In our coverage of global supply chain developments these past years, sometimes we have observed a tone of arrogance when it comes to collaboration on the part of firms within either the supply or demand side of supply chain management.
Arrogance, which can be focused in either positive or negative directions, can come from a belief of having an advantage, whether that advantage is overall size, organizational or industry stature, a far more superior product or just plain power negotiating. Arrogance can sometimes stem from having a strong belief that the current state of affairs for a particular business is unacceptable because it is too vested on past practices or not aligned with the negotiator’s beliefs regarding its current state.
In specific area of channel management, new entrants to a market may have the belief that they can disrupt that market with a far different channel strategy. In 2010, Google made a decision to produce and distribute its own Nexus branded smartphone. Google made the decision to circumvent the existing telecom carrier networks of distribution and instead allow customers to order an unlocked smartphone directly from a website. That ended up being a flawed experiment. From the get go, Google experienced multiple issues related to consumer difficulties in purchasing and activating phones. Questions were also raised on the deployment of a worldwide order channel and on consumer’s ability to easily obtain service. Contract manufacturer HTC was further placed in a rather challenging position to be able to support all of these needs from Google and, looking back, really did not gain any favors in doing so. In March of 2012, Supply Chain Matters noted that Google was making plans to offer a variety of co-branded tablet computers directly to consumers via an online store concept similar to sites such as Amazon and Apple. Thus, another experiment in disrupting the channel had little success.
Google’s newest and more viable play at challenging the channel turns out to be its $12.5 billion acquisition of Motorola Mobility in August 2011. With Motorola, the company can exercise a broader strategy of being able to engineer both hardware and software, and consumer mass customization. The newly released Motorola Moto X smartphone manifests these objectives in functionality and the ability of consumers to order the phone customized to color and other design preferences. Google has also influenced Motorola to dramatically slim down its product lineup along with its global distribution channels. Broader thinking, market opportunity and business savvy worked together toward a far more opportunistic approach to solving the perceived challenge to the status quo of channel management.
About a month ago, the Wall Street Journal published an article regarding Apple and its efforts to grow smartphone sales in Russia. Russia represents an enormous emerging market. This article describes that the major telecom carriers across Russia do not subsidize smartphones for customers in exchange for long-term contracts. Russian consumers acquire their smartphones at unbundled prices either through a telecom carrier or other outlets. As readers are probably aware, this is the same channel distribution situation as that in China. It is a situation that allows for a robust “grey market” in acquisition of the coolest smartphones on the global market.
To gain favor with telecom carriers and build brand loyalty, producers such as Nokia and Samsung develop deals with Russian network operators to allow consumers to garner several months of rebates on data service, helping these consumers to defray the initial out-of-pocket expense for purchasing an unsubsidized phone, with the opportunity for obtaining literally free data services for several months.
WSJ describes that Apple insists that Russian telecom carriers sign-up for steep annual minimum purchases in a distribution agreement, volumes that the carriers know up-front cannot be achieved and would cause financial harm to the carrier. The article further notes that in July, Apple CEO Tim Cook played down the carrier situation by indicating that 80 percent of smartphone sales in Russia are sold through retailers outside of carrier owned stores, and boasted that iPhone activations in that country set a record in the most recent quarter.
When Apple released its latest iPhone 5s and iPhone 5c lineup, availability was announced across five countries, which did not include Russia. Russian consumers who wanted the latest and greatest iPhone most likely got them via grey market channels.
Availability in China was predicated on sales through Apple’s China based retail stores, certain retailers, or grey market sources. Contrary to rumors, Apple was not able to land coveted deals with major carriers such as China Telecom.
Supply chain leaders, working collaboratively with sales and marketing, have long discovered that supporting growth in emerging markets comes from an intimate understanding of the existing channels of distribution and figuring out how desired volume growth can be achieved in win-win relationships. If Apple’s goal is to grow volume through penetration of emerging markets, than overcoming a negatively focused sense of arrogance and understanding win-win in the channel can lead to desired success.