunities to others – including new entrants. Due to information

Lea

d G

ener

atio

n

Qua

lifyi

ng s

ales

Pres

ales

Clo

se o

f sa

le

Post

sal

es s

ervi

ce

Acc

ount

man

agem

ent

Internet

National Account Management

Direct Sales

Telemarketing

Direct Mail

Retail Stores

Distributors

Dealers and Value Added Resellers

Advertising

Mar

ketin

g C

hann

els

and

Met

hods

Demand-Generation Tasks

VE

ND

OR

CU

STO

ME

R

28

technology development some intermediary roles will become redundant, as

customers are able to gather information more freely and talk directly to potential

suppliers. At the same time, new intermediary roles will be spawned if they add

value or reduce cost.

Sales Partner Selection. Strategic alliances are designed to allow partners to share

risk and resources, gain knowledge and obtain access to markets (Hitt et al. 2000).

According to most authors who have analyzed alliances of distribution and sales

(Kotler et al. 2003, pp. 400; Belz and Reinhold 2001, pp. 27; Arnold 2000; Schmitz

2005; Hitt et al. 2000), the critical factor for the success of the alliance is the

selection of an appropriate sales partner. Hitt et al. (2000) has investigated the

aspects of partner selection and compared them in developed and emerging regions.

He ranked the most important characteristics of a distribution partner, listed here in

order of importance: (1) financial assets, (2) complementary capabilities, (3) unique

competencies, (4) industry attractiveness, (5) cost of alternatives, (6) market

knowledge/access, (7) intangible assets, (8) managerial capabilities, (9) capability

for quality, (10) willingness to share expertise, (11) partner’s ability to acquire new

skills, (12) previous alliance experience, (13) special skills to learn from partner,

(14) technical capabilities.

Looking from the perspective of the distribution organization, these characteristics

are vital for attracting the principals and count therefore as potential internal key

success factors for a distribution organization.

Arnold (2000) makes complementary suggestions for partner selection:

- MNC should select the partners based on an objective assessment of the market

and distributor’s fit with the company (culture and strategy compatible) and not

adapt a reactive approach to a request.

- MNC should look for distributors capable of developing markets, rather than

those with a few obvious customer contacts.

Beamish (1994) states that two major factors for successful performance of

distributor-MNC cooperation and business results are partner need and

commitment. Partner need is made up of five groups: 1) items readily capitalized

29

(capital, technology, equipment, raw materials), 2) human resource needs, 3) market

access needs, 4) government/political needs, and 5) knowledge needs (operating

conditions, labor laws, factory regulations, customers and marketing methods,

experience with current business practice). These factors can be translated into

internal key success factors within the business model for a distribution

organization that may attract better principals.

Channel design in Asia. Environmental factors impacting channel design in Asia

include the lack of a complete physical and institutional infrastructure to facilitate

the mass marketing of consumer goods, regional economic challenges, regulatory

barriers, consumer lifestyle and population density. However, deregulation,

specialization, and improvements in infrastructure are bringing about less costly and

more optimal channel designs in Asia. Increased retailer power and the

development of in-house distribution networks by manufacturers are expected to

diminish the role of wholesale marketers in the region (Kotler et al., 2003, pp. 551).

In order to understand and design local processes that have been so far performed

by the sales partners themselves, research needs to concentrate at the level of the

sales partner companies before searching for solutions at the principal niveau

(Gupta and Govindarajan 1994, pp. 455). Belz and Reinhold (2001, pp. 221), Renz

(1998, pp. 79) and Stewart (1995) demand therefore that research focuses more on

the subsidiaries and sales partners with models developed from their perspective.

2.2.3 Business Model Aspects in Emerging Regions

Based on the literature analysis, various dimensions relevant for international sales

management and business models are identified and presented in this section. These

aspects are organized and presented according in accordance with the business

model concept developed in Chapter 2.3.1. (Business Model Dimensions for BOP-

CM). The dimensions of international sales management identified by Belz and

Reinhold (2001, pp. 34) are taken as a basis, and complemented with the help of

other authors. Several of these dimensions can be used for the development of

business models of distribution companies in the current context. Following is the

summary of the business model aspects that have been composed through the

30

literature analysis, and which could be relevant in the business model of a

successful BOP-CM distributor. These aspects are summarized herewith.

(1) Marketing Mix Elements

Product- and service portfolio (products, systems, services such as technical, and

after sales service, engineering service, etc.). According to Loomba (1996), after

sales service and support strategy may include elements such as warranty

provision, extended service contract provision, availability of repair service, loan

availability (also could be translated into payment terms), toll-free phone support,

etc. In the chemical industry, such services may include providing starting

formulations, or formula modifications, technical or engineering advice, product

replacement, testing of produced parts/products, and many more. Accepting barter

trade is in some cases necessary, when hard currency is scarce. For such cases,

diversification in trading could be handy and an important part of the service

offering. The extent to which marketers to BOP and BOP-CMs can afford to do

after sales service has not been researched, and it is not known to what extent they

would be able to offer additional services;

(2) Steering of Business

Strategic intent of the distributor – quality leader, cost leader, global suppliers, etc.

According to Hamel and Prahalad (2005) there are two contrasting models of

strategy for Western and Asian companies. One centers on the problem of

maintaining strategic fit and the other centers on the problem of leveraging

resources. The two are not mutually exclusive, but they represent a significant

difference in emphasis – an emphasis that deeply affects how competitive battles

play out over time. Both models recognize the problem of competing in a hostile

environment with limited resources, however, the emphasis in the first is on

trimming ambitions to match available resources, while the emphasis in the second

is on leveraging resources to reach seemingly unattainable goals.

Diversification. Khanna and Palepu (1997) argue that due to missing institutional

facilities, one of the key success factors for organizations in emerging regions is

their diversification into various businesses next to their core business line, such as

31

capital finance, market research, management education, schools, hospitals, law

institutions, and many more.

(3) Resources

Access to capital. Diversified groups in emerging market contexts (with absent or

ineffective institutional mechanisms that make advanced capital markets work well,

and where, due to little information and few safeguards, investors are reluctant to

put money into new enterprises) can point to their track record of returns to

investors. As a result, large and well-established companies have superior access to

capital markets. Conglomerates also use their internally generated capital to grow

existing businesses or to enter new ones. Besides acting as venture capitalists,

groups also act as lending institutions to existing member enterprises that are

otherwise too small to obtain capital from financial institutions. Some Indian

groups, especially those in the automobile sector, have set up subsidiaries whose

primary purpose is to provide financing to important suppliers and customers

(Khanna and Palepu 1997).

Human Capital. The quality of a distributor’s sales and service personnel is very

important for serving markets that are technically complex (Cavusgil 1998). Often,

large conglomerates in emerging regions develop their own internal management

development programs as well as rotational programs to relocate employees from

one business to another for reasons related to both developing human capital, but

also to adjust to regulatory rigidity. In the case of declining prospects for one

company, instead of lay-offs, people would be relocated to other facilities/locations

(Khanna and Palepu 1997).

(4) Partnerships and Cooperation

Marketing partners and Distribution system: direct sales, two or more layered

distribution system, agents – this could be renamed into Marketing Channel

Structure, as derived from the literature analysis in chapter 1.2.2. and will be

extended to include aspects like warehousing, deliveries, etc.

Cooperation with Governmental Institutions. According to Khanna and Palepu

(1997), governments in emerging markets are heavily involved in an intricate array

32

of business decisions. As an example, Indian law still requires that companies get

permissions for decisions such as exiting businesses, changing prices of

commodities, and importing raw materials. Experience and connections give large

conglomerates an advantage in dealing with the regulatory bureaucracy. Also bribes

and corrupt practices may be a part of working with the bureaucracy.

Suppliers (Principals) and Principal Acquisition Processes. A critical factor for any

distribution organization is the selection and acquisition of quality principals, and

their reputation and product brands (CorneeLeplat 2005).

Organizational Commitment. Organizational commitment refers to the extent to

which two organizations are closely tied to each other on a stable basis (Kim, and

Frazier, 1996). The interfirm commitment consists of three elements: (1) affective

commitment – sense of unity based on social and economic ties which bind

exchange parties together; (2) behavioral commitment – extent to which a firm

provides special help to the other firm in times of need; (3) continuance

commitment – intention to continue relationship with the current exchange partner.

According to Cavusgil (1998), from a supplier's point of view, it is important to

evaluate the distributor’s willingness to drop competing product lines, commit

advertising dollars, keep sufficient inventory, invest in sales force training, and

provide at least average market feedback.

Credibility & Trust Building Capability. Trust can be expressed through different

dimensions, such as (1) integrity; (2) consistency; (3) promise fulfillment; (4)

receptivity; (5) loyalty; (6) fairness; (7) competence; (8) discretion; (9) openness;

and (10) availability (Butler 1991). According to Khanna and Palepu (1997), the

business media in India promotes group identity rather than emphasize the products

or services of individual companies within a group. This can be explained due to

much higher costs that companies in emerging markets face when building up

credible brands as opposed to their counterparts in advanced economies. In turn,

established brands wield tremendous power. A conglomerate with a reputation of

selling quality products and services can use its group name to enter new

businesses, even if those are completely unrelated to its current lines. Groups also

have an advantage when they try to build up a brand because they can spread the

33

cost of maintaining it across multiple lines of business. Such groups then have a

greater incentive not to damage brand quality in any one business because they will

pay the price in their other businesses as well. Credibility is an important factor,

especially in relationships with companies seeking to enter emerging markets.

Foreign providers of technology or finance need local partners to carry out their

strategies, but they worry about being cheated. A reputation of honesty and

reliability can be a source of enormous competitive advantage.

(5) Processes within Distribution Organization

Centralization of operations – marketing, sales, logistics, controlling, technical

support, etc.

Marketing tasks performed according to the elements of the hybrid grid by

Rowland, and Moran (1990, pp.148), and others identified in Chapter 2.2.2.

Resource allocation to various products, brands or business markets in the

distribution organization (Verbeke et al. 2006).

Based on the identified dimensions of international business and business models, a

business model concept and analyzing framework was developed.

2.2.4 BOP Market Opportunities and Challenges

Many authors that concentrate on consumer markets and marketing, describe the

vast potential in size and growth of BOP markets and conventional beliefs about

them (Prahalad and Hammond 2002; Hammond and Prahalad 2004; London and

Hart 2004; Prahalad 2004). To illustrate, BOP market customers have annual

purchasing power parity (PPP) of USD 1500 or less (Prahalad and Hart 2002).

Prahalad and Hammond (2006) state that despite the immense opportunities in the

bottom tier (Product markets that consist of people that can afford only the least

expensive products.), there are unique challenges for companies to overcome.

According to Hart and Milstein (1999), simply transplanting business models from

the consumer or even the emerging economy will not work. On the other hand, the

34

authors Prahalad and Hammond (2002), Hammond and Prahalad (2004), London

and Hart (2004) and Prahalad (2004) argue that barriers to commerce are much

lower than is typically thought. Amongst BOP, there is enough purchasing power,

and also their spending habits are not limited to non-essential goods. The goods sold

at BOP markets are usually higher priced than the ones in middle class segments.

Moreover, the BOP markets are very receptive and fast learning in adapting new

technologies like wireless communication via mobile phones, PC use, etc. BOP

consumers also have high brand awareness and preferences (Balu, 2001).

Bottom-of the Pyramid consumers are currently served primarily by informal

economies (Prahalad and Hammond 2002). According to de Soto (2000, pp.35),

across the globe, it has been estimated that the informal sector includes more than

USD 9 trillion in hidden (or unregistered) assets, an amount nearly equivalent to the

total value of all companies listed on the 20 most developed countries’ main stock

exchanges. In addition to assets, the value of economic transactions in these markets

may match or even exceed what is recorded in the formal economic sectors in

developing countries (Henderson 1999). Despite the fact that there are few reliable

estimates of the value of commercial transactions in slums, business activity

appears to be thriving. According to London and Hart (2005), under the surface,

there is an immense and fast growing economic system that includes a thriving

community of small enterprises, barter exchanges, sustainable livelihoods activities,

subsistence farming, and unregistered assets. The slums in large cities like Mumbai

have already distinct ecosystems, with retail shops, small businesses, schools,

clinics, and moneylenders. As an example, Dharavi - covering an area of just 435

acres - boasts scores of businesses ranging from leather, textiles, plastic recycling,

and surgical sutures to gold jewelry, illicit liquor, detergents, and groceries. The

scale of the businesses varies from one-person operations to larger, well-recognized

producers of brand-name products. Dharavi generates estimated yearly revenue of

450 million USD for manufacturing, or about 1 million USD per acre of land.

How MNCs can successfully enter BOP markets in emerging regions has not been

effectively addressed in the literatures on global and emerging market strategies

(London and Hart, 2004). Most of the literature in this area is focused on product

and distribution strategies tailored to consumers in these markets (London and Hart

35

2004; Murphy 2002; Prahalad and Hart 2002; Prahalad and Hammond 2006).

Rabelotti (1995) states that global firms, governments in countries of BOP markets,

and potential public and private investors need new approaches to understand if and

how BOP marketing networks can be transferred into vibrant market-driven

industrial clusters.

While MNCs are increasingly viewing low-income markets in developing countries

as potential sources of future growth, there is almost no empirical research on

strategies for pursuing these opportunities. If MNC entry into these markets

challenges existing theories on global capabilities and emerging market strategies,

this gap in research is becoming increasingly untenable – it may be necessary to

reinvent strategies for emerging markets if firms are to successfully serve the vast

low-income markets at the base of the pyramid (London and Hart, 2005).

Arnould and Mohr (2005) and London and Hart (2004) underline the perspective

that BOP markets are not like early phase developed country markets. Arnould and

Mohr (2005) have tried to provide guidance in identifying local clusters with global

market potential in BOP markets focusing on industrial markets like the leather

processing industry. According to them, there is evidence of cluster characteristics

existing in BOP industrial markets. Small enterprise clusters in BOP markets

contend with persistent resource scarcities, corruption, policy uncertainty, and

market volatilities (Arnould 2001). To survive they are likely to invest in flexible,

multipurpose fixed assets and only relatively specialized labor, sometimes also only

on an as needed basis. They may operate on a small and variable scale and

incorporate diversification strategies to buffer themselves from economic shocks

and informal taxes (i.e. corruption). In BOP markets, commerce is embedded

typically in ethnic, religious, or gender ties. Among BOP markets, pace of change

in demand is slow, and the level of specialization, technological sophistication, and

capital investment is slow (Arnould and Mohr, 2005).

Hart and Christensen (2002), London and Hart (2004), Arnould and Mohr (2005),

Dawar and Chattopadhyay (2002) all suggest that the application of westernized

approaches and MNCs’ conventional globalization strategies are ill-suited to the

unique environments of BOP markets. They propose elements of successful low-

36

income market strategies for success in BOP markets, which are summarized

below:

- greater emphasis on social (rather than legal) contracts;

- developing ongoing relationships with non-traditional local partners with well-

established local networks (to provide local legitimacy, access to needed

resources);

- cooperating with and valuing existing social infrastructure;

- building local capacity; using metrics that go beyond traditional performance

measures (e.g. metrics related to the development of human capabilities);

- working in a cooperative mode;

- small scale, decentralized initiatives, also shared use of property,

- flexibility and innovation in products and distribution strategies;

- basic, functional, long-lasting products;

- competitive advantage based on social embeddedness;

- reliance on resources and knowledge of the local environment to work within.

Key areas of marketing to BOP that have been identified through the literature

research have been outlined herewith:

Competition against non-consumption: Balu (2001) argues that the greatest

challenge is to integrate products into consumer lives and the key to success is habit

building. Hart and Christensen (2002, pp. 52-53.) argue that in addition to having

more adaptable business models, disruptive innovators (companies trying to enter

low income markets with lower priced, less engineered products, often with lower

energy consumption) also compete against non-consumption — that is, they offer a

product or service to people who would otherwise be left out entirely or poorly

served by existing products and who are therefore quite happy to have a simpler,

more modest version of what is available in high-end markets. The feasibility of the

37

strategy of competition against non-consumption in enlarging the total market and

in attaining attractive sustainable profit levels has already been demonstrated in

numerous experiments at BOP (Hart and Christensen 2002, pp. 53). Pioneering

companies will have to optimize new technology for use in poor rural areas and

develop production, sales, service and micro financing packages that enable non-

consumers to gain access (Hart and Christensen, 2002, pp. 55.).

According to Prahalad (2004), to make profit, BOP companies cannot simply tweak

what they offer the rich. They have to develop a "forgetting curve" and innovate.

Among BOP consumers, cash- flow tends to be low and unpredictable, so it is no

good offering “shampoo by the bottle” i.e. large packaging. A "single-serve (sachet)

revolution" is now under way. The BOP is acutely conscious of aspiration brands.

The challenge for companies is transforming the "price-performance relationship"

of what they produce to take account of different requirements and incomes. They

must make things that are affordable, accessible, and available since the poor do not

defer their spending as saving is rarely an option. Prahalad calls for the force of

technology to be driven into creating "hybrid" products - those that work with still-

evolving infrastructure, such as PCs with back-up power sources built in. The three

dimensions of competition against non-consumption:

- Affordability comes with innovative packaging or financing schemes that create

incentives to maintain payments. In order to lower cost/prices for goods and

services, the alternative of localized distribution points needs to be considered

instead of centralized major distribution facilities with high cost (Hart and

Christensen 2002, pp. 55.). In order to decrease cost, local production and low-

cost local storage are needed. Dawar and Chattopadhyay (2002) suggest that one

way to decrease product price is to substitute capital with consumer’s labor, e.g.

instead of repackaging product into smaller cans, customers could bring their

own packaging and fill it at the sales-point.

- Availability. Some services and products simply cannot be offered at a low-

enough cost to be profitable, at least not with traditional technologies or

business models (Prahalad and Hammond 2002). As an example, the shared

access model (to computers and the internet) acts to aggregate demand and

38

makes the community, not the individual the network customer. Alternatively,

technology should include features that enable illiterate and semiliterate people

to use them.

- Accessibility. A critical barrier to doing business in rural regions is distribution

access, not a lack of buying power (Prahalad and Hammond 2002). Hammond

and Prahalad (2004) argue that modernizing distribution channels is necessary

for companies to reach low-income markets in emerging regions, for example by

employing poor people as entrepreneurs and sub-distributors. Next to

distribution channel issues, Balu (2001) and Hart and Christensen (2002) both

argue that the marketing innovations and new technology development efforts

done by major corporations in developed countries do not suffice for BOP

markets as they disregard the needs, circumstances and lifestyles of these

markets.3

Finding potential partners and intermediaries: Prahalad and Hammond (2002)

advise MNCs seeking partners to look beyond businesses to NGOs and community

groups. They are key sources of knowledge about customers' behavior, and they

often experiment with new services and new delivery models. Entrepreneurs are

also critical partners. However, entrepreneurs in BOP markets lack access to advice,

technical help, require seed funding, and lack business support services available in

the industrial world. So MNCs may need to take on mentoring roles or partner with

local business development organizations that can help entrepreneurs create

investment and partnering opportunities.

Marketing communication and promotion: Marketing and delivering goods and

services to BOP, especially to the rural poor is relatively cheap as many of them

live in cities that are densely populated today and will be even more so in years to

come (Prahalad and Hammond 2002). In contrast to rural poor, it is more difficult to

market and deliver goods and services to urban poor. Despite this, there is a large

potential – 60% of India’s GDP is generated in rural areas. Dawar and

Chattopadhyay (2002) suggest that due to the low cost of labor, it is more cost-

3 Both studies are based on consumer goods marketing.

39

effective and efficient to use “interactive customization without expensive

technology like TV, radio, magazines and so on. In order to reach India’s rural

markets, several manufacturers have embarked on nontraditional marketing

programs. Such programs include event marketing at popular religious events,

educating potential customers to overcome prevalent attitudes and habits, conveying

messages in a visual context with pictorial elements (Kotler et al. 2003, pp. 269-

270). On the other hand, Prahalad (2004b) states that BOP markets cannot be

addressed without advanced technology – often technology that is much more

innovatively deployed than that of the developed world (ITC in India as an

example).

Most of the above has been used for theoretical comparisons during the theory

building and fieldwork phases of the research.

2.2.5 Trends in the Chemical Industry

Global chemical production is increasingly differentiated according to the stage of a

country’s economic development. Corporations are focusing manufacturing located

in developed economies on specialty chemicals to counter the comparative

advantages in commodity chemical production enjoyed by newly emerging

economies. However, corporations are doing more than simply concentrating on

specialty as a strategic response; they are pushing to improve competitiveness in the

crucial value streams that deliver specialty chemicals. Recently the chemical

industry in developed countries has come under increasing pressure, particularly in

commodities, from competition from lower cost economies, e.g. China and India.

As an example, the UK based industry is continuing to evolve away from

commodity products and moving more towards producing low volume, high value

added specialty chemicals with the intention of leaving high volume, low added

value commodities to more emergent manufacturing countries. The increased

competition in the industry and other significant factors such as customer

requirements for faster response than hitherto means that companies, and the value

streams that they are positioned within, need to be more agile to respond to the

challenges of this new regime (Burgess et al. 2002). In order to understand the

40

relative weight of different regions of the worldwide chemical industry, their

turnover in 2006 is illustrated in Exhibit 2-4.

Exhibit 2-4. Geographic breakdown of chemicals sales 2006. Source: Cefic (2007a).

Others* = Oceania and Africa

Rest of Europe** = Switzerland, Norway and other Central and Eastern Europe

(excluding the ten new EU countries).

According to Cefic (2007a), in 2006, world chemical sales were estimated at EUR

1641 billion, an increase of 9% compared to the previous year. With EUR 476

billion, the EU chemical industry is still in a top position, but has lost its first place

in the ranking to Asia (including China and Japan), mainly due to the rise of China

and India. In 2006, China occupied third place in worldwide chemical sales and

India ranked seventh, so both are among the world’s ten largest chemical producers.

Taken together, the EU, Asia and NAFTA (North American Free Trade Area)

account for almost 90% of the world turnover. The importance of Asian regions in

world trade has been illustrated also in Exhibit 2-5 and Exhibit 2-6.

546

476

417

87 83

32

0

100

200

300

400

500

600

Asia EuropeanUnion

NAFTA Rest ofEurope**

LatinAmerica

Others*

Che

mic

als

sale

s (E

UR

bill

ion)

41

Exhibit 2-5. Extra-EU chemicals trade flows with major geographic blocs in 2006

(in EUR billion). Source: Cefic (2007a).

* Excluding Japan

** Latin America and the Caribbean

42

Exhibit 2-6. World chemical sales, percentage shares. Source: Cefic (2007a).

* Excluding Japan

In the scope of the current research, no available statistics or surveys were found

about either the dynamics of the distribution of chemicals in western countries or

emerging markets.

An indication about the margins of chemical distribution organizations can be

derived from the Cefic (2002) statistics, which show that distribution activities

account for ca. 10% of the turnover value by the trading activities in the EU 15

(Exhibit 2-7).

43

Exhibit 2-7. Cost structure of the EU (EU15) chemical industry 2006. Source: Cefic

(2007a).

** Gross operating surplus = value added - labor cost (payroll) = profit before taxes,

financial charges and depreciation.

According to an internal analysis of DSM Composite Resins fully owned pan-

European distribution organization Euroresins Inc., trends for distribution business

in Western European composites industry are outlined below (CorneeLeplat, 2005):

- Increasing competition - larger distributors try to target larger customers and

inadvertently make room for small sub-distribution to fill the void;

- Increasingly, distributors have to meet customers demand for technical service

and support. All customers appreciate expertise, but many customers value

expertise by granting business, not by paying for it;

- Margin pressure - distributors have to optimize their cost structure to stay

competitive: close depots and centralize functions such as telesales, credit

control, logistics, and technical support organizations;

- Increasing acceptance to deal with the middlemen (distributors) as they add

value with technical service, logistics/stock holding costs and product range.

44

Exhibit 2-8 illustrates distribution channels in the composites industry – it is a

simple business model yet becomes complex due to the large number of players

(CorneeLeplat, 2005).

Exhibit 2-8. Distribution business in the composites industry in Western Europe

(CorneeLeplat 2005).

The analysis by CorneeLeplat (2005) reveals that for a distributor to succeed, there

are a few critical internal success factors as summarized below:

- Need to address small customers in a cost efficient way;

- Need to be Pan–European to achieve critical mass, and leverage at the

principal management level;

- Need for one-stop-shop implementation as way of providing package

solutions;

- Need to embed best practices;

One Stop ShopOne Stop Shop

Custom

ersC

ustomersSu

pplie

rs(P

rinc

ipal

s)

Supp

liers

(Pri

ncip

als)

Resins

Glass

Gelcoats

Catalyst

Ancillaries

50-100 mainsuppliers

15000-20000Customers

300-500 Distributors

Bulk chemicals + few major product lines

Bulk chemicals + few major product lines

Supply mostly Ancillary items

Supply mostly Ancillary items

Composite DistributorComposite DistributorE.g. E.g. EuroresinsEuroresins

Chemical DistributorChemical DistributorE.g. E.g. SolvadisSolvadis

General Distributor General Distributor E.g. Buck & HickmanE.g. Buck & Hickman

TradersTradersE.g. CompositeE.g. CompositeReinforcementsReinforcements

One major product line

One major product line

45

- Need for true partnerships with Principals (principal management); Key

Products in the portfolio require a Key Account approach to build

partnerships (Joint budgets, agreed growth targets (gross margins or volume),

joint promotions/ marketing, new product introductions);

- Need for central purchasing to exercise buying power.

A distributor’s contribution to value creation for the principals is summarized

below:

- De-complexing not just for principals but also for customers (logistics);

- Grouping brands under one roof;

- Providing technical expertise across the whole product range;

- Provide overall product and application solutions

- Transparent window for principals to view the market.

Composite distributor’s strategic options are illustrated in Exhibit 2-9. The limited

number of best principals limits the number of best distributors on the market.

46

Exhibit 2-9. Composite distributor’s strategic options (CorneeLeplat 2005).

2.2.6 Industrial Chemical Goods Distribution in Emerging Regions

For the chemical industry, distribution in emerging countries has not been widely

researched. Also Belz and Reinhold (2001, pp. 221) state that there is a lack of in-

depth knowledge of the sales of branch specific industrial chemical goods in

emerging regions via distribution organizations. Distribution and access to local

customers for chemicals in emerging regions is an important but unresolved issue

for most players (Spettmann 2005). He argues that there are many issues that the

chemical industry needs to tackle in the context of globalization and relocation of

customers. He indicates that upfront investment in new customers from low-cost

countries, who will become global in the foreseeable future, is one of the main

issues.

47

For the chemical industry, the opportunities in BOP markets lay in product and

service markets that cover the basic needs of the poor. Such markets related to

chemical industry would include food (fishery – polymeric resins for equipment

like boats or fishing rods; and agriculture – fertilizers, pesticides, feed additives,

etc.; water purification chemicals), textile (inks, dyes, leather, and textile

chemicals), housing (paints, coatings, flooring-, roofing resins), medicine (fine

chemical ingredients, vitamins), to some extent cosmetic and personal care product

markets (detergents, specialty chemical ingredients such as emulsifiers, viscosity

modifiers, specialty surfactants, preservation chemicals), and many more.

2.2.7 Glass Reinforced Plastics in India

In India, there are more than 100 unsaturated polyester resins manufacturers with an

average production of ca. 0.5-2 kt/a (kilo tonne per annum) per producer and three

glass reinforcements producers. The aggregate capacity of the local producers is ca.

90 kt/a of resin and 60 kt/a of glass reinforcements. There are more than 1200

customers for composite raw materials in different converter markets with the main

application market being general purpose. DSM Composite Resins does not

currently serve the general-purpose resin markets. Therefore, there is no further

information about market dynamics available than that presented herein. The

market breakdown of the resins is shown in Exhibit 2-11 (Jacob 2006, Jaimon 2007,

Beckwith 2004, Sincora 2007, DSM Composite Resins 2007).

48

Exhibit 2-10. Unsaturated polyester resins market by applications 2006. Source:

DSM Composite Resins (2007).

In the above chart the segment “other” contains markets such as marine and boat

building, artificial stone, and car repair putty resins. This segment accounts for ca. 2

kt/a of resin consumption.

According to DSM Composite Resins (2007), the total market is divided into four

relatively major and distinct geographic regions – north, south, east, west as can be

seen on the map below. These regions have evolved as individual target markets for

several producers over time due to cultural and language barriers. These are usually

regions that are served by regional agents or distribution hubs for most of the

composites materials. The latter is irrelevant if the suppliers are local or from

abroad. As can be seen from the map, the area to cover is very large and can be

done only via an efficient distribution network. Moreover, the relative weight of the

different regions is very different with the West Indian region being the largest

market for composites (see Exhibit 2-11 and Exhibit 2-12) (DSM Composite Resins

2007).

General PurposeWindmill Blades

Civil pipes

Industrial tanks and pipes

SMC/BMC Automotive

Other

49

Exhibit 2-11. Main market regions for composites in India. Source: Compare

Infobase Pvt. Inc. (2006).

50

Exhibit 2-12. Indian market by regions. Source: DSM Composite Resins (2007).

According to DSM classification, the customers are divided into 4 major segments:

A – professional and large companies;

B – professional (organized), medium sized and often owner run companies;

C – organized, small sized companies;

D – unorganized, small/BOP companies and individuals.

The relative weight of the different customer segments in the overall unsaturated

polyester resins market was estimated by DSM and is represented in the chart below

(Exhibit 2-13).

W64%

S19%

N10%

E7%

51

Exhibit 2-13. Indian market for unsaturated polyester resins by customer type.

Source: DSM Composite Resins (2007).

As can be seen, the D-type customers form the largest part of the market. So far,

DSM has been serving only a fraction of this part of the market even if it seems to

offer a large potential. The only part of the market where DSM has been successful

in serving the D-type customers is putty resins for car repair. All the other

application markets of D-type customers have so far been served by local

producers. The key success factors for serving these markets with western goods is

not yet known.

2.2.8 Summary and Conclusions Based on Literature Analysis

A summary of the findings based on the literature analysis:

- Various authors have identified BOP to be a large potential market;

- Also from MNC, there is growing interest to target BOP markets;

A35%

B6%C

3%

D56%

52

- In the marketing research, the main issues with addressing the BOP markets

were identified;

- Marketing research so far concludes that western marketing practices and

conventional wisdom are not sufficient for reaching the BOP markets in a

profitable way;

- In the available literature, there are various successful business cases on

targeting the BOP markets, but mostly in consumer markets;

- No uniform guidelines have been developed for MNCs to successfully target

BOP markets;

- One of the key factors in targeting upcoming (emerging) markets for MNCs,

such as BOP markets is the configuration of the sales channel, especially the

selection of a distribution partner or partners;

- Currently, there is no information available on the selection and management of

distribution partners in emerging markets, nor in BOP markets;

- Moreover, research to date on sales channel configuration has been focused on

the MNC perspective in solving issues like relationship management,

communication, target- and goal setting, etc.

- Emerging markets are having a greater impact on the world wide chemical

industry from both a supply and consumption perspective;

- The distribution dynamics in the chemical industry has not yet been handled in

published marketing research;

- No literature has been identified focusing on the business model description or

configuration of distribution organizations in the chemical industry, nor in other

industries or industry segments in emerging markets.

Based on the literature analysis, the Internal KSF (iKSF), of a company are

redefined as a function of distributor’s capability to satisfy the needs of principal

and the distributor’s capability to satisfy its own “needs” related to growth and

53

profitability targets containing factors such as Resources and Core Competencies.

iKSFs can also be referred to as the “enablers”. Exhibit 2-14 illustrates a BOP

market channel concept for a channel structure and channel drivers that has been

developed in the scope of the current work and presented herewith.

Exhibit 2-14. Concept for a channel structure and channel drivers in emerging and

BOP markets.

On the chart the Capability to satisfy own needs refers to needs related to growth

and profitability targets, i.e. (Resources, and Core Competencies).

54

2.3 Objective of the Work and Research Questions

Deriving from the literature analysis (chapter 2.2), it can be concluded that the

scientific research to date does not provide adequate answers from the sales

partners’ perspective to questions arising from the sales partners’ configuration and

selection issues despite the fact that several scientists focus on similar areas of

research. Deficiencies in both scientific research and documented practical

experience mark a research gap that enables one to define the general objectives of

the current work as follows:

The aim of this dissertation is to describe the business model(s) for distribution

organizations in order to reach BOP-Converter Markets (BOP-CM) for selected

industrial chemical goods in India. Furthermore, the work aims to clarify the

configuration constraints and Internal Key Success Factors (iKSFs) for such

organizations. The dissertation also strives to make helpful suggestions for western

chemical goods suppliers for the selection and configuration of their distribution

channels for reaching BOP-CMs.

The research is based on two main blocks of questions that derive from the above

research objective (see Exhibit 2-15). The first block involves the investigation of

the value chain relationships and business models of distributors, who target BOP-

CMs among others. The second block deals with identifying and explaining the set-

up constraints and iKSFs of BOP distributors for successful marketing of selected

western industrial chemical goods to BOP-CM.

As a secondary aim, the work strives to develop suggestions for the selection and

configuration of distribution organizations for western industrial chemical goods

producers.

55

Exhibit 2-15. Research questions.

2.3.1 General Business Model and Dimensions for BOP-CM

In the literature, various dimensions of business models are identified, which have

been herewith translated into a general business model concept for targeting, among

others, selected BOP markets (see Exhibit 2-16). However, not all of the aspects in

the literature are relevant to the current research.

A further dimension of the distribution businesses that will also be investigated in

this context is the ”innovativeness“ of the distributor in creating new approaches to

the market. The business model aspects – Resources, Steering, and Processes

collectively form the iKSFs or so called ”Enablers“, that make it possible to meet

the needs of customers and principals, and make it possible to create various

marketing mix combinations. The individual components of the business model

aspects will be outlined in the Empirical Study section and validated for their

relevance for reaching the BOP-CMs.

What are (identify andexplain) the internal KeySuccess Factors of adistributor who also targetsBOP-CMs for successfulmarketing of selectedwestern industrial chemicalgoods to BOP-CM?

What type of distributionorganizations can be usedfor reaching the BOP-CMswith western industrialchemical goods?How are these distributionorganizations configured,describe the businessmodels?

iKSFsDistributionOrganizations’ ExistingBusiness Models

Question block 2Question block 1

What is the optimumbusiness model forsuccessful marketing ofselected western industrialchemical goods to BOP-CM?

Suggestions forDistributor Selection &Configuration

Question block 3

56

Exhibit 2-16. Business model concept for a distribution organization.

2.3.2 Internal Key Success Factors

Measurement of distribution performance has long been recognized as a critical

component for structuring and managing marketing channels (Weber 2000; Kumar

1992). Various authors have offered objective or subjective criteria for measuring

the performance of channel partners (Weber 2000; Kumar et al. 1992). Most of

these works were completed from the perspective of a supplier. As an example, a

typology for measurement of the performance is offered by Eichel and Bender

(1984) who group distribution performance evaluation approaches into comparative

approaches (e.g. comparison with average or comparison with best), outcome

oriented approaches (e.g. objective output measures such as sales or sales

improvement, sales against potential, market share or market share improvement,

profit contribution, quota achievement; or more subjective output measures such as

service to customers, customer retention and loyalty, or managers' composite

performance rating of assorted outputs), and input oriented approaches (e.g.

objective input measures such as total sales calls, territory potential, years of

57

experience, extent of training; or more subjective input measures such as technical

knowledge, presentation skills, personality, human relation skills, etc.). Kumar et al.

(1992) develops a conceptual framework for assessing reseller’s performance from

the supplier’s perspective and mentions variables like the reseller’s contribution to

profits and sales, reseller’s competence, reseller loyalty, reseller compliance,

reseller’s contribution to growth, reseller’s adaptability, and customer satisfaction.

KSFs for partnership have been also researched by Hitt et al. (2000). Distribution

performance, in the current context, refers to distributors' sales, sales growth overall

and in a market segment, its profitability, and market share.

As a direct consequence of the above, a successful distributor needs to practice best

principals from the supply side, and have the best infrastructure and internal

capabilities from the sales side, to best serve the market for its growth, revenue and

market share targets. Therefore, a difference needs to be made between the

distributor’s capabilities for attracting the best principals and the distributor’s

capabilities for meeting its own targets relating to growth and profitability. Below is

a selection of probable iKSFs that have been identified with the help of the

available literature and that will serve for development of possible concepts and

categories for theory building.

iKSF for attracting the best principals:

The iKSFs deriving from Hitt et al. (2000) investigation into the aspects of partner

selection in emerging regions: (1) financial assets, (2) complementary capabilities,

(3) unique competencies, (4) industry attractiveness, (5) cost of alternatives, (6)

market knowledge/access, (7) intangible assets, (8) managerial capabilities, (9)

capability for quality, (10) willingness to share expertise, (11) partner’s ability to

acquire new skills, (12) previous alliance experience, (13) special skills to learn

from partner, (14) technical capabilities.

Complementing the above, a few additional factors have been outlined below:

Transparency of the distributor is a factor relevant for many principals for most

market segments. Transparency herewith refers to the distributor’s openness to

share information about markets and customers (CorneeLeplat 2005).

58

Avoidance of opportunistic behavior by the distributor was mentioned as being key

for relationship continuity in manufacturer foreign distributor channels (Kim,

Deligonul and Cavusgil 2002).

A-brands in the portfolio and ”best” principal(s) - Larsen (1991) states that an

advantage resulting from a successful partnership enhances ones reputation in

industry through affiliation. Deriving from this and CorneeLeplat (2005), one iKSF

for a distribution company would be the quality of principals. CorneeLeplat (2005)

also mentions that best principals attract other best principals. This, of course has a

direct influence on the product portfolio, and competitiveness of a distributor.

Derived from these authors, in order to attract best principals, the following could

be critical factors from the distributor’s side:

- Other principals, and their quality;

- Distributor’s ability to grow;

- Perspective of a distributor’s take-over or joint venture;

- One-stop shop concept- in case this is necessary in order to serve certain market

segments, and the principal alone would not be able to do this (CorneeLeplat

2005);

- Distributor’s ability to provide technical support over a whole portfolio of

products (package)(CorneeLeplat 2005);

- Packaging, repackaging possibilities to serve customers otherwise not

reachable.

Similarly, Beamish (1994) has highlighted basic factors for successful performance

of distributor-MNC cooperation. These factors can be translated into business

model dimensions for a distribution company and could be stated as iKSFs as

follows:

- Distributor’s own capital - capital, technology, equipment, raw materials, other

principals, name on the market;

59

- Distributor’s human resource - capable managers with connections;

- Distributor’s market access to markets that a principal on its own would not be

able to access, either geographic, or product markets or markets defined by

customer needs (package need) and size;

- Distributor’s connections to governmental institutions, and political decision

makers;

- Distributor’s know-how (operating conditions, labor laws, factory regulations,

customers and marketing methods, experience with current business practice);

- Distributor’s capability to license and operate technology – In many cases, it is

important to have access to technology (Blodgett 1991). An iKSF would be the

capability of licensing and operating technology from principals, e.g. tinting

technology and equipment for gel coat coloring in small quantities

(CorneeLeplat 2005).

Arnold and Quelch (1998) have found that industry experience is not critical in

selection of an entrepreneurial distributor. On the other hand, provided marketing

services to principals, who lack the capabilities or resources, could be key in

attracting principals.

Arnold (2000) has found in his research that only a few distributors have managed

to continue as representatives of MNCs over the long run (in some cases more than

10 years) in emerging markets. Surviving distributors shared two characteristics

over which they had control themselves:

- they carried product lines that complemented, rather than competed with, the

MNCs products – complementary products;

- they acted as if they were business partners with the MNCs. They shared

detailed market and financial performance data with the corporations; they

initiated projects with distributors in neighboring countries; and they suggested

initiatives in their own or nearby markets. These distributors risked investing in

60

areas such as training, information systems, and advertising and promotion in

order to grow the MNCs business - partnership.

iKSFs for satisfying the distributor’s needs for growth and profitability – core

competencies and key resources for satisfying the needs of customers in various

product-market combinations:

(1) Products & Services – unique products and services, packaging, reputation of

company and brand, availability, technical service, excellence of service (flexibility,

rapid response, complaint handling, problem solving), financing service – credit

terms, barter trade.

(2) Operations - diversification of business (various institutions in-house like

banking, etc.); process innovation;

(3) Logistics - Extended opening hours; location of warehouse; delivery – door-to-

door deliveries, delivery reliability; computerized logistic systems;

(4) Marketing and sales -, innovation in marketing products, and services; market

knowledge, and personal style of staff and or owner; customer relationships

sustained by the owner, and staff;

(4) Cost advantage

Procurement - Securing lower cost supplies;

Connectivity - Prahalad and Hammond (2002) found that connectivity is a big issue

for BOP consumers and customers. Companies that can find ways to dramatically

lower connection costs therefore will have a very strong market position.

Supply, distribution and transportation synergies and cost advantage. Arnould and

Mohr (2005) showed in their research that industry clusters in BOP markets are

vibrant only if the cluster offers efficiencies in supply, distribution and

transportation.

Offering low-priced products and services. Dawar and Chattopadhyay (2002)

suggest that one way to decrease product price is to substitute capital with

61

consumer’s labor, e.g. instead of repackaging product into smaller cans, customers

could bring their own packaging and fill it at the sales-point.

In summary, this section has listed possible dimensions of key success factors,

which will be used as a basis for defining their properties for serving the BOP-CM-s

as well as for the purposes of theoretical comparisons during the empirical phase of

the survey.

62

2.4 Research Requirement – Substantial and Original Contribution

to Knowledge

2.4.1 Practical Relevance

Selection of Sales Partners. International sales activities have, for years, been core

to the business of industrial goods producers (Belz and Reinhold 1999a, pp. 10, own

translation from German text). According to Griffin and Pustay (1999, pp. 26-27)

international business activity is also likely to continue to escalate during the next

several years due to several factors including market expansion, resource

acquisition, competitive forces, technological changes, social changes, and changes

in government trade and investment policies. The importance of the turnover

achieved from sales in foreign countries and through sales channels other than

direct makes the selection and sales performance of international partners for

producer companies more important than ever. Both in practice and in theory, it is

essential to develop new insights for the distribution of industrial goods through

sales partners (Belz and Reinhold 1999, pp. 11).

As the internationalization of business usually starts with exports, most firms would

choose to hire a host country firm to distribute its products in order to limit the

firm’s financial exposure to start-up costs associated with market research, locating

and choosing its local distributor, and/or local advertising plus the value of the

goods and services in any given overseas shipment (Griffin and Pustay 1999, pp.

416-418). The selection of such sales partners is vital as producers are represented

in the international markets through these sales partners, who, from customers’

perspective, embody the supplier (Belz 2001, pp. 24). Already in 1982 Behrman

and Perreault Jr. (1982, pp. 355) stressed, that international sales partners and their

sales performance are vital and critical for the success of almost every industrial

goods producer (Behrman and Perreault Jr. 1982, pp. 355). In order to take

decisions about the set up of international sales channel and select international

sales partners, more needs to be known about the performance and key success

factors of the prospective partners, as well as the underlying dynamics.

63

India as Prospect. Many MNC have started exploring the possibilities of entering

the emerging markets, including India. Over the past years, also the foreign direct

investment into these countries has increased considerably (e.g. from 18% in 1992

to 33% in 1996) (Arnold and Quelch, 1998). As an example, the composites

industry is well developed in western markets, but is just starting up in the emerging

regions with most western suppliers already exploring these markets. The Far East

and South American market explorations have been going on for quite some years

already resulting in local production facilities for the majority of the composite

products producers in regions like China, Brazil, and Argentina. Therefore, the

current work focuses on markets where western producers have not yet set up

production facilities, and are currently in the status of exporting, whereby the sales

activities are organized by their sales partners like distributors or agents. Based on

the above, the current work needs to focus more on Indian markets.

Realization of Market Growth Ambitions. BOP is on the agenda of many

multinationals: drive for growth and development of BOP for future revenues. BOP

is still a large uninvestigated potential. Various authors argue (Hart 2005; Fost

1997; Spettmann 2005) that BOP markets are markets where the great opportunities

of the future lay. India has 171 million poor households with a combined income of

378 billion USD. India’s rural people comprise 12% of world population

(Hammond and Prahalad 2004).

Corporate Social Responsibility (CSR) Targets. In today’s world, MNCs are under

scrutiny of the wider public. More and more, they need to earn their license to

operate in the eyes of the stakeholders. Corporate Social Responsibility is about

taking care of the socially relevant issues such as environment, people, and many

more. By stimulating commerce and development at the bottom of the economic

pyramid, MNCs could radically improve the lives of billions of people and help

transform the world into a more stable, less dangerous place (Prahalad and

Hammond 2002). BOP is on the agenda of both private and non-profit organizations

for socio-economic development of world. Companies are looking for business

models to “serving the poor in a profitable way” (DSM Next Congress, 2006).

64

Social contribution. By highlighting one of the aspects of doing business with BOP,

the work thrives to facilitate MNCs entry into these markets and consequently fight

poverty. This is best summarized in the last chapter in C.K. Prahalad's work

(Prahalad 2004, pp. 99): “We have looked at the BOP as a viable and profitable

growth market. We have also understood that treating the BOP as a market can lead

to poverty reduction, particularly if NGOs and community groups can join with

MNCs and local companies as business partners. The development of markets and

effective business models at the BOP can transform the poverty alleviation task

from one of constant struggle with subsidies and aid to entrepreneurship and the

generation of wealth. When poor at the BOP are treated as consumers, they can reap

the benefits of respect, choice and self-esteem and have an opportunity to climb out

of the poverty.”

2.4.2 Theoretical Relevance

The current work contributes to the international marketing management research

stream, a stream focusing on managerial issues of export, and entry strategies,

investment decisions, market segmentation, product and pricing policies, and

channel distribution and service (Li and Cavusgil 1995). The work thrives to

contribute to the knowledge of the configuration of the international sales structures

on the set up or selection of channels and sales partners.

Following from the above literature analysis, MNC entry into BOP markets

challenges existing theories on global capabilities and emerging market strategies,

with this gap in research becoming increasingly untenable – it may be necessary to

reinvent strategies for emerging markets if firms are to successfully serve the low

income markets at the BOP (London and Hart 2005). Moreover, research on BOP

and BOP marketing has been relatively scarce, especially for industrial goods.

According to Prahalad, and Hammond (2002), many innovative companies -

entrepreneurial outfits and large, established enterprises alike - are already serving

the world's poor in ways that generate strong revenues, lead to greater operating

efficiencies, and uncover new sources of innovation. The contribution of the current

65

work is to clarify these innovative marketing aspects that enable serving of the

BOP-CMs through distribution channels.

66

2.5 Conceptual Framework

This work focuses on the development of a chemical goods producer’s distribution

network for reaching BOP-CMs in India. Exhibit 2-17 illustrates the conceptual

framework for the research project. The dissertation focuses on the research of

distribution channels in international marketing as a part of the international

marketing management research stream, and concentrates on clarifying the business

model configuration aspects for reaching the BOP-CMs.

Exhibit 2-17. Conceptual framework. Dimensions of potential enablers, i.e.

dimensions of iKSFs are in red.

*GP - general purpose resins market

Resins

Glass

Gelcoats

Catalyst

Ancillaries

Composite DistributorComposite Distributor(one-stop-shop)(one-stop-shop)

ororChemicals DistributorChemicals Distributor

(only one major product line(only one major product linefor composites and bulkfor composites and bulk

chemicals)chemicals)

Composite materialComposite materialsuppliers/producerssuppliers/producers

(Local and/or(Local and/orWestern)Western)

Goods/Service Goods/Service

/Service

Resources:Resources:-- Capital Capital-- HR HR-- Partnerships/ Partnerships/ Connections Connections-- Reputation Reputation

Indian customersIndian customersby type and marketby type and marketsegment:segment:

Putty

Etc.

Auto-

mo-

tive

MAR

GP*

DCBA

iKSFsCapability to satisfy

principal‘s needs

Capability to satisfy own

needs (growth, profitability)

iKSF‘s, i.e. Enablers for Distribution Organization to serve BOP-CMs

Processes:Processes:-- Purchasing Purchasing-- Marketing & Sales Marketing & Sales-- Business Management Business Management-- Demand Chain Demand Chain Management Management-- Finance and Finance and Controlling Controlling

Goods/Service

67

2.6 Scientific Methodology and Research Design

Research questions and central issues were identified based on an analysis of the

literature and available documents as well as exploratory one-on-one interviews.

The latter enabled the set up of the research concept and aided in the design of the

investigation process. Gaining in-depth knowledge of the marketing aspects under

investigation requires the application of qualitative research methods. Relatively

little research has been completed relating to distribution organizations, their set up

in emerging regions, and their KSFs for achieving the principal’s market share and

turnover related objectives from one side, and on the other side reaching the internal

targets and goals for growth and profitability. Moreover, the market segments under

investigation – BOP-CMs for industrial chemical goods are still unexplored in

public literature. The existing body of knowledge is insufficient to permit the

posing of casual questions. Moreover, the phenomenon cannot be studied outside

the context in which it naturally occurs (Bonoma 1985, pp. 207). The primary

benefits of qualitative methods are that they allow the researcher to discover new

variables and relationships, to reveal and understand complex processes, and to

illustrate the influence of the social context (Shah and Corley 2006). Therefore,

qualitative insights are required to understand the underlying business models in

India for targeting the BOP CMs. An exploratory approach focused on theory

building is most appropriate for studying the situation (Eisenhardt 1989). The value

of exploratory research lies in its capacity to provide insights through rich details

and to generate hypotheses for further testing. Thus, an exploratory empirical study

was chosen to examine the distribution organizations pursuing opportunities in the

base of the economic pyramid markets and identify the strategies that appear to be

the most successful. Downey and Ireland (1979, pp. 630) stress that qualitative data

is especially suitable for investigating the organizational environment, relating

herewith to the objective of the research to investigate distribution organizations

and their set up. A grounded theory research method carried out in accordance with

the guidelines of Staruss and Corbin (1998), is especially fitting in this situation as

it enables the encapsulation of specific variables that, for example, differentiate or

link marketing situations of different sales partner organizations (Belz 1985, pp. 8).

Researching complex value chains from the producer to sales partner to the

68

customer is difficult or even impossible to investigate quantitatively without a large

effort.

The Grounded theory method, developed by Glaser and Strauss (1967), was used in

this research to gain an in-depth understanding of the phenomena under

investigation (Punch 1988, pp. 10).

Literature was analyzed for retrieving potential properties and categories that could

be relevant in the current work. As suggested by Shah and Corley (2006) and

Strauss and Corbin (1998), researchers must be intimately familiar with the content,

nuances, and weaknesses of existing theories. In addition, researchers should not

allow preconceived constructs and hypotheses guide data collection. While a priori

theorizing is shunned, ex-post theorizing is required with contextualization of the

findings and novel theoretical contributions within the framework provided by

existing theory. Moreover, Selden (2005) states that pre-understanding is vital in

preparing an objective for a research project and entails being more or less aware of

the accumulated knowledge and research results of others, (one’s own) preliminary

results, preconceptions, assumptions, bias and prejudice. Therefore, literature and

own experiences have been used for making theoretical comparisons and for

examining the data in the subject research, as not all properties have been evident

from the gathered data (Strauss and Corbin 1998, pp. 80).

Thus research findings are used to develop, critique, reformulate, and extend

accepted theory. In the scope of this work, various qualitative instruments were

employed in combination (Belz 1993, pp. 9; Bonoma 1985, pp. 204) in order to

investigate and reflect the basic relationships between situations, market share and

turnover related results achievements (Belz 1985, pp. 8). In summary, in order to

investigate the marketing practices that are successful in BOP-CMs and to expand

our perspectives on the marketing issues handled in the current research, qualitative

methods were applied.

The grounded theory building process was combined with complementary methods

for enabling the triangulation principle. Triangulation objective of the research was

achieved by applying various methods for data gathering including in-depth

interviews, observation and the evaluation of financial data of distribution

69

organizations (turnover growth, EBIT growth, gross margin growth), market

performance data of distribution organizations and principals (as far as available -

market share and sales by territory), internal written memorandums of principals,

business plans, and organization blue prints (Bonoma 1985, pp. 203; Todd 1979,

pp. 602). Moreover, “within-method” of triangulation was used for in-depth

interviews for crosschecking for internal consistency and reliability (Todd 1979, pp.

603). According to Todd (1979 pp. 603-604), the latter not only allows for the

examination of the phenomenon from multiple perspectives but it also enables the

enrichment of understanding by allowing new or deeper dimensions to emerge.

The process was aimed to provide a logically compelling analysis that identifies and

describes key constructs, explains the relationships among them, and contextualizes

the findings in a way that allows for future theory testing (Glaser and Strauss 1967).

2.6.1 Research Process

The current work attempted to build a theory and develop recommendations for the

selection, management and configuration of distribution organizations in India for

reaching BOP-CMs based on a grounded theory approach. For this reason, the

business models of the distribution organizations were investigated that are

currently serving parts of the BOP-CMs.

Rigorous procedures were followed in order to generate a theory that fits, works, is

relevant and readily modifiable (Glaser 2003, p. 14; Jones and Noble 2007, Strauss

and Corbin 1998). However, the procedures followed belong under the Straussian

school: (1) coding - Open coding and axial coding have been performed. Also,

various in vivo codes have been used such as “unorganized company”, “cash-and-

carry”, etc. (Strauss and Corbin 1998, pp. 105); (2) constant comparison throughout

the sampling, coding and analysis process, (3) theoretical sampling, (4) memoing,

(5) category building, (6) property development, (7) core category identification, (8)

saturation implying the collection of data until already known statements are

received (Selden 2005), (9) sorting, and (10) writing up.

70

As data was collected, it was analyzed simultaneously by looking for all possible

interpretations (Goulding 2000). The analysis involved both comparisons of

incident to incident or of object to object looking for similarities and differences

among their properties to classify them, and theoretical comparisons – comparing

categories (abstract concepts) to similar or different concepts to bring out possible

properties and dimensions, when they have not been evident during the process

(Strauss and Corbin 1998, pp. 94). Both flip-flop and systematic comparison

techniques were used4.

Extensive memoing was done by continually noting the theoretical ideas that

occurred during the coding, especially regarding relations between properties

(Selden 2005). Memos were written both manually as well as digitally depending

on the research phase. The fieldwork was concluded when theoretical model

saturation was achieved, a point at which additional fieldwork appeared unlikely to

change the model significantly (Strauss and Corbin 1998).

The Research was carried out in various stages. Exhibit 2-18 illustrates the stages of

the research.

4 Systematic comparison technique refers to comparing an incident in the data to one recalledfrom experience or from the literature.

71

Exhibit 2-18. Structure of research

2.6.2 Sampling and Data Collection

Observation and theoretical sampling strategy was used – successive sampling with

work being guided by the theoretical trends emerging from the analysis (Punch

1988, pp. 10). Rationale for choosing this methodology can be explained further by

the following statement by Shah and Corley (2006): The process forces the

researcher to collect data in a thoughtful and nuanced way, and perhaps, and more

importantly, to reorient the research questions or assumptions in a manner that

allows theory to reflect newly observed facets of the phenomenon and its context.

Observations were performed with the goal of understanding the meaning of

participation in the social situation under investigation – to understand how the

Literature Overview

Research ProposalConceptualization

Constant Comparative Analysis of Data Across Firms

(iteration until both firm and model data saturated)

Elaboration and

Profounding of

Research

Explorative Interviews

Au

g.

`06

-Ja

n.

`07

Qualitative-Empirical Research - half standardized face-to-face

and/or telephone interviews & observing

Literature- and

Document

Analysis

Ja

n.

`07

-Au

g.

`07

Drafting of Model, Developing a Grounded Model

Conclusions & Formalization

Au

g.-

Dec

.

`07

Personal

Interviews in India

2 weeks Mar. 07

Personal Interviews in

Europe (both Indian

and european firms)

1 week Jun. 07

Telephone

Interviews

4 weeks Aug. 07

72

social context influences individual behavior and how individual behavior

influences the social context.

The research was carried out with a focus on a sub-segment of the chemical

industry – the composites industry or in other words GRP (Glass Reinforced

Plastics) processing industry. This industry was selected based on the availability

and access to resources related to Western and Indian industrial goods producers as

well a previous connections and knowledge with a resin manufacturer and its

affiliated companies in Western Europe. The products of the industry entail

composite materials (sometimes referred to as performance materials) such as

resins, glass, peroxide, ancillaries, accelerators, inhibitors, various process additives

for markets such as boat building, boat and car-repair putties, sanitary ware to name

a few.

Within the scope of the current research project, the following objects have been

used as the starting point for the study:

- DSM Composite Resins – a western industrial goods producer who is marketing

products in India to BOP converter markets, called hereafter “principal” only to

the extent of identifying its distribution organizations that are targeting BOP-

CMs, for market background information and for west European perspective of

the phenomena under investigation;

- DSM Composite Resins fully owned and pan-European distribution company

Euroresins focusing only on composites market. This subject was used for

gaining understanding of business models in developed markets and for using

this for the purpose of theoretical comparisons;

- Satyen Polymers – an Indian industrial goods producer who is marketing

products in India to BOP converter markets, called hereafter “principal” to gain

an understanding on principal requirements on distribution organizations and

understand market background and trends;

- Imkemex International - Indian distribution organization of industrial chemical

goods that is targeting selected BOP-CMs (putties) and is having a specialty-

and product focused strategy;

73

- Basf Finaly – Sri Lankan industrial goods distributor classified as a general

chemicals distributor. This subject was used for gaining understanding of

business models in general chemicals distributor who is targeting various BOP

markets such as general purpose, marine and putties.

- Suntech – Indian distribution organization of industrial chemical goods that is

targeting BOP-CMs and is having a market-focused approach by offering one-

stop-shop solution;

Short company profiles of the above mentioned enterprises are available in

appendix.

Further research objects - distributors and sub-distributors, were identified based on

the revelations from the interviews partly based on opportunistic and partly on a

snowball (chain) principle (Punch 2000, pp. 56). Within-case samples were taken

from relevant marketing and sales people, and management individuals responsible

for related strategy development and implementation. There are differences between

the research objects resulting in differences in approach and in focus points

(Bonoma 1985, pp. 205).

Data collection included gathering oral histories, reviewing historical documents,

and engaging in observation. Oral histories were obtained by interviewing a

selection of employees of each company limited to mostly MDs and CEOs, as well

as technical and commercial directors. The interviews lasted from 30 minutes to

3.5-hour sessions either in various blocks or continuously. During the course of

interviewing, close to 60 interviews were conducted.

In between the fieldwork periods were extensive analysis and memoing periods

with the aim of developing additional clues for further investigation.

The sampling occurred in 3 different phases of interviewing and observing over a

time period of 10 month as shown in the Exhibit 2-19.

74

Phase I

Phase I consisted of a two and a half week intensive interviewing and observing

period in India in March 2007. The interviews were conducted with direct

distributors of DSM Composite Resins AG - Imkemex International Inc. (Mumbai)

and BASF Finlay (Colombo), a local resins manufacturer Satyen Polymers

(Mumbai), and its selected channel partners in India. The channel partners of Satyen

Polymers included five composites distributors in all major geographic regions of

India - Suntech Fibre (in Chennai, South), Resins and Chemicals (Goa, West), Link

Enterprises (Pune, West), Vimal Associates (New Delhi, North), Ramsha Marketing

Company (New Delhi – distributor for East India, based in Calcutta). The

interviews began on an exploratory manner based on a half structured questionnaire

focusing on each individual’s phenomenological interpretation of the firm’s current

state and the reasons for this (Glaser and Strauss 1967). While conducting

interviews on how the interviewee views the firm and its success factor, ambiguities

were clarified and summarized what was heard providing the interviewee to correct

or expound on anything that might have been misunderstood during the interview.

For the initial interviews, field notes and historical documents were selectively

coded for the relationships and openly coded for passages that appeared to be

important to the business models on the basis of recollections or direct observations.

The questionnaire contained questions about the (1) various dimensions of the

business model such as sourcing, sales, logistics, packaging, finance and technical

service among others; (2) market dynamics and positions (market share, revenues)

from different market segments; (3) key success factors for reaching the D-type

customers (i.e. BOP-CMs). A sample questionnaire can be found in the Annex.

Moreover, two direct customers of Imkemex - Esdee Paints and 3M, who produce

car putties and deliver them to car repair shops and saloons including BOP-CMs,

were interviewed. The questionnaire used was the same as for the distributors but

additional questions were asked about the value chain set up.

For understanding the market and business dynamics and context in India the

president of the Indian FRP Association was interviewed. This interview was

conducted as an informal forum discussion about the business- and regulatory

75

environment, technological and market trends, key market segments, key players in

the composites field and many more.

This interview phase provided a basic understanding of the Indian composites

market of C- and D-type customer segments that are served by industrial

distributors as well as a conceptual understanding of the key success factors for a

distribution organization serving the BOP-CMs. As information was added from

additional sources, the understanding of common processes and key success factors

was continuously refined. Using this process, an understanding was developed

about the basic business model aspects and strategies of each company.

Simultaneously, a model was developed for understanding the key success factors

for distribution organizations that target BOP-CMs.

However, in order to be able to generalize, and to have a better basis for theoretical

comparison a reference was used. Therefore, Phase II of interviews was conducted

from a West European perspective.

76

Exhibit 2-19. Interview phases and objects.

Phase II

Interview phase II was conducted during one week in Belgium, Switzerland and the

UK with the aim of clarifying the iKSFs of a composites distributor in Western

Europe for making theoretical comparison and validating the developed business

model and iKSFs for the Indian distribution organizations. The interviews were

organized partly in a discussion forum format and partly as one-on-one interviews

with DSM Composite Resins responsible persons for the distribution strategy and

business in Europe as well as Euroresins Benelux and Euroresins UK key persons.

These interviews were conducted in June 2007.

77

On one hand, the outcome of these interviews enabled the identification of

additional dimensions and properties for theoretical comparison and refinement of

the business model being developed. On the other hand, phase II helped to clarify

the iKSF and business model aspects that are common for all industrial composites

distributors and those that are specific for a BOP-CMs distribution organization.

Phase III

In August 2007, Phase III of interviews was conducted. The aim of this phase was

to clarify the relevance of additional business model aspects and iKSFs for a BOP-

CMs distributor that had been revealed from interview Phase II. A secondary aim of

this phase was to achieve saturation on issues that remained open.

The interviews were conducted with the MDs of all distribution organizations that

were interviewed in Phase I by telephone based on a prepared list of open items

such as questions that did not get answered in the first interview and seemed

relevant based on knowledge gained in Phase II.

In the end of this phase a final generalized concept of a business model and iKSFs

of BOP-CMs distribution organization were developed.

Throughout the interview phases several additional research materials were

analyzed to ensure as complete triangulation as possible (Jick 1979, pp. 602):

1. Analysis of 2005 & 2006 annual reports of the companies where available;

2. Analysis of other relevant internal documents from all of the companies

involved, such as business plans, memorandums, etc. where available;

3. Available market surveys including market share and development information;

4. One-to-one explorative and in-depth interviews with the key decision makers

and marketing individuals in the distribution organizations; One-to-one

explorative and in-depth interviews with respective account or sales managers in

the principal organizations;

78

5. Partly structured group discussions in each of the distribution companies;

6. Observation.

Interview transcriptions, field notes and historic documents were managed in

various ways – hand notes, typed in memos, manual category cards and dictaphone

recordings. Following standard practice for qualitative inquiry, the data was coded

iteratively, seeking to find common themes across firms. These themes were refined

during further fieldwork and ongoing analysis.

79

3 Results and Discussion

The current work handles a problem from business practice and, with the help of

accompanying theory, develops suggestions for targeting BOP-CMs via well-

chosen or configured distribution organizations. The starting point of the current

work was the observation that in international sales activities, while selecting and

designing the partners for the sale activities, the sales partner perspective in most

cases is not sufficiently considered (s. Chapter 2). This topic is also absent from the

business research literature (s. Chapter 2). The sales partners’ perspective is central

to this investigation. The outcome of the current work relating to the distribution

organization’s business model, internal KSFs, as well as the selection and

configuration of the set up of a sales partner organization enables conclusions

relevant in business practice to be drawn.

The findings seek to offer decision makers in MNCs a starting point in designing

their marketing strategies and in selecting channels for product distribution

functions for BOP-CMs and/or configuring the distribution organizations by

themselves based on clarified iKSFs. However, these conclusions should be

interpreted within the context of this particular research framework. Further

research is needed to evaluate the relative importance of these key success factors

and to validate the theory developed.

Next to the marketing intermediaries between producers and final users that were

defined by Kotler et al. (2003, pp.523, 551) – merchants, distributors, agents and

facilitators, in the context of this research, two additional types of intermediaries are

relevant:

- Sub-distributor - wholesaler and/or retailer who buys, takes title to and

resells the merchandise purchased from various distributors and/or

principals. Sub-distributor has its own product portfolio which is different

from the portfolio of the supplying distributor(s);

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- Dealer - wholesaler and/or retailer who buys, takes title to and resells the

merchandise purchased from one distributor. Dealer’s product portfolio is

identical or smaller in range than that of the supplying distributor.

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3.1 Customer Segments and Value Chain Description

The research disclosed two distinct types of distribution organizations that are

targeting BOP-CMs. The type of distribution organization in turn defines the BOP-

CM segments that they are able to successfully target. There are two main market

segments in BOP-CMs - organized and unorganized (in vivo coding) BOP-CM

customers. For successfully targeting each of them, the requirements for a

distribution organization are different leading to different internal KSFs for each of

the distribution organization types. In order to understand the different requirements

for a distribution organization, sample value chains have been drafted as can be

seen in Exhibit 3-1, Exhibit 3-2 and Exhibit 3-3.

The putty producer, as illustrated in the value chain on the Exhibit 3-1, is sourcing

its materials either from a chemicals distributor, sub-distributor or from the material

manufacturer directly depending on the materials. Resin is the key material for

making car repair putties. Putty producers are supplying the materials to various car

repair shops and salons. Their customers vary also based on their professionalism

and target customer types. There are again 4 types of car repair shops – A, B, C, D.

Whereby D-type car repair shops are the ones on the road where mostly 3-wheelers

and taxis get repaired. Such shops are usually not very sophisticated in terms of

storage facilities, quality offered, and products used. The 3-wheeler owners or

drivers would usually qualify as BOP customers due to their disposable income

constraints and price sensitivity behavior. Therefore, also for the putty producer,

they would have usually at least two or three different types of putties in their

product portfolio to meet the needs of all four categories of customers, e.g. for D-

type customers, the product needs to have very low price and very long shelf-life.

The interviewee Esdee Paints is having ca. 60-70% of market share in the D-type

customers and ca. 50% in C-type customer markets in India, whereas 3M is the

market leader in A- and B-type customer segments and would like to enter into the

C and D- type customer markets. The car repair putty manufacturers are usually

organized BOP customers.

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Exhibit 3-1. Value chain for car repair putty market.

Organized BOP customers are customers who have systematic processes for

disciplines such as ordering, planning, production, and working capital

management. These are companies already larger in size, which they have achieved

over time through diversification into various businesses, and through some

sustainable competitive advantage such as providing products, which add value for

the customers. As an example, products that ultimately result in lower cost and

more value for the customers of BOP-CM. In some cases such companies are even

large multinationals with a strategy to target BOP-CMs (e.g. 3M developing low-

end putty products for car repair and targeting BOP repair garages and individuals

who use the materials mostly for patching up dents on their two- and three-

wheelers).

The distribution organizations targeting putty market are usually general chemicals

distributors carrying only one or two materials in their portfolio necessary for

making a putty product. The rest of their portfolio is composed of various chemicals

Resins

Raw materialRaw materialsupplierssuppliers

Detergents, …

Glass

Gelcoats

Catalyst

Ancilliaries

DistributorDistributor Sub-distributor/Sub-distributor/dealerdealer

ConverterConverter ConverterConverter EndEndCustomerCustomer

Sub-distributor

Putty Producer

oror

CarRepairShop

Car/3-wheelerowner ordriver

Chemicals DistributorChemicals Distributor(only one major product(only one major productline for composites + bulkline for composites + bulkchemicals)chemicals)

…

oror

83

unrelated with the composites market. A description of such companies is given in

the respective section about distribution organizations targeting organized BOP-

CMs.

The value chains for boat building and general-purpose markets differ significantly

from the value chain of car repair putties. The type of distribution organization that

is able to serve these markets is different as the customer needs are different from

the organized BOP-CM needs. Unorganized BOP customers lack systematic

processes for disciplines such as ordering, planning, production, and working

capital management. These are companies small in size, mostly even only one or

two man undertakings. These companies work on a project basis: once a project is

concluded and cashed in, then next project can be started and the materials for that

procured.

Exhibit 3-2. Value chain for a section of boat building market – fishing boats.

The boat building market has its own specifics in India. There is hardly any luxury

or leisure boat building. Thus boat building is done mainly for two types of end

Resins

Raw materialRaw materialsupplierssuppliers

Glass

Gelcoats

Catalyst

Ancilliaries

CompositeCompositeDistributorDistributor(one-stop-shop)(one-stop-shop)

Future Boat Owner

DistributorDistributor Sub-distributor/Sub-distributor/dealerdealer

ConverterConverter EndEndCustomerCustomer

Dealer

ShipyardBoat Owner

Boat owner sub-contracts a shipyardBoat owner sub-contracts a shipyard

oror

…

EndEndCustomerCustomer

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customers: (1) fishing boats for both large fishing undertakers and small private

fishing purposes, and (2) coastal guard and safety boats, so called governmental

demand boats. For the latter, the business dynamics are much like those in Western

Europe, meaning that the shipyard gets a contract for a number of boats with

specific requirements on cost and quality (specification). The shipyard then needs to

fulfill it based on these specifications while at the same time trying to optimize its

own cost base. The fishing boat manufacturing has different dynamics. The

shipyards for fishing boats consist usually of a number of contract workers that

have jobs only when there is a season for fishing boats. The shipyard owner

organizes the work, provides for building know-how and plans (projects) but does

not own the boats, nor the materials used. However, the shipyard owner can specify

a range of materials to be used for specific purposes. The responsibility for the

materials and procurement lay with the boat owner. The cost for the materials and

work for a large fishing boat vary and can be as high as several million USD.

Therefore, the customers for such boats are usually companies that engage in

professional fishing. The materials and work for a small fishing boat amount up to

about 2000 USD. Such fishing boats are frequently co-owned by a family or group

of families. It would take years for a fisherman to raise this much money.

Fishermen also deal with shipyards for the repair works. Also in this case, the same

dynamics apply whereby the boat owner buys the materials and brings the boat

along with the materials to a shipyard for the repair work.

General Purpose (GP) market is the largest market for composites in India. The

products made out of composites include a large variety of household goods (pots,

table tops, chairs, etc.), building and construction elements (roof tiles, floor tiles,

wall cladding, door frames, doors, etc.), decoration elements (statues, mirror

frames, flower pots, etc.), transport elements (helmets, bicycle parts for transporting

goods, three-wheeler accessories) and many more. Often, a craftsman learns how to

make the parts in a larger professional workshop or company and then moves on to

build up his or her business. After a while, their workers set up their own business

and so on. Usually these businesses do not have a scale and they are just a few

persons’ undertaking as mentioned earlier. The majority of these goods are

produced for the so-called informal economy (Prahalad and Hammond 2002).

Frequently, the new entrepreneurs do not know the original source of the materials

85

and therefore either do the sourcing of such materials from the previous employer

or dealer who used to come to sell the goods there. Often, the reason for this can

also be the physical distance to the supplier or financing availability. This is how

extensive networks of dealers and sub-dealers evolve.

Exhibit 3-3. Value chain for general-purpose market.

The boat building market and the GP market are segmented herewith as

unorganized BOP-CMs. The basic BOP-CM customer needs are outlined below

according to the customer/market type.

CompositeCompositeDistributorDistributor(one-stop-(one-stop-shop)shop)

Resins

Raw materialRaw materialsupplierssuppliers

Glass

Gelcoats

Catalyst

Ancilliaries

DistributorDistributor Sub-distributors/ dealersSub-distributors/ dealers ConverterConverter EndEndCustomerCustomer

Dealer

GP converter (e.g. mirror frames, wall/ floor tiles, statues, Decoration Elements, etc.)

End user: BOP/Touristsoror

…

ororCompositeCompositeDistributorDistributor(one-stop-(one-stop-shop)shop)

CompositeCompositeDistributorDistributor(one-stop-(one-stop-shop)shop)

Sub-distributor

Dealer

oror

86

3.2 Customer Needs

This section describes the needs of the two defined major customer segments (i.e.

market clusters): organized and unorganized BOP converter markets. This is

relevant for understanding the requirements for a distributor or dealer to serve these

customers. The needs were derived from interviews with distribution organizations

from one side and from interviews with selected customers on the other side.

Customer interviews were conducted for the organized BOP converters in the

context of the putty market and very limited with the unorganized BOP converters –

only a shipyard in Goa and a chair manufacturer in New Delhi were interviewed for

this purpose. Therefore, for the unorganized BOP-CM customer needs definition,

the perspective of distribution organizations was prevalent and might have lead to

misrepresentation or exclusion of some needs.

3.2.1 Unorganized BOP-CM Customer Needs

According to Mr. Sundara from Suntech: “Only ca. 40% of total composites market

is organized and 60% is very unorganized, no language understanding and no

technical understanding” (Rajesh Sundara, Suntech Fibre PVT. LTD., managing

director and 2nd generation owner, interview held on March 13, 2007; Bangalore,

India, duration 1,0h.). Unorganized BOP converters that target BOP markets are

usually very small, with hardly any capital and retained earnings – all cash from the

operations goes to financing further procurement of goods and providing for daily

income for the entrepreneur and their family. Examples include producing statues

and mirror frames for BOP markets (mainly in slums) and tourists, whereby the

company procures materials for one or two statues at a time, produces these statues,

sells them, and then returns for further material. Another example would be boat

building and repairing for fishing as described above. The work of the craft as well

as the turnover of the distributor are in this case very seasonal and depend on the

fishermen yield on the sea and resulting returns for the sale of the fish.

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The available cash is a primary constraint influencing the purchasing habits and

needs of the customers. Due to low availability of cash, the customers need

suppliers of products that offer credit so that they would not have to make upfront

investments and be able to generate additional cash by selling the products.

Alternatively, in case credit is not available, the cash constraint forces customers to

make frequent and small (in terms of money) purchases. Therefore, price is a major

factor for such customers in choosing their supplies.

Due to the constraint of media access, customers do not obtain extensive product

information from the Internet and other sources, which would permit them to shop

more intelligently. As stated by Mr. Shriram: “Among C- and D-type customers

there is only mouth to mouth communication, and trust relationship. Molders share

their workers so when the workers jump the workshop, they also share their

experience e.g. that is a good material to work with, etc.” (Shriram Ranade, Link

Enterprises, managing director and owner, interview held on March 28, 2007; Pune,

India, duration 2,0 h.).

The BOP-CMs show greater price sensitivity in their search for value and again, the

price matters. Customers try to minimize the cost in various ways. One of the ways

to reduce cost for them is to go to the supplier to pick up the goods instead of

paying for workshop delivery. Often, the customers would even prefer to bring their

own packaging along in order to reduce costs even further (metallic or plastic cans

and canisters). The strategy of frequent, even daily procurement of materials sets

another constraint for the supply location – it needs to be close and preferably

contain all the necessary materials in one place. From this the need for convenience

is derived.

Small monetary purchases mean small volume or size. BOP customers have limited

mobility due to income constraints and poor infrastructure requiring smaller

packaging sizes which customers could carry on back or by bicycle – mostly such

customers do not own a large vehicle for goods pick up – vehicles owned are

bicycles, animal carriers, and three-wheelers.

The product quality requirements in terms of shelf life and quality are usually not so

relevant because the processes are similar to just-in-time production concept

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whereby in the case of daily deliveries questions of storage, and storage conditions

of product become obsolete from one side, and from the other side the products that

such customers produce are usually low-end commodity type products that do not

set high requirements for quality.

Customers prefer not to do any planning and purchase materials based on available

cash. However, material has to be available when cash becomes available. The

product has to do the work with the minimum possible cost. The brand does not

matter.

The customers in unorganized BOP-CMs do not require extensive technical service

to the extent of providing starting formulations, or formula modifications, technical

or engineering advice, product replacement, or testing of produced parts/products.

This is due to the fact that in most cases, the customers have learned to master the

materials and technology by “learning by doing” and are not keen on changing the

processes or products. However, some technical advice is needed in case a supplier

has got a new product in his portfolio. In this case basic advice is needed on how to

use the new product. Also, in case a product does not work, the supplier needs to

provide guidelines on the process and product(s).

In general, there is very little innovation going on in the product development side.

This is due to the fact that in most cases, the products produced are used for the

further production of goods or end use for primary needs satisfaction (roofs, food,

mobility, etc.). The customers end up in the business usually because they have

been working in a larger workshop or under a master for producing the same goods

before and they have decided to do it on their own. Therefore, no specific technical

knowledge is needed from the supplier, just cheap material with credit terms if

possible. To survive they are likely to invest in flexible, multipurpose fixed assets

and only relatively specialized labor, sometimes also only on a needs only basis.

They may operate on a small and variable scale. Among BOP markets, the pace of

change in demand is slow, with the level of specialization, technological

sophistication, and capital investment also being slow as identified by Arnould and

Mohr 2005.

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In summary, the most important needs of unorganized BOP-CMs are (1) flexible

deliveries in terms of timing and quantities leading to the need of geographic

proximity and small packaging size, (2) capital, and (3) low cost. Secondary

importance is given to (4) technical advice and (5) convenience.

3.2.2 Organized BOP-CM Customer Needs

Organized BOP converters are customers that target BOP markets as a way to keep

and expand their existing markets and develop sources for future revenues. These

are usually already relatively large and financially sustainable companies. Their

needs are similar to any professional company such as supply security, speed of

delivery, timely deliveries, product availability, cost, quality, payment terms,

sampling, flexibility in case orders change, and so on. However, since BOP markets

are very cost sensitive, the development efforts of BOP converters are usually

targeted at lowering the price of their products or total cost for the customer. This is

possible through innovation either in the product or in other processes. Therefore,

these customers are looking for innovative products and solutions that would

provide them with a sustainable competitive advantage and lower total system cost.

Often, in order to realize this goal, customers require technical support from the

suppliers of the materials such as starting guidelines (e.g. formulation suggestion),

custom made solutions (e.g. formulations development), and testing. This implies

that they need to go past the other value chain members such as distributors and

agents directly to the material producers with laboratory facilities.

These customers are better at planning and they are able to place their orders in

advance. However, in case of specialty products that have to be imported to India,

they prefer that their suppliers have available safety stock locally. This is due to

complicated import procedures and long lead times. Another factor becoming

relevant here is the shelf life of products – in order to minimize the import cost and

time loss, customers try to purchase one to six months of required material at a

time. This means, that the product has to have a stable shelf life for at least 6

months in Indian conditions (humidity, heat, sunshine – UV light). Some of the

customers do not have proper storage facilities and in this case, an appropriate

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supplier side storage facility is required and the customer would procure products

from the storage on an “as needed” basis. Appropriate storage conditions in this

context could mean air conditioned (cooled in tropical climates, humidity

controlled, e.g. most resins start curing at temperatures above 35 degrees Celsius),

or having shade to protect the products from direct sunlight (UV curable resins) and

heat (peroxides that are highly explosive).

In summary, the most important customer needs of organized BOP-CMs are (1)

specialty products giving them the advantage to offer lower total system costs for

their customers, and (2) technical support. Secondary priority needs are such as (3)

long shelf life of products, (4) local supply availability, and (5) storage facilities.

For the ease of understanding, the customer needs for both types of converter

markets are also summarized in the Exhibit 3-4.

Exhibit 3-4. Customer needs according to market type in order of importance.

Primary needs are highlighted.

The following sections outline the characteristics of companies that can deliver on

the needs of the described customer groups: distribution organizations targeting

organized and unorganized BOP-CMs. The business models are described based on

the management strategy from one side. On the other side, the business models are

BOP-CMs

Organized BOP-CMsUnorganized BOP-CMs

Needs (1) Flexible deliveries in terms oftiming and quantities leading to theneed of geographic proximity andsmall packaging size;

(2) Capital;

(3) Low cost (Basic, functional, long-lasting

and cheap products).

(4) Technical advice

(5) Convenience.

(1) Specialty products giving thecustomers the advantage to offerlower total system costs for theircustomers;

(2) Technical support;

(3) Long shelf life of products;

(4) Local supply availability;

(5) Storage facilities.

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described based on the strategy translation and implementation for meeting the

customer needs in the respective market and business contexts. Only business

practices that differ considerably from western business practices have been

outlined here. As already described in the section 2.6.2, for the purpose of

comparison Euroresins has been taken as the benchmark for the western European

businesses.

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3.3 Unorganized BOP-CM Distributors’ Business Model

3.3.1 Business Strategy

The business strategy of distribution companies that target unorganized BOP-CMs

is market share and volume oriented leading to lowest cost, and lowest price

offerings. The elements of such a strategy, and its translation and implementation on

the market are discussed below.

3.3.2 Development of Business Strategy

Business strategy of distribution organizations that target unorganized BOP-CMs is

in general developed by the Managing Director (MD). Therefore, all aspects of

strategy and strategy development are strongly influenced by the manager’s own

social background and values thereof from one side and from the company values

on the other side. As company values are a combination of both the management

and employees values and beliefs, then these categories are continuously

influencing each other.

The MDs develop strategies based on their intrinsic values and knowledge resulting

from their social background and education as well as based on the market and

business contextual information received continuously – market development and

trends, company performance on the market, strategy implementation success and

actors (the employees implementing the strategy). Therefore, the employees

contribution to the development of company values and indirectly also to strategy

development cannot be neglected.

The selection of the strategy outlined above for BOP-CM distributors can be

explained by various factors such as:

(1) Very high competitive intensity on the market - more than 90 suppliers of resin

on the market, similar number of other materials suppliers and 500+ distributors

(DSM Composite Resins 2007). This results in price fighting i.e. undercutting the

prices of the competitors all the way to below the cost price.

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(2) Social background of the management, employees and customers, their focus on

price and lack of quality consciousness. The latter can be explained by a

combination of factors. Lack of capital among these social classes is one of the

main reasons, but also there are more intangible factors. From one side the joy for

negotiations and from the other side the cost focus rooted in Indian culture,

especially among lower social classes. The latter is coupled with the amount of

individuals who are in the lower income groups which influences the values and

beliefs of employees as well as managers alike and makes low cost and low price

absolute key priorities. The company management has usually mid-class roots and

good business education. The MD is the owner and in most cases also the founder

of the company. The MD is personally active in business and deals with the largest

customers, sub-distributors, and dealers. The values of the MD are driven by the

needs for success and “survival” as this is what he does for a living and providing

for the family. Usually the MD does not have accumulated wealth of family or

previous businesses and therefore in most cases, the motivation of the manager is

not based on self-fulfillment needs.

(3) The price focus can also be explained by competencies and skills of the MD and

employees based on previous experience and education. Usually, the MD and the

employees are not trained or do not have experience with or do not believe in the

success of the value based selling concept. Such companies represent only local

goods, which are perceived to be interchangeable with competing offers in terms of

quality both by the management and the employees. Hardly any other sophisticated

marketing tool such as branding is used next to price, personal sales, and credit

terms – which result in long-term high outstanding (debt), illiquidity and

bankruptcies for many companies;

(4) Lack of capital. The above strategy is derived from the company values of result

orientation to making the deal rather than adding value, and cashing in. In the

company values, the quality consciousness is not very deeply rooted which can be

speculated is the result of very low purchasing power and resulting limitations on

experience with products from different quality categories among the employees

and managers who come from the lower or mid-class social circles. As the purchase

basket is set based on available capital (daily earnings, or savings, accumulated

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capital), then the basket would be filled with as many priority goods as possible that

can be afforded as opposed to having less goods but with higher quality. In general,

quality becomes a purchase factor only when the primary needs have been satisfied

and there is abundant capital that is not necessary for financing growth. Lack of

experience with high quality goods leads to ignorance about potential cost savings

due to a products longevity or other quality properties.

The next section outlines the necessary business tactics and practices in order to

implement this strategy.

3.3.3 Strategy Implementation

For any company, it is a challenge and an aim to gain market share and maximize

the returns by optimizing the costs. Out of a distributor’s total turnover that target

unorganized BOP-CMs, ca. 30% is derived from sales to BOP-CMs either directly

or via the network of sub-distributors and dealers. The rest of the turnover is

derived form the direct sale to small and medium sized industrial enterprises in

other market segments or other markets. Distributors targeting unorganized BOP-

CMs know the customer needs as identified in Chapter 3.2.1., and they deliver on

them. However, this involves using several practices not commonly used in other

Indian markets nor in West European markets. This chapter describes how BOP-

CM distribution organizations manage the challenge of delivering on identified

customer needs with very low cost on one side, and satisfy their own needs for

growth and adding value on the other side.

Based on the discussion on distribution company’s ability and means to meet the

unorganized BOP-CM customer needs, a generalized business model concept is

developed in the end of this chapter. The customer needs will be discussed in the

order of importance: (1) flexible deliveries in terms of timing and quantities leading

to the need of geographic proximity and small packaging size, (2) capital, (3) low

cost, (4) technical advice, and (5) convenience.

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(1) Flexible Deliveries.

Flexible deliveries to customers mean herewith flexibility in order size, packaging

size, and timely product availability that is dependent on the geographic proximity

of the supplier or its mobility.

Packaging Size

Commonly, chemical goods are delivered either in tank cars (22 tons), IBC’s (1

ton), drums (220 kg), or pails (22 kg). Usually, a distributor in India would purchase

the goods only in drums due to missing facilities to handle IBC’s (forklifts, large

space, recycling). Moreover, larger quantities would be too difficult to sell and too

expensive (excessive working capital) for a distributor targeting BOP-CMs among

others. In order to accommodate the need of the customers to have smaller

packaging, the distributors offer the possibility of products packed into smaller

canisters (25kg) or even cans (1kg). To illustrate Mr.Sundara explained that “our

minimum order size is 35 kg for resins. Our sub-dealers sell even 1 kg packaging

because customers do not have handling facilities. So we need to arrange” (Rajesh

Sundara, Suntech Fibre PVT. LTD., managing director and 2nd generation owner,

interview held on March 13, 2007; Bangalore, India, duration 1,0h.). The same

applies for glass fiber. Often, the distributors have created facilities for cutting the

fibers and providing small quantities according to customer needs. The distributor

does the repackaging activities in house by the office help or the sales people

themselves usually at the point and time of sale or prior. Similarly, the option for

the customer to bring his own packaging is offered at a small discount. For

illustration, the photo on Exhibit 3-5 shows the warehouse of Resins & Chemicals

in Goa where the repackaging activity by an employee has been just performed. In

some cases, the repackaging function has been outsourced to sub-distributors and

dealers, as is the case with Suntech in Chennai.

Similarly, in Exhibit 3-6 Mr. Shriram Ranade, the MD and owner of Link

Enterprises is showing the glass fiber cutting facility at his warehouse.

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Exhibit 3-5. Warehouse of Resins &

Chemicals in Goa.

Exhibit 3-6. Glass fiber cutting facility at

the warehouse of Link Enterprise.

Product Availability

Product availability is critical for the customers who come to pick up the goods

themselves and speed of delivery is relevant for customers who receive goods

delivered at their warehouse or workshop. Customers, who receive their goods

delivered, place the orders frequently at the previous goods delivery or by phone

and the distributor would arrange an immediate delivery (e.g. Link Enterprise in

Pune is accepting telephone orders and arranges the deliveries after the money has

been deposited at its bank account by the customer). As the distances in India are

large, customers are scattered all over the country and the logistics is complicated,

one of the relevant dimensions of a distribution company is an efficient logistics

and sub-dealer or distribution system. The latter reduces logistics complexity and

helps to overcome the barrier of building personal relationships with customers that

are vital in new business development as well as to ensure repeat business.

As an example, at Suntech ca. 25 % - 30% of sales go through dealers network. The

rest is direct sales via four employed sales people who take care of ca. 120 actual

customers. Here, the relationship building is very important. There are 15 sub-

dealers and agents dedicated to territories. In all these territories they again have

ca. 1 – 5 sub-dealers. They take care of commercial issues, storage, finance, etc.

Suntech gives them initial deposit (Rajesh Sundara, Suntech Fibre PVT. LTD.,

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managing director and 2nd generation owner, interview held on March 13, 2007;

Bangalore, India, duration 1,0h.).

In general, the unorganized BOP-CM distributors achieve the product availability as

required (in the required quantity and amount at the right time and place) by having

an extensive network of sales people. Very few of the sales representatives are

employed by the company. In order to minimize cost, reduce credit risk, and build

the customer relationships in the most efficient way, the sales go through external

sales people – sub-distributors and dealers. They are able to market the goods in a

more optimal way than the distributor would be because of the knowledge of the

local language, understanding of the customers’ social, cultural and economic

backgrounds, as well as local ties and connections. They get their supplies from the

distributor mostly on a weekly basis. The sub-distributors almost always have a

shop from where they distribute the goods. The dealers however, frequently use a

three-wheeler as a store and move around on the market to where the customers are.

The smallest sub-dealers go even on foot directly to the customers. The BOP-CM

customer ends up paying quite a high price for the products as there are very many

middlemen. Due to price sensitivity, customer loyalty as such does not exist.

Therefore, it is usually in the interest of the sub-distributors, dealers and sub-dealers

not to disclose their sources of supply. The sub-distributors and dealers have the

market and customer know-how and are therefore vital for the distributors’ business

sustainability. Company own sales force is used for targeting other market segments

where the sales volumes and created turnover are larger and margins are higher.

On the other hand, the availability of supply is granted by having several principals

for the same product. So, that in case one of the principals is having production

issues or delay due to logistics, the other one could deliver. In the highly

competitive market, the availability and/or the speed of delivering products to the

customers is a differentiating factor in order for customers not to source from the

competition. The speed is granted by having products on stock on one hand and by

having several three-wheeler taxis always ready for immediate delivery. Moreover,

in order to guarantee such supply availability, a warehouse is needed and stock

needs to be built. According to Mr. Shriram: “Material availability is critical and

one of our core competencies. We have bulk storage of all the raw materials at

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hand - no shortages.” (Shriram Ranade, Link Enterprises, managing director and

owner, interview held on March 28, 2007; Pune, India, duration 2,0 h.).

Down the value chain, also for a putty producer, in order to reach the BOP-CMs, an

extensive distribution network is necessary. As an example, Esdee Paints does

distribution via dealer and depot network: “There are 30 outsourced depots around

the country that work based on commission. Supply of putty is direct from Esdee

Paints manufacturing site to depots. The sales tasks are performed by dealers and

depot runners. Such dealers and depots are from customers a few hours drive away

at most. They stock the materials and do the sales and marketing work, collect the

payment, remit the payment, but the ownership of materials remains with Esdee

Paints. Sub-dealers go to the depots to pick up the goods and again work based on

commission” (Group interview at Esdee Paints Limited, interview held at company

premises in Mumbai on March 29, 2007, duration 1, 0 h. - Pratik Mehta,

development manager, Navketan Sr., Managing Director and owner, Navketan Jr.).

In order to have sufficient cash flow to finance the continuous procurement of

goods despite the cost of having a warehouse and higher working capital (capital

bound in stock), the distributor needs to have critical mass which is built up by

diversifying the customer base and selling goods to other market segments and

markets (e.g. next to focus on glass reinforced plastics market, the distributor would

also focus on decoration market and sell paints and curtains as is the case with Sujit

Doschy’s company of Resins & Chemicals; similarly Ramsha Marketing Company

in New Delhi produces and sells furniture next to composite products). Next to

storage needs, the warehouse is necessary also for performing other operations such

as consolidating deliveries and repackaging. The warehousing facilities are in

general next to the offices and relatively small without safety considerations as

would be common in western and “western-mentality” companies. The

warehousing is usually not air conditioned (cooled), as the product turnover is very

quick so that shelf life does not become an issue. This also helps to reduce costs.

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(2) Capital

Credit terms are offered usually only for direct customers. To illustrate: “On the

market, it is common to use credit terms of 120 - 150 days. Therefore, the suppliers

need to be financially strong. In general, payment is a major issue – customers talk

about volume, etc, but never about money. Selling is not a problem. Main factor is

payment, so we have to see how liquid we are and then decide about the sale”

(Rajesh Sundara, Suntech Fibre PVT. LTD., managing director and 2nd generation

owner, interview held on March 13, 2007; Bangalore, India, duration 1,0h.).

On the other hand, BOP-CM customers almost always pay with cash. The payment

time and therefore also the purchase time in case payment at the point of sale is

required, is dependent on when the customers receive payments from their

customers. Payment terms of cash in advance, one day or one week are commonly

used for BOP-CM customers. Available capital becomes relevant for BOP markets

in case the distributor engages in extensive sale on credit, which is often the case.

This means that there is a need to make provisions for bad debt as well as late

payments. In principal, the distributors need to finance the growth of their

customers. In order to do so, the BOP-CM distributor needs to be financially strong.

On the other hand, using the network of sub-distributors and dealers reduces the

credit exposure of the distributor considerably. However, the sub-distributors and

dealers are depending on the distributor for supplies and their business and therefore

pose a relatively low credit risk for the distributor. Often, the distributor offers open

payment terms (credit) for the sub-distributors and dealers such as one week or 30

days after receipt of goods. This, however, is only the case if the distributor (MD or

the employees) has a close trust relationship with the sub-distributor and/or dealer

that have been built up over time. For illustration, Mr. Sundara’s quote: “We have

our own market segments and our own way of marketing. We have customer loyalty

so customers do not change if price would be even four rupees different. We have

built the business over years based on personal relationships” (Rajesh Sundara,

Suntech Fibre PVT. LTD., managing director and 2nd generation owner, interview

held on March 13, 2007; Bangalore, India, duration 1,0h.). Similarly, Mr. Shriram

from Link Enterprise comments: “We offer extensive credit - our bad debt is <1%.

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This low rate is a result of personal relationship of our sales people” (Shriram

Ranade, Link Enterprises, managing director and owner, interview held on March

28, 2007; Pune, India, duration 2,0 h.).

This model cascades down the value chain. The sub-distributors and dealers in turn

offer credit terms to their customers in case they have build up trust relationships.

Direct customers would in most cases not qualify for credit terms by the distributor.

The distributors call them the “cash-and-carry” customers. Usually the BOP-CM

customers would remain quite far from the distributor due to complexity in building

up the relationships with them and trusting (social class differences, education). In

most cases, customer loyalty does not exist and the customers would buy the goods

from where they are cheapest and where they would get credit. This means that the

payment retrieval can take a long time – the payment would come only after the

customer has sourced from all the possible distributors and can’t get any material

any more. Secondly, as the distributor has also customers in other markets and

market segments, where the usual standard for payment could be 120 days to 180

days, the distributor needs to have from one side their own financial capital to

finance the outstanding purchases and growth of the customers. From the other side,

the distributors have developed their expertise on using various tools for retrieving

the money. Usually, there are dedicated people for “collections” employed by the

distribution company as is the case with Link Enterprises: “We have 17 employees

in total: four in sales, three in office, one in collections (finance), and the rest in the

distribution depots for repackaging and logistics activities. The credit terms offered

by the company vary between 0-90 days. It depends on the credibility of the

customer, which is based on relationship over years and years. In order to manage

the credit risk we share accountings with customers, do meetings with customers

and with our finance people, and discuss various customers in our internal

meetings. I have a rule that maximum 20 % of my turnover can be outstanding at

each time” (Shriram Ranade, Link Enterprises, managing director and owner,

interview held on March 28, 2007; Pune, India, duration 2,0h.).

The most commonly used tool for money retrieval is building up a personal

relationship and close ties by frequent visits to the customer. Mr. Shriram describes

building the relationships based on three main items “First, we honor our promises,

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second, we stand by the customers at hard times, and third, we educate the

customers about material choices and help them optimize the performance and cost

even if it is disadvantageous for me” (Shriram Ranade, Link Enterprises, managing

director and owner, interview held on March 28, 2007; Pune, India, duration 2,0h.).

Other tools to steer the money retrieval include technical support in case of

problems with a condition of payment of debts, word-of-mouth campaign to other

distributors about the customer payment behavior, and discounts on product in case

previous bills are paid. Additionally, such distributors usually have efficient

systems for following up on payment behavior. An important factor here is the

cultural sensitivity when asking for the clearance of the debts in order not to cause

customers to lose face. The latter is pregiven by the quality of the sales force (same

cultural and social background).

In the current research, there was no evidence found for the hypotheses derived

from the literature analysis that barter trade is a commonly used method of goods

exchange among BOP-CM customers. Therefore, there is also no reason to believe

that a BOP-CM distributor should diversify into trading of other products as well in

order to leverage the barter trade opportunity.

(3) Low Cost and Low Priced Products

This specific need for low priced products by the BOP-CM customers can only be

met by cheap sourcing of products from one side. And from the other side, low cost

can be achieved by cost efficient internal processes. By definition BOP-CM markets

are comprised of many very small customers. Deriving form this statement, a BOP-

CMs distributor needs to have scale of economies achieved by efficiencies in sales,

marketing, and operations.

Firstly, the sourcing strategy of distributors involves a non-exclusivity principal

management policy. As soon as one of the principals is increasing their product

pricing, the distributor would switch to sourcing from the other(s) principals and

suppliers. The only exception, where the exclusivity is granted and customers

retained is in the case where the distributor is having special ties to the principal,

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such as family relationships from one side. This is the case with Satyen Polymers as

a resin supplier and Resins & Chemicals as a distributor where the resins are sold

on an exclusivity basis. On the other side, in this case the distributor also needs to

have a personal relationship with the customers leading to loyalty. This means that

in case the material would not be available or would be sold at higher prices, the

customers would not switch or switch suppliers only temporarily.

Even if the distributors do thrive for building long term relationships with the

principals, mainly for cost and availability issues, there are still frequent second

suppliers for each material. Mr. Shriram has put it in a nice way “We have tried

several suppliers and tested for suitability. It is like a marriage. We have tested the

suppliers suitability to us – the best match. And some flirting outside marriage also

some times. Usually there is no exclusivity with suppliers and there is also no

decision from Satyen or dealers side about the pricing. Pricing is a dynamic game

so some months one loses and some the other and it depends very heavily on the

competition. The customers care for quality, but once they have identified 2-4

comparable quality suppliers, then it is only a price game. These markets only do

standard jobs and therefore very high quality is not necessary” (Shriram Ranade,

Link Enterprises, managing director and owner, interview held on March 28, 2007;

Pune, India, duration 2,0 h.).

Secondly, the distributors thrive for optimization of logistics and regulatory cost.

Therefore, they use various means of cost reduction. One of the schemes they use is

using external transport depots on the borders between different Indian states for

reassembling and consolidating the goods for specific direct customers, sub-

distributors, dealers and their own warehouse. This helps to reduce the taxes and

reduces the needs for own large-scale reassembly and consolidation facilities and

resulting cost. However, in doing that, the distributor needs to have good

knowledge of the systems, regulations and often even an agent who is taking care of

the document handling and legal advising.

Another cost reduction scheme is using external services also for delivering the

goods from distributor’s warehouse to the customer. Most frequently used is the

three-wheeler taxi service as this is the cheapest and readily available. Also booking

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a usual cargo transport is not too expensive: “D type of customers either are coming

to pick up the delivery or they can also deposit money on my bank account and I

arrange a delivery from my Mumbai warehouse – booking with a cargo transport

similar to DHL. Transport companies are delivering on a daily basis to depots

anyhow so it is quite cheap to use such service. However, in case of deliveries to

slums in Mumbai the customers would always come to the warehouse. They usually

have deliveries worth of 100 – 200 rupees only” (Shriram Ranade, Link Enterprises,

managing director and owner, interview held on March 28, 2007; Pune, India,

duration 2,0 h.).

Thirdly, the distributors carry only commodity products in their portfolio where the

supply is abundant and that are low priced. Adding to this is the thrive to minimize

the working capital and order goods on an “as needed” basis. This is a difficult

optimization task as the market demand needs to be forecasted and capital planned.

All distributors interviewed told that forecasting is impossible.

Forth, the pricing policy of BOP-CM distributors is “cost +” focusing on making

the deal as a priority.

Last, BOP-CMs are imperfect (mainly only word-of-mouth information access),

allowing large variations of marketing tools e.g. pricing in different parts of market,

and as a result offer windows of opportunities for slight price improvement. A

successful distributor has the know-how to capitalize on these opportunities by

negotiation and customer intimacy.

(4) Technical Service and Advice

As discussed in the section about the customer needs, for targeting the unorganized

BOP-CMs, extensive technical service is not required and is therefore not a primary

differentiator. However, some technical advice is needed. This is achieved by

qualified sales force and trainings. Usually, the distributor has hands on experience

in the product application through trainings from the principal and practical

involvement with customers in case of problems or new product trials. The

technical knowledge of sub-distributors and dealers is achieved by trainings by the

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distribution company staff. The trainings are organized on ad hoc basis. For cost

reduction purposes, the sales force is all “techno-commercial” as opposed to

western practices, where there are usually two people on the market - commercial

people talking about pricing and conditions to the customers, and technical people

solving problems and advising products.

(5) Convenience

In order to increase customer loyalty and to optimize the margins across the

products sold to a customer, the distributors for unorganized BOP-CMs have opted

for one-stop-shop concept. For customers this implies reduction of time spent on

procurement and decrease of complexity both logistically and operationally. For

distributor, it helps on one hand to create more sales per customer and therefore

decreasing the cost to serve. On the other hand this helps the distributor to add value

by package sale resulting in asking higher prices for some products and lower for

others - it becomes more difficult for competitors to follow and for customers to see

the real package price differences. Additionally, as the one-stop-shop concept

reduces the time for customers to source, it builds loyalty. On the other hand, the

distributor needs to have technical knowledge across the whole product portfolio,

which is more difficult to get and to pass on. For overcoming this challenge, the

unorganized BOP-CM distributors organize regular trainings for the own staff by all

the principals at least every two years and for the sub-distributors and dealers by

own sales force on as needed basis. Moreover, the distributors have several depots

for distributing the products: “logistically, we are very close to the customers so the

delivery times are very short for our customers” (Shriram Ranade, Link

Enterprises, managing director and owner, interview held on March 28, 2007; Pune,

India, duration 2,0 h.).

Based on the above discussion on the business model aspects, a generalized concept

of a business model was developed for distribution organizations targeting

unorganized BOP-CM and is illustrated in Exhibit 3-7.

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Exhibit 3-7. Business model of unorganized BOP-CM distributor.

ResinsResinsResins

Multiple suppliersMultiple suppliersfor all rawfor all rawmaterialsmaterials

External techno-commercial sales forceExternal techno-commercial sales forceDistributorDistributor- In-house small- In-house smallwarehousing andwarehousing andrepackaging facilityrepackaging facility- Comprehensive- Comprehensivecommodity productcommodity productportfolio of compositeportfolio of compositematerialsmaterials

ResinsResinsGlass

ResinsResins…

Outsourced reloading depot and logistics

ResinsResinsDealer

ResinsResinsSub-distributor

ResinsResinsDealer

Goods for A, B and some CGoods for A, B and some Ccustomerscustomers

Converters

A-, B-type

customers

C-, D-type

customers

Internal techno-commercial sales forceInternal techno-commercial sales force

Outsourced logistics (3-wheeler taxi)

High volume & cost

leadership strategy

Goods for dealers, sub-distributors andGoods for dealers, sub-distributors andC, and D customersC, and D customers

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3.4 Organized BOP-CM Distributors’ Business Model

3.4.1 Business Strategy

The business strategy of distribution organizations targeting organized BOP-CMs is

product focused and value added growth oriented. Such companies try to maximize

the shareholder value by sustainable competitive advantages provided by quality of

products and services rather than focus on cost. Such companies focus on value and

value based selling. Usually, the BOP-CM distributors distribute local goods in case

they are small. If they are large and diversified, they also have a possibility to

source import goods as they would have the critical mass and sophistication level

for developing foreign relationships as well as managing the regulatory issues such

as import licenses etc.

3.4.2 Development of a Business Strategy

Business strategy of the distribution organizations that target, among others

organized BOP-CMs is usually developed by the management team. Here again, the

reasons why such strategy, as outlined above, is selected by the distribution

organization could be explained by a combination of factors.

First, the origin of the company is relevant. Such companies are familiar with

western business practices and have potentially grown out of distribution arms of

large multinationals by management buyouts or have been founded by individuals

who have been working in sales for such large multinationals. The companies are

larger in size and have professional business practices.

Secondly, the management of the company – culture and values influence

significantly the strategy development. The management team consists of a highly

educated general manager (usually owner), and senior managers, who are directly

responsible for specific market segments or areas. The management team has

competencies in both engineering and business management areas including

familiarity with sophisticated marketing and business steering tools. In an Indian

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context, such education and competence levels go hand in hand with wealth

associated with higher mid- or high social classes. This on the other hand suggests

abundance of capital, brand consciousness and quality awareness. These same

values are then in turn translated into the company values and culture and have their

influence on the business strategy development. The business management is

usually driven by ambition and self-fulfillment needs, be it for career development

or social philanthropy.

As an example, Gurtaj Kahlon, the managing director of Imkemex is driven by the

challenges of building and growing the business that his father has started.

However, he feels great responsibility towards society and has, among other things,

established funds for all the employees in order to help them in their saving for their

retirement. The management could also be with western origin as is the case with

BASF Finlay, where the management is either from developed countries or has

been educated in the mother company in the developed countries by the

management development program of BASF.

3.4.3 Strategy Implementation

This section outlines the necessary business tactics and practices in order to

implement the strategy and add value by additional sales to organized BOP-CMs.

The business model aspects were organized according to the customer needs

identified in chapter 3.2.2.

(1) Organized BOP-CMs need for sustainable competitive advantage.

Distribution companies with management strategy of value based selling can only

gain market share and presence at BOP-CM customers who value quality and are

prepared to pay the premium, which is in general unlikely leading to a minimum

amount of sales of such companies to BOP-CMs. However, there are exceptions

where BOP-CM customers are forced to purchase high quality products for

premium prices due to a lack of alternatives, which would correspond to specific

quality requirements. Such cases include products that enable the organized BOP-

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converters to reduce costs for their customers more than all the competing products

on the market.

As an example, the market leaders on the market of putty resins purchase only from

distributors who supply imported goods of high quality western suppliers. This is

mostly due to the shelf life issues as well as product properties that the customers

get with these products – longer shelf life, better adhesion, no cracking, easy

application. However, the major reason why they are purchasing these products

from these distributors is the shelf life of the goods (stability at the temperature

conditions that are present in India) that they get with these raw materials in their

own product – this leads to cost savings to their customers who do not need to

renew their stock so frequently and can use the products for longer. This in turn

leads to eventual cost decrease down the value chain.

Distribution companies successful in implementing this strategy are able to supply

such specialty goods, which in most cases originate from abroad. They have access

to specialty producers in Europe, America or China. This is a deliberate strategy

choice as also stated by Mr. Patil: “We prefer primarily European principals

followed by US brands and suppliers. We are not very keen on local suppliers due

to image and quality consistency as well as reliability issues – this leads to

confidence in products and brands” (Interview A-1: Patil, P.R., Imkemex

International Marketing Ltd., vice president, interview held in different sets during

March 13-22, 2007; Bangalore/Chennai/New Delhi, India, duration total of all sets

of 3,5h.). This in turn implies that the distributor has competencies in western

principal management from one side and in importing formalities on the other side.

In order for the distributor to attract such principals, the distributor provides the

principal with (1) exclusivity, (2) principal’s local strategy implementation, and (3)

complementary marketing services. Such services include most often technical

service on product for customers, market analysis, brand positioning, selecting

target markets and promotion strategy, sales execution, credit risk evaluation and

minimization, and logistics complexity reduction by local warehousing and

distribution. As an example, Imkemex is providing DSM Composite Resins for

services such as organizing local marketing events and participation at trade shows,

customer analysis, technical service, and risk management – in case DSM

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Composite Resins is not able to sell to a customer due to a negative answer from the

CRAC (credit risk assessment center), then the sales would be preformed via

Imkemex as a distributor. Also the credit risk management aspect should not be

underestimated. As commented by Mr. Patil: “Most customers require assistance

for growth and therefore long payment terms. Often, they overestimate their

liquidity and ability to cash their ideas. They experience frequent payment

problems. Moreover, payments are almost always delayed by 30 days no matter

what the original payment term was (open account 30, 40, 60, 90, or 120 days)”

(Interview A-1: Patil, P.R., Imkemex International Marketing Ltd., vice president,

interview held in different sets during March 13-22, 2007; Bangalore/Chennai/New

Delhi, India, duration total of all sets of 3,5h.). The distribution companies represent

usually western values and help their principals in implementing their strategy in all

aspects. According to Mr. Patil: “We act as an agent for DSM so we only advise on

how to design the price with our feedback about the competitive situation. However,

in case we do distribution business, we always try to negotiate a higher price than

the competition – we value value-based selling approach” (Interview A-1: Patil,

P.R., Imkemex International Marketing Ltd., vice president, interview held in

different sets during March 13-22, 2007; Bangalore/Chennai/New Delhi, India,

duration total of all sets of 3,5h.).

The distribution organizations serving organized BOP-CMs do not have

repackaging facilities mainly because of confidence issues towards local traders.

“Customers need to be confident that it is original product and that the product has

original quality” (Interview A-1: Patil, P.R., Imkemex International Marketing

Ltd., Vice president, interview held in different sets during March 13-22, 2007;

Bangalore/Chennai/New Delhi, India, duration total of all sets of 3,5h.).

Exclusivity is granted and required from both parties (supplier and distributor) in

order to create value for both parties, develop deeper relationship between the

companies, and develop the markets together. As an example, the sole principal for

resins for both BASF Finaly and Imkemex is DSM Composite Resins. The markets

of BASF Finlay and Imkemex are geographically separate and the exclusivity from

both sides is granted.

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The products in general are sold with high margins but low quantities. In order to

reach critical mass, the distributor is targeting many markets simultaneously.

Therefore, the distributor has several A-brands in the portfolio and several

principals to manage. To illustrate, Imkemex has Chevron Philips, Rhodia, Univar,

Arizona Chemical, OST, Roquette, and many more as principals to manage, and is

targeting a diverse group of markets such as agrochemicals, pharmaceuticals,

refineries, oil and gas, petrochemicals, plastics, ABS, fibers, rubber chemicals, glass

and ophthalmic industry, electronics, coatings (paints, inks, adhesives), lubes, etc.

Such distribution organizations have specialized themselves on importing western

goods and have therefore acquired extensive knowledge about import and tax

procedures and regulations as well as developed respective networks for facilitating

the regulatory activities. Experience and connections give distributors an advantage

in dealing with the regulatory bureaucracy. Value-based distributors avoid using

bribing tactics in order to comply with the western principals value codexes. This

was also stressed in the case of Imkemex and BASF Finlay.

The distributor has one warehouse and a sales office for servicing the whole of

India from one location. Technical service and sales activities are performed by

market segment dedicated individuals. These individuals travel from the central

location to customers. Each of them has several markets to look after such as paints

and food additives, or epoxy resins, unsaturated polyester resins, polyurethanes,

plasticizers, paints, dyes, etc. Successful distributors all have a techno-commercial

highly educated sales force that is able to provide basic technical service across the

product portfolio they take care of. According to Mr. Patil from Imkemex the

primary KSF of Imkemex business model is the strong techno-commercially

qualified sales force, which is strong and suitable for handling the product

(technical) portfolio. Whereby commercial skills are required especially for

commodity product sales (Interview A-1: Patil, P.R., Imkemex International

Marketing Ltd., vice president, interview held in different sets during March 13-22,

2007; Bangalore/Chennai/New Delhi, India, duration total of all sets of 3,5h.).

The distribution organizations that target organized BOP-CMs among others, have

invested into central air conditioned warehousing and locally stock most of the

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specialty products to reduce the risk of customers shopping around in case of supply

delays. To illustrate a quote from Mr. Patil: “We employ state of the art

warehousing – resulting of course in 5-6 times higher cost than peers on

warehousing. Moreover, we are compliant with laws and safety regulations- we are

a frontrunner on regulatory compliance – and this enables us also to ask premium

pricing on the market” (Interview A-1: Patil, P.R., Imkemex International

Marketing Ltd., vice president, interview held in different sets during March 13-22,

2007; Bangalore/Chennai/New Delhi, India, duration total of all sets of 3,5h.).

However, the stock levels are closely monitored and working capital actively

managed.

A concept of a business model for distribution organizations that are able to target

organized BOP-CMs among others was developed based on the described aspects

of the business model and is illustrated in Exhibit 3-8. Most aspects of the business

model are comparable with a Western chemicals distribution organization such as

reputation and quality of the product portfolio that enable the distributor to attract

the best principals, cash flow and working capital management processes. To

complement the last statement, a quote from Mr. Patil serves well: “One of the key

success factors for reaching the customers in market-segments with low purchasing

power is easy entry through strong brands in our portfolio i.e. good first

impression” (Interview A-1: Patil, P.R., Imkemex International Marketing Ltd.,

vice president, interview held in different sets during March 13-22, 2007;

Bangalore/Chennai/New Delhi, India, duration total of all sets of 3,5h.).

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Exhibit 3-8. Distribution organizations’ business model for targeting organized

BOP-CMs.

One of the major differences of the business model of distribution organization

targeting organized BOP-CMs with Western companies is the techno-commercial

sales force with technical competencies across various industry segments such as

composites know-how combined with paints, dyes, and agrochemicals as is the case

with Mr. Patil from Imkemex. Other factors where the business model differs from

an ordinary West European chemicals distribution business model include the

capability to deal with bureaucracy and import formalities in India, strong

capitalization of the business, and social embeddedness referring to informal

contacts and connections in the industry and a reputation of quality and

trustworthiness.

Converters in various markets

Converters in various markets

……

Process ChemicalsProcess ChemicalsMarketMarketPaints & DyesPaints & Dyes

ResinsResinsResins

Exclusivity withExclusivity withsupplierssuppliers

DistributorDistributor- Techno-commercial- Techno-commercialsales forcesales force--A-brands & specialtyA-brands & specialtyproducts in portfolioproducts in portfolio-- Principal- Principal-management policymanagement policy

ResinsResinsDyes & pigments

ResinsResinsProcess chemicals

Outsourced high-qualityconditioned warehousing and logistics

Value added

growth strategy

GoodsGoods

ResinsResins…

Technical service and training + goods in case agency agreementTechnical service and training + goods in case agency agreement

CompositesComposites

Pipes

Etc.

Tanks

Putties

Automotive

DCBASegments

GoodsGoods

ServicesServices

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3.5 Internal Key Success Factors of BOP-CMs Distributor

This section outlines the factors that are essential for successful marketing of

industrial chemical goods to BOP-CMs in India. Similarly to previous sections, the

iKSFs were defined separately for distribution organizations targeting organized

and unorganized BOP-CMs. The iKSFs are organized based on three categories:

capability to satisfy principal’s needs, capability to satisfy customer needs and

distributors own need for growth and profitability.

3.5.1 Internal Key Success Factors for Targeting Unorganized BOP-CMs

Low margin levels, poor infrastructure and fragmentation of logistical network and

customer base do not allow for conventional marketing tactics in BOP converter

markets. Concluding from the previous discussion on business model aspects that

enable BOP-CM distributor to succeed, the iKSFs for distribution companies

targeting unorganized BOP-CMs are extracted and presented herewith.

In order to satisfy the unorganized BOP-CM customer needs it is necessary for a

distribution organization to excel at delivering on the aspects listed below. The

aspects are listed according to the importance of the customer needs:

1) Need for flexibility achieved by

a) Customer proximity

i) Geographically achieved by wide network of sub distributors and dealers;

ii) Customer relationship wise by having the sales force (both internal and

external) from the same social and cultural background as the customers.

Emphasis on social (rather than legal) contracts. It is necessary to develop

ongoing relationships with local partners with well-established local

networks (to provide local legitimacy and access to needed resources;

b) Small packaging and order size. Here, the distributors have to achieve market

penetration through competition against non-consumption by adapting

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packaging, i.e. efficiencies in order handling and repackaging facilities;

These distributors have an advantage who are able to create a framework for

efficient small scale business (offer small-sized packaging and accustom

small order size);

2) Need for Capital – achieved by offering credit terms and trust through personal

sales. In order to grow the markets and customer base, a distributor needs to

have a strong capital base. BOP customers (include BOP-CMs) expect higher

quality and service and some customization only to the extent that the financing

would also be offered. They perceive fewer real product differences and show

less brand loyalty than small customer segments in Western Europe.

3) Need for low cost achieved by basic, functional, long-lasting and cheap

products. Satisfying principal special needs other than providing sales volume is

not relevant herewith as the distributors strategy is to optimize cost and

availability by non-exclusivity. In order for a distribution organization to

provide sustainable growth and profitability, the distributor needs to be the

lowest cost supplier on the market. Low cost is in general achieved by

(1) outsourced logistics, warehousing, reloading, sales;

(2) non-exclusivity principal management strategy;

(3) logistics and tax optimization by sourcing competencies from external

agents;

(4) small scale, activities and shared use of property – diversification into

other businesses;

(5) sourcing large packaging, larger quantities commodity products and

performing repackaging activities in-house;

4) Need for technical advice achieved by techno-commercial sales force that is

outsourced to a large extent;

5) Need for convenience achieved by one-stop-shop concept;

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Satisfying principal and own needs for volume by scale is achieved by having a

wide sales network of sub distributors and dealers with the sales force having the

same social and cultural background as the customers.

Concluding, the general trends in established markets whereby the participants in

the value chain are focusing more on sophisticated marketing concepts such as

customer relationship marketing, customer lifetime value, customer share, target

marketing, customization, customer database, integrated marketing

communications, every employee a marketer, model based decision making due to

the intensifying competition for brand manufacturers and sellers from domestic and

foreign brands, are not applicable for marketing to unorganized BOP-CMs. The

KSFs are low cost, efficiency, and scale achieved by using outsourcing practices

more widely than it is being done in Western markets.

3.5.2 Internal Key Success Factors for Targeting Organized BOP-CMs

The iKSFs for a distribution organization targeting organized BOP-CMs were

extracted and presented herewith according to needs of principals and customers.

Firstly, in order to satisfy the organized BOP-CM customer needs for a distribution

organization it is necessary to excel at the following aspects:

- Specialty product(s) in portfolio, that visibly give a sustainable competitive

advantage over competing products in terms of cost and added value to the

customers, eventually leading to lower total system cost for the customers;

- Technical support in terms of starting formulations, advice, and remote

problem solving via email or phone. This implies great transparency towards

the principals so that for major technical issues, the principal would directly

be involved;

The latter is best illustrated by a quote from the interview with Esdee Paints: “The

factors to grow together with a supplier include maintaining the price levels over

longer time (no frequent changes), continuous improvement of the products – better

shelf life, so it is possible to store it for longer time, co-development of products or

116

help with formulations development, and lastly offering possibilities for product

testing and advice (local modifications” (Group interview at Esdee Paints Limited,

interview held at company premises in Mumbai on March 29, 2007, duration 1, 0 h.

- Pratik Mehta, development manager, Navketan Sr., Managing Director and owner,

Navketan Jr.).

An additional factor for customers purchasing decisions is often the reputation of

honesty of the distributor. The reasons for this are elaborated by Mr. Gurtaj: “Image

of distributor should be reliable, offering quality products and guarantee. The

customers in the market segments C and D are usually owner driven and the MD

does not have time. Such customers do not usually have people who are honest. In

such cases the owner of such a company can trust Imkemex because they know it is

honest – a way around to problem with employees and time of the MD gives us a

competitive advantage” (Gurtaj Kahlon, Imkemex International Limited, managing

director, interview held on March 24 & 30, 2007, Jodhpur/Mumbai, India, total

duration 4,5 h.).

Secondly, for a distribution organization to attract the best principals, it is necessary

to provide value by

- exclusivity and commitment – distributor’s willingness to drop competing

product lines, commit advertising dollars, keep sufficient inventory, invest in

sales force training, and provide at least average market feedback; In words

of Mr. Gurtaj: “The relationship with the customers and principals is

paramount. We need to have strong relationships on both sides, speak the

same languages, both with principals and the customers - you need to be

able to understand what the supplier wants to be able to translate this to

customers. Additionally, honesty and commitment for long term are very

important – we do not look at what we can make over next month, but we

look at long-term perspective i.e. 5 years. If a distributor is not committed

and providing value it loses principals.” (Gurtaj Kahlon, Imkemex

International Limited, managing director, interview held on March 24 & 30,

2007, Jodhpur/Mumbai, India, total duration 4,5 h.).

- value based selling company culture;

117

- Western business practices – including no bribing principles;

- performing various marketing tasks on behalf of the principals such as

having

o conditioned warehouse and safety stock, to minimize the operational

risks for the customers and have product available locally;

o technical service people or technically able sales force;

o transparency on market and customer information;

o taking care of local activities and bureaucracy (import, approvals,

organization of trade show participations, etc.).

- credit risk taking – by taking the title to the goods, the principal does not

need to engage in extensive and expensive credit evaluation procedures and

still be able to also sell when the principal is itself not able to sell due to

corporate credit restrictions. In general, principals do not have the tools to

manage local credit risk – lack of information and institutions to evaluate

local risk or retrieve bad debt. On the other hand, documentary sales such as

with Letter of Credit would be too expensive and too complicated for many

Indian customers;

- several A-brands in the portfolio - Additional factor in attracting A-brand

principals is having other A-brands in the portfolio.

Thirdly, for a distribution organization to deliver on the needs of both customers

and principals and at the same time also satisfy its own needs for profitability and

growth, the distribution organization needs to excel at the following aspects of its

business model:

- efficient sales organization achieved by creating a techno-commercial sales

force who perform both technical and commercial tasks of sales activities for

several product market combinations and industry segments at the same

time;

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- cost efficiencies achieved by shared resources between the different

businesses such as conditioned warehousing, commercial assistants for order

processing as well as a sales force covering a wide variety of product-market

combinations, accounting and controlling, logistics, etc.;

- diversification into other businesses next to the core business line for

providing critical mass, leveraging resources, and filling the lack of

institutional infrastructure such as market research (e.g. Imkemex), retailing

(BASF Finaly’s network of stores for distributing chemical goods as well

their diversification into the tea business), management education

(distribution training seminars by Imkemex), and many more.

In summary, the iKSFs for an organized BOP-CM distributor are:

1) Specialty product(s) in portfolio achieved by

a) exclusivity and commitment for principals;

b) value based selling company culture;

c) Western business practices – including no bribing principles;

d) performing various marketing tasks on behalf of the principals such as

having

i) conditioned warehouse and safety stock, to minimize the operational risks

for the customers and have product available locally;

ii) technical service people or technically able sales force;

iii) transparency on market and customer information;

iv) taking care of local activities and bureaucracy (import, approvals,

organization of trade show participations, etc.).

e) credit risk taking;

f) several A-brands in the portfolio.

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2) Technical support for customers by having an in-house techno-commercial sales

force and transparency.

In conclusion, the main differences of iKSFs and business model aspects of

distribution organizations that target organized BOP-CMs in India compared to

distribution companies in general in emerging markets (for whom the iKSFs have

been identified with the help of literature and listed in previous chapters) and to

Western distribution organizations such as Euroresins, are techno-commercial sales

force, taking the credit risk for the principals and diversification into various

unrelated or weakly related businesses to provide the required critical mass and

efficiencies in operations.

120

4 Conclusions and Further Research Areas

The current research has revealed that there are general iKSFs for distribution

companies targeting BOP-CMs. General KSFs and business model aspects that are

relevant include efficient direct sales, disruptive innovation in products and

processes, diversification, and relationships and social contracts.

Direct selling is necessary firstly, because of the technicality of the product and

secondly, because of the relative lack of distribution and communication

infrastructure. Efficient direct sales to organized BOP-CMs can be achieved by

developing a techno-commercial sales force on the one hand. However, on the other

hand, independent local distributors, sub-distributors and dealers provide the best

means of serving local small and medium unorganized BOP-CM customers as

opposed to fully owned distribution networks and subsidiaries. It takes local

expertise and language skills to interpret customer reactions, evaluate customers’

credit-worthiness and to access scattered information and analyze data of variable

quality.

An organization’s capability for disruptive innovation in products and processes –

both from the distributor as well as from the principal is necessary for (a) providing

for lower total system costs for the customers down the value chain, (b) enabling

non-consumers to gain access, and (c) turning product switchers to loyal and/or

dependent customers and helping them grow. Examples include the techno-

commercial sales force, and outsourcing activities such as the sales force for

relationship marketing, logistics, warehousing, and reloading.

Diversification of a distributor’s business into various related or unrelated

businesses and product-markets is vital for leveraging resources (brand, human

resources, finance, logistics, etc), minimizing risks and capitalizing on capabilities

and skills to generate critical mass and revenue. Examples include additional

services from areas like market research, marketing, education, production, etc.

The development and maintenance of relationships at both local and governmental

levels serves to provide local legitimacy, and access to needed resources (tax

121

advice, sales force, credit retrieval, etc.). In the Indian cultural context, it is vital to

lay greater emphasis on social (rather than legal) contracts.

Suggestions for MNCs

Engaging in disruptive innovation initiatives from the product perspective is a

prerequisite for targeting the BOP-CMs. Exclusivity should be requested from the

distribution organization if there are comparable products on the market and the

source of competitive advantage is a marketing aspect such as brand value or

reputation. If the source of competitive advantage is an intrinsic characteristic of a

product to provide for lower total system cost, exclusivity would not be necessary.

In this case, the pace of market penetration could be accelerated by working with

local sales partners based on non-exclusivity agreements. However, challenges arise

then about the division of market regions and a danger exists of own product inter-

competition between different distributors. In selecting the sales partners, the

primary decision factors should be the distributors’ sales network and coverage, and

the distributors’ financial capabilities.

Further research areas

Further research areas include the validation of the built theory and results from this

survey with relational constructs linking the iKSFs with market indicators, such as

customer satisfaction, brand and customer equity, etc.

Moreover, it would be interesting to investigate if similar constructs built in the

current survey are also applicable for other emerging markets like Brazil and Russia

as well as other product markets in India.

From a marketing perspective, further intriguing research areas would be the

decision-making processes of BOP-CM purchasers, BOP communities and

community marketing aspects, BOP market end consumers KSFs and many more.

122

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http://en.wikipedia.org/wiki/Composites#Categories_of_fiber_reinforced_composit

e_materials (Accessed: 8. November 2007).

Webb, K.L., Hogan, J.E. (2002), Hybrid Channel Conflict: Causes and effects on

channel performance, The Journal of Business & Industrial Marketing. Santa

Barbara, Vol. 17, Iss. 5, pp. 338-357.

Weber, J.A. (2000), Partnering with Distributors to Stimulate Sales: a Case Study,

The Journal of Business & Industrial Marketing. Santa Barbara, Vol. 15, Iss. 2/3,

pp. 154-162.

Weber, J.A. (2001), Partnering with Resellers in Business Markets, Industrial

Marketing Management. New York, Vol. 30, Iss. 2, pp. 87-89.

Wilkinson, I.F. (1996), Distribution Channel Management: Power Considerations,

International Journal of Physical Distribution & Logistics Management. Bradford:

1996. Vol. 26, Iss., pp. 31-41.

132

Appendixes

Appendix A. List of Explorative Interviewees

1. Abagnale, Mauro, Euroresins, managing director Italy, interview held on

December 12, 2006; Schaffhausen, duration 1h. (No dictaphone recording).

2. Allspach, Thomas, DSM Composite Resins, manager licensing and

participations, interview held on November 28, 2006; Schaffhausen, duration 50

min. (No dictaphone recording).

3. Bodaragama, Janaka, J.B. Decorators (Putty manufacturer), managing director,

interview held on September 7, 2006; Maharagama, Sri Lanka, duration 1h 30

min. (No dictaphone recording).

4. Cornee Leplat, Dominique, DSM Composite Resins, purchasing director

Structural Resins Europe, previously Euroresins strategic manager and

purchasing manager, interview held on August 28, 2006; Schaffhausen, duration

2h. (No dictaphone recording).

5. Disna-Kumara, Kalupahana, BASF Finlay, sales manager, interviews held on

September 4, 2006; Colombo, Sri Lanka, duration 1 h; and October 19, 2006;

Zwolle, The Netherlands, duration 1h. (No dictaphone recording).

6. Jayasundare, Jayantha, BASF-Finaly (Pvt.) Ltd., division manager, interview

held on September 4, 2006; Colombo, Sri Lanka, duration 1h. (No dictaphone

recording).

7. Koning-de, Gertjan, DSM Composite Resins, business unit director Structural

Resins Europe, interview held on September 18, 2006; Schaffhausen, duration

2h. (No dictaphone recording).

8. Olfers, Frank, Euroresins Ltd., managing director, interview held on September

10, 2006; Schaffhausen, duration 2h. (No dictaphone recording).

133

9. Meng, Tay Wee, Causeway Paints Pvt. Ltd., (Putty manufacturer), director,

interview held on September 6, 2006; Panadura, Sri Lanka, duration 1h 30 min.

(No dictaphone recording).

10. Patil, P.R., Imkemex International Marketing Ltd., vice president, interview held

on October 18, 2006; Zwolle, The Netherlands, duration 1h. (No dictaphone

recording).

11. Perera, Amal, BASF-Finlay (Pvt.) Ltd., managing director, interview held on

September 4, 2006; Colombo, Sri Lanka, duration 2h. (No dictaphone

recording).

12. Ranasinghe, Anura, BASF-Finlay (Pvt.) Ltd., product manager, interview held

on September 4, 2006; Colombo, Sri Lanka, duration 1h. (No dictaphone

recording).

13. Samarasuriya, Kirthi, Petrokem Lanka (Pvt) Ltd., (Putty manufacturer),

managing director, interview held on September 6, 2006; Katubedda, Sri Lanka,

duration 1h 30 min. (No dictaphone recording).

134

Appendix B. List of I Round Interviewees

1. Deepak Kumar Sinha, Imkemex International Limited, head of sales and

marketing, interview held on March 23, 2007, interview held in car from Boroda

to Ahmedabad, duration 1,5 h. (No dictaphone recording).

2. Disna-Kumara, Kalupahana, BASF Finaly, sales manager, interview held on

March 13, 2007; Chennai, India, duration 1h. (No dictaphone recording).

3. Group Interview at 3M India Limited, interview held on March 15, 2007,

Bangalore, India, duration 2 h. (No dictaphone recording):

a. Jagadish, I.V., manager sourcing;

b. Narendra, K., manager vendor development;

c. Jindal Subodh, general manager, Automotive Aftermarkets Division.

4. Group interview at Esdee Paints Limited, interview held at company premises in

Mumbai on March 29, 2007, duration 1, 0 h. (Dictaphone A-18):

a. Pratik Mehta, development manager

b. Navketan Sr., managing director and owner

c. Navketan Jr., learning to take over the MD position near term.

5. Gurtaj Kahlon, Imkemex International Limited, managing director, interview

held on March 24 & 30, 2007, Jodphur/Mumbai, India, total duration 4,5 h.

(Partly dictaphone recordings A-19 – A-22).

6. Patil, P.R., Imkemex International Marketing Ltd., vice president, interview held

in different sets during March 13-22, 2007; Bangalore/Chennai/New Delhi,

India, duration total of all sets of 3,5h. (Dictaphone recordings A-1, A-3, A-9).

7. Patel, V.S. Ex-Vice Chancellor, Sardar Patel University, director, SICART,

Sophisticated Instrumentation Centre for Applied Research & Testing, Sardar

Patel Centre for Science & Technology, interview held during flight from

135

Jodhpur to Mumbai on March 26, 2007, India, duration 1h. (No dictaphone

recording).

8. Raghavan, S., Satyen Polymers, technical director, interview held in 2 sets

during March 17 and 22, 2007; Ahmedabad/Mumbai, India, duration total of

both sets of 2,5h. (Dictaphone recordings A-13, A-14).

9. Rajesh Sundara, Suntech Fibre PVT. LTD., managing director and 2nd

generation owner, interview held on March 13, 2007; Bangalore, India, duration

1,0h. (Dictaphone recording A-2).

10. Reaz, M.R., Ramsha Marketing Company – Deals in Fiberglass, Resin & FRP

Materials, managing director and sole owner, interview held on March 19, 2007;

New Delhi, India, duration 1,0h. (Dictaphone recording A-11).

11. Shaith Asif, Satyen Polymers, sales executive, interview held on March 28;

travel from Pune to Mumbai, India, duration 3h. (No dictaphone recording).

12. Shipyard in Goa, owner and various workers, interview held on March 26, 2007;

Goa (Punjab & travel to customers), India, duration 45 min.

13. Shriram Ranade, Link Enterprises, managing director and owner, interview held

on March 28, 2007; Pune, India, duration 2,0 h. (Dictaphone recording A-17).

14. Sujit Doschy, Resins & Chemicals – Dealers in FRP Raw Materials, Chemicals,

Solvents & General Suppliers, managing director, interview held on March 26,

2007; Goa (Punjab & travel to customers), India, duration 4,0h. (Dictaphone

recording A-16).

15. Swarn S. Kahlon, founder of Imkemex International Limited, interview held on

March 24, 2007, Jodphur, India, duration 2,0 h. (No dictaphone recording).

16. Venugopal, K.B., Satyen Polymers, area sales manager south, interview held on

March 13; day-travelling in Bangalore to customers, India, total duration of all

sets 3h. (Partly recorded on dictaphone A-8).

136

17. Vimal Gupta, Vimal Associates – A2Z Chair Parts, managing director and

owner, interview held on March 21, 2007; New Delhi Airport, India, duration

1,5h. (Dictaphone recording A-12).

18. Vora, R., Satyen Polymers, managing director and owner, interviews held in

different sets on March 15 & 16, 2007, Bangalore, India, duration 2,5 h.

(Dictaphone recordings A-3, A-4, A-6, A-7, A-8).

137

Appendix C. List of II Round Interviewees

1. Bailey, John, DSM Composite Resins & Euroresins UK, general manager,

interviews held on June 28 & 29, 2007; Ellesmere Port, UK, duration 2,0h. (No

dictaphone recording).

2. Brittles, Paul, DSM Composite Resins & Euroresins UK, technical service

manager, interviews held on June 29, 2007; Ellesmere Port, UK, duration 1,0h.

(No dictaphone recording).

3. Customer Service center team (8 people), Euroresins UK, sales assistants,

interviews held on June 28, 2007; Ellesmere Port, UK, duration 2,0h. (No

dictaphone recording).

4. Davesh, Mathur, textile trader, interview held on May 14, 2007, Zürich,

Switzerland, duration 0,5 h. (No dictaphone recording).

5. Delaney, Barry, DSM Composite Resins, integration manager of distribution

systems, presentation and interview held on June 13, 2007; Schaffhausen,

duration 0,5h. (No dictaphone recording, presentation in documentation folder).

6. Foster, Mel, DSM Composite Resins, project manager distribution

reorganization, presentation and interview held on June 13, 2007; Schaffhausen,

Switzerland, duration 1,0h. (No dictaphone recording, presentation in

documentation folder).

7. Gurtaj Kahlon, Imkemex International Limited, managing director, interview

held on June 27, 2007, Zwolle, The Netherlands, duration 1,5 h. (No dictaphone

recordings).

8. Hinnen, E., retired consultant on Asian business, interview held on May 30,

2007, Zürich, Switzerland, duration 1,0 h. (No dictaphone recording).

9. Kapoor, Mayank, Alstom, internship, interview held on May 14, 2007, Zürich,

Switzerland, duration 0,5 h. (No dictaphone recording).

138

10. Meerten-van, Eric, DSM Composite Resins, business manger gelcoats,

presentation and interview held on June 27, 2007; Zwolle, The Netherlands,

duration 1,0h. (No dictaphone recording).

11. Ouwendijk, Timo, Euroresins Benelux, general manager, interview held on June

27, 2007; on the way from Zwolle to Schilpol airport, The Netherlands, duration

1,5h. (No dictaphone recording).

12. Perks, Jenny, DSM Composite Resins & Euroresins UK, research & technical

service manager, interview held on June 29, 2007; Ellesmere Port, UK, duration

1,0h. (No dictaphone recording).

13. Putwain, Eddie, Euroresins UK, sales manager, 2 interviews held on June 28 &

29, 2007; Ellesmere Port, UK, duration 1,5h. (No dictaphone recording).

14. Sidal, Phil, Euroresins UK, central purchasing manager, interview held on June

29, 2007; Ellesmere Port, UK, duration 1,0h. (No dictaphone recording).

139

Appendix D. List of III Round Telephone Interviewees

1. Gurtaj Kahlon, Imkemex International Limited, managing director, interview

held on June 27, 2007, Zwolle, The Netherlands, duration 1,5 h. (No dictaphone

recordings).

2. Rajesh Sundara, Suntech Fibre PVT. LTD., managing director and 2nd

generation owner, interview held on June 8, 2007; telephone interview, duration

1,0h. (No dictaphone recording).

3. Reaz, M.R., Ramsha Marketing Company – Deals in Fiberglass, Resin & FRP

Materials, managing director and sole owner, interview held on March 19, 2007;

New Delhi, India, duration 1,0h. (No dictaphone recordings)

4. Shriram Ranade, Link Enterprises, managing director and owner, interview held

on June 10, 2007; telephone interview, duration 1,0 h. (No dictaphone

recording).

5. Sujit Doschy, Resins & Chemicals – Dealers in FRP Raw Materials, Chemicals,

Solvents & General Suppliers, managing director, interview held on June 10,

2007; telephone interview, duration 0,5h. (No dictaphone recording).

6. Vimal Gupta, Vimal Associates – A2Z Chair Parts, managing director and

owner, interview held on March 21, 2007; New Delhi Airport, India, duration

1,5h. (No dictaphone recordings).

140

Appendix E. Interview Questionnaire

Guiding questions for KSFs analysis of distribution organizations.

Interviewee

Name:______________________________________________________________

Company: __________________________________________________________

Date: ______________________________________________________________

1. What are the key factors for business success in your markets? Please name in

order of importance.

2. What are the core competencies of your organization? Evaluate their importance

for business results.

3. What do you need or what are the key success factors for reaching/serving the

customers in market-segments with low purchasing power?

4. How do you select your suppliers? How is the process for Principal-acquisition

set up?

5. What are the 5 most important factors for obtaining/attracting best suppliers

(principals)?

6. What are the most important factors in keeping the suppliers satisfied?

7. What is the basis for cooperation with your suppliers?

8. What performance measurement instruments are in place?

9. Which market segments are your primary target markets?

10. Please describe the customer groups in terms of:

- size (number of customers)

141

- Please describe the customer groups in terms of customer purchasing habits

- Please describe the customer groups in terms of: customer needs for sourcing

- Please describe the customer groups in terms of: customer needs for

payment/ financing

- Please describe the customer groups in terms of: customer needs for

packaging & logistics (Deliveries (pick up at warehouse, door-to-door, own

car park, etc + warehousing)

- Please describe the customer groups in terms of: customer application

methods

11. What Products, Product Systems, and Services do you offer to these customers?

- Technical service (formula advice, and modifications, lab testing or product

and finished parts, engineering service) capabilities & offer?

- After sales service – warranties, and other options and offers?

12. How is the product price designed for various customer groups?

13. How do you promote the products to the various customers/ customer-groups?

What language?

14. Do you also have shared communication/promotion programs with principals to

reach the customers?

15. How is your company set up in order to meet the needs of all your target

customers? Legal form of the enterprise/ownership structure

16. What is the current 1-year, and 5-year strategy of your organization?

17. How do you make the strategy - the process, who is participating, what are the

influencers?

18. Does everybody in the organization know the strategy of the company?

142

19. How is the strategy communicated to the organization?

20. What are key issues in implementing the strategy?

21. How often is the strategy reviewed?

22. How is the financing of the organization organized?

23. How are funds raised for new projects?

24. What kind of image does your company have among the creditors and other

stakeholders?

25. What are the major sources for credibility in fundraising and business

relationship building activities?

26. How is the distribution system/network build up i.e. the structure of the

marketing channel for various customer-market combinations? (sub distributors,

agents, etc.).

27. Who are the marketing partners, and what tasks do they take care of?

28. Is there established cooperation with governmental institutions?

29. How are the relationships maintained with the various external partners and

relevant connections - Governments, marketing channel partners, principals?

30. What are the long-term intentions for the continuation of the relationship with

current partners?

31. Are you exclusive distributor? YES/NO, Why?

32. To what extent do you keep sufficient inventory?

33. To what extent do you invest in sales force training?

34. To what extent do you provide market feedback to your principals?

143

35. What are the basic business principles ((1) integrity; (2) consistency; (3) promise

fulfillment; (4) receptivity; (5) loyalty; (6) fairness; (7) competence; (8)

discretion; (9) openness; (10) availability; (11) … ?

36. To what extent are promises honored?

37. How has your company’s brand name been established on the market?

38. What kind of employees do you try to attract to work for your company?

39. How is the employee succession development organized?

40. What operations have been centralized (marketing, sales, logistics, controlling,

technical support) and what operations are performed individually depending on

product-market combinations?

41. Which Marketing and sales tasks are performed by you and which by the

supplier?

42. How are the various internal processes organized?

- Marketing and sales?

- Purchasing?

- Finance and Control?

- Demand Chain Management?

- Business Management?

Thank you for your time and openness.

144

Appendix F. Company Profiles

F.1. DSM N.V. & DSM Composite Resins AG

DSM N.V. is active worldwide in nutritional and pharma ingredients, performance

materials and industrial chemicals. DSM’s products are used in a wide range of end

markets and applications such as human and animal nutrition and health, cosmetics,

pharmaceuticals, automotive and transport, coatings, housing and electrics &

electronics (E&E). DSM’s strategy, named Vision 2010 – Building on Strengths,

focuses on accelerating profitable and innovative growth of the company’s

specialties portfolio. The group has annual sales of over EUR 8 billion and employs

some 22,000 people worldwide. DSM ranks among the global leaders in many of its

fields. The company is headquartered in the Netherlands, with locations in Europe,

Asia, Africa and the Americas.

DSM Composite Resins AG is a business group that forms a part of performance

materials cluster of DSM N.V. (see Fehler! Verweisquelle konnte nicht gefunden

werden.). The performance materials business groups specialize in technologically

sophisticated, high quality products. Net sales of the cluster amount to 30% of

DSM’s overall net sales. DSM Composite resins net sales amounted to Euro 460 m.

in 2006 and Euro 410 m. in 2005. DSM Composite Resins is a globally leading

solutions provider for the composite resins industry. The business group develops,

produces and markets unsaturated polyester resins (including vinyl esters and

additives), which are used for the production of fiber-reinforced plastics or non-

reinforced filled products in end use applications such as marine, leisure, building

and construction, automotive and wind turbine blades. The business group is the

European market leader in unsaturated polyester resins (UPE) and has its own pan-

European distributor (Euroresins).

145

Exhibit F.1.-1. DSM N.V. business groups and clusters.

DSM Composite Resins forms a part of the Performance materials cluster.

146

F.2. Euroresins AG

Euroresins AG is a growing network of European distribution companies

specializing in the composites and allied industries, and operating in Benelux

(Euroresins Benelux bv), United Kingdom (Euroresins UK Ltd), Italy (Euroresins

Italia srl), Spain (Euroresins España SA), Norway and Sweden (Euroresins

Scandinavia AS) and France Distribution s.a.s.). The group is owned by the Swiss

based DSM Composite Resins, Europe's largest producer of structural UPR resins.

Euroresins is committed to providing the widest range of quality products from

leading principals, backed by a reliable service and after sales support.

Euroresins provides an increasingly significant route to market to its principals

together with being an important pan-European customer to its suppliers. Euroresins

is uniquely positioned to deliver a total package in terms of sales and marketing,

high-level technical support, meeting safety standards and compliance to European

standards with best-in-class logistical services in every country in which they

operate. According to Euroresins website, throughout Europe, Euroresins brand

represents professionalism, product quality, reliable logistics and technical

competence. Euroresins offer its Principals an extensive market penetration and

expertise, supported by an infrastructure that ensures the highest level of customer

service. By performing the sales and marketing, Euroresins frees its principals to

concentrate on the core activities of their businesses. Euroresins is always looking

to attract major principals in its product portfolio.

Euroresins also provide technical support in terms of application know-how, health

and safety awareness, and advice on environmental / legislative compliance to their

customers. Establishing a close understanding and partnership with the customers,

enables Euroresins to offer a tailored package of added-values services.

The principals of Euroresins vary depending on country. As an example the

Euroresins principals in France have been listed in the following table.

147

Principal Materials Supplied

DSM Composite Resins AG Resin supplier

Akzo Nobel Polymer Chemicals Peroxide/Accelerator/Inhibitor/Release

agent

Alcan Airex AG PVC foam

Taishan Fiberglass Inc. CSM/Gun- and direct roving

Lantor B.V. Core mat/Surface veil

Glasscom S.L. Pentacor/Extremcore, Woven Roving,

Combi Reinforcements

DK Holding Limited Diamond tools

Porches Industries Fabrics

Omfa Fabrics s.r.o. Multi-axials

Specialty Porducts Company Release agents

CT Planton Partner Vacuum RTM

Table 8-1. Euroresins principals in France.

148

F.3. BASF-Finlay (Pvt) Ltd.

BASF Finlay (Pvt) Ltd. is a distribution company focusing on chemical industry

products. It is a joint venture between BASF Aktiengesellschaft, Germany and

James Finlay & Co (Colombo) Ltd, Sri Lanka. BASF Aktiengesellschaft is ranked

amongst the largest chemical corporations in the world and is the majority

shareholder of BASF Finlay with 67% equity. James Finlay & co (Colombo) Ltd,

one of the country's leading conglomerates, was established more than one hundred

years ago and is listed on the Colombo Stock Exchange. Since 1996, BASF Finlay

has built itself a leadership position in Sri Lanka's chemical industry. It has become

the market leader in several important segments and is the second largest importer

and wholesale trader of chemicals, plastics, dyes and pigments for the chemical and

textile industries.

The long-term objective of BASF Finlay is to establish a major Regional

Distribution Centre (RDC) for chemicals and plastics in Sri Lanka. The RDC would

channel and distribute products from other Asian production sites of the BASF

Group to the Indian subcontinent and countries bordering the region. At present

more than 12% of the group's business is transacted in the Asia-Pacific region and

investment is expected to exceed USD 4 billion by 2001.

BASF Finlay has invested additional Rs 65 million in production and repacking

facilities for specialized chemicals at its factory in the Lanka Industrial Estate,

Sapugaskanda. With a paid up capital of Rs 15 million, the company employs 54

people at its site. It is also negotiating to construct Sri Lanka's first electrically

operated incinerator for toxic waste.

Contact details:

BASF-Finlay (Private) Limited

Finlay House

186, Vauxhall Street, Colombo 2, Sri Lanka

Tel.: +11 2423388/Fax: +11 2431400

149

F.4. Imkemex Int. Ltd.

Imkemex Int. Ltd. Is a chemicals distributor that was originally promoted in 1965

by ICI India, a subsidiary of ICI Plc UK. After an Management Buy Out in 1993,

Imkemex is now an Independent Group which is able to offer their partners the

ability to work with a company which retains the values of a professionally run

international chemical company, while being flexible enough to constantly adapt to

the rapidly changing Indian market.

Imkemex provides a full range of services to an international chemical company

wanting to work in India.

- Imports Indenting

- Ex-stock local Distribution

- Sourcing from India

- Consultation for Indian Operations

Imkemex has a strong emphasis on safety, health, environment & quality. Imkemex

is a member of leading Chambers of Commerce, and Industry Associations, which

gives Imkemex access to industry & government policy makers. Imkemex helps

overseas companies to get started in India through various stages of business

development. For companies already present in India, Imkemex helps in developing

strategy and plans to expand business in the growing Indian market.

Imkemex works with several world leading global companies. Hence Imkemex has

a wide range of products in its portfolio and it interacts with nearly the entire

industrial spectrum in India. Some of the key industries that Imkemex works with

are-

- Agrochemicals

- Pharmaceuticals

- Refineries / Oil & Gas

150

- Petrochemicals / Plastics / ABS

- Fibers

- Rubber Chemicals

- Glass /Ophthalmic Industry

- Electronics

- Coatings (Paints / Inks / Adhesives)

- Lubes

Contact details:

Imkemex International Ltd.

B-205, Navbharat Estate,

5E/172, Zakaria Bunder Road, Sewri (West)

Mumbai - 400 015, India

Tel.: +91 22 56802242 / 24157984/Fax: +91 22 24157964

E-mail: imkemex@imkemex.com

Website: www.imkemex.com

Contact person: Mr. Gurtaj Kahlon, MD

151

F.5. Satyen Polymers Ltd.

Satyen Polymers Ltd. belongs to the RESADH Group of companies and is a

domestic producer of industrial resins (unsaturated polyester resins) and specialty

products in India. The original plant named Satyen Chemical Industries (SCI)

commenced production in the year 1976. For additional production capacity, a new

plant was commissioned under the name of Satyen Polymers, in March 1998.

Satyen Polymer's (SP) manufacturing plant is located at Silvassa, Union Territory of

Dadra and Nagar Haveli, on the Mumbai-Ahmedabad Highway 175kms from

Mumbai. The plant has an annual capacity of ca. 11 kt of resins.

The products and services offered:

- Product line contains unsaturated polyester resins and vinyl ester resins;

- Quality assurance laboratory and in-house testing facilities;

- Orders accepted by phone / fax / telex;

- Orders shipped within 3 days by transport;

- Orders can be changed up to day of transport / invoicing;

- Mixed shipments of resin / catalyst / solvents etc as per customer's

requirement possible;

- Drums (220kgs net) and carboys (35kgs net) packing.

The company (SCI) has been approved by Indian Register of Shipping (IRS) for

marine grade boat fabrication, M/s INSITUFORM, USA/UK for sewerage pipe

renovation and M/s STRUCTURALS, BELGIUM for use in high pressure

cylindrical GRP tanks for Ion exchange water treatment applications. Our products

have been approved and exported to big group companies in the Middle East and

Far East.

152

Contact details:

Satyen Polymers

307, A-Z [Ind] Soc. Ltd., G.K. Marg, Lower Parel

Mumbai - 400 013, India

Tel.: +9122 66605711 - 14

Fax: +9122 24911262

E-mail: satpoly@resadh.com

Website: http://www.resadh.com/oserv.htm

Contact persons: Mr. Jitendra Vora/ Mr.R.Raghavan

153

Curriculum Vitae

Kadri Vunder Fontana Date of Birth: 25.07.1976

Education

Feb 2005 to

date

University of St. Gallen, Switzerland; Doctoral studies.

Mar 2001 –

Oct 2002

City University of Bellevue, Switzerland; MBA (Major in

marketing).

Oct 1999 –

Oct 2000

Eidgenössische Technische Hochschule (ETH), Switzerland;

Federal scholarship from Swiss government; postgraduate studies

and scientific research in computational chemistry in the

Department of Organic Chemistry.

Jan 1998 –

Oct 1999

Tallinn Technical University, Estonia; M.Sc. in Analytical

Chemistry.

Sep 1994 –

Dec 1998

Tallinn Technical University, Estonia; Diploma Engineer of

Bio- and Food-Technology (Equivalent to M.Sc.).

Professional Experience

Aug 2007 to

date

Hansabank AS, Tallinn, Estonia; Strategic Initiatives Director

Feb 2005 –

Jul 2007

DSM Composite Resins AG, Schaffhausen, Switzerland; PTO

(equivalent to sales & marketing organization) Manager

Emerging Regions.

Nov 2002 –

Jan 2005

DSM Composite Resins AG, Schaffhausen, Switzerland;

Manager Business Intelligence and Marketing Communications.

Dec 1999 –

Oct 2002

OMNIMEDICA AG, Schlieren, Switzerland; Board member,

founder, marketing and project manager.