Case Study On Tcs's Foray Into Distribution Of Mobile Sims

Tranzum Case Study

Distribution and Channel Management

The College of Business Management

Tranzum’s Telecom Troubles: A case study* on the dilemma faced by Tranzum’s Road Transport division with the distribution of consumer goods for the major players in the telecom sector.

This case was written by Syed Ali Ahmed and Rizwan Naeem, MBA students of the College of Business Management, under the direction of their professor Mr. Ekhlaque Ahmed, and was intended to serve as a basis for discussion rather than as a narrative of either effective or ineffective management on the part of the Tranzum Group. Syed Ali Ahmed Rizwan Naeem

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Tranzum Case Study

Distribution and Channel Management

A Step Forward The Tranzum Enterprise, which is the parent organization of several different business units, most notably TCS, the leading courier service company in Pakistan, has recently diversified into the consumer goods distribution business with the induction of their division called TCS Road Transport. They have structured the move by utilizing their present infrastructure and extensive delivery network so as to better serve their existing corporate clientele. The company believes that by serving this added function of distribution and warehousing, they will be able to further cement the relationships they have built with different companies, as well as being able to tap into an added source of revenue. Tranzum has built its reputation on three key defining points, trust, reliability, and value for money. Customers choose Tranzum services over competing ones for these reasons, and that is why the company feels that it is incumbent upon them to offer their customers a wider service portfolio. By providing their corporate clients with both warehousing and distribution options for their products, Tranzum hopes to further expand its area of expertise, and will allow them to take on the mantle of ‘total logistics solutions provider’. Recently Mr. Qassim Qayyum, Business Manager for Warehousing and Distribution at Road Transport, was contacted by two sales executives of Mobilink, the telecommunications giant. These executives outlined a business proposal for Mr. Qayyum. Mobilink would enlist the services of Road Transport for the distribution and warehousing of their entire line of prepaid scratch cards as well as † sims , under one condition; that they would be served exclusively by TCS who would not carry or distribute the products of any competing telecom brand such as Telenor or Ufone. Telenor was Road Transport’s first client and helped them develop their business model from its initial development stages into fruition. Because of this, Mr. Qayyum held Telenor as one of their key clients, and conceded that it would not be realistically possible to break off their business arrangement with them. Also, if TCS goes ahead with the deal, they will in turn end up alienating their existing corporate customers who will lose their trust in TCS, and this will resultantly tarnish TCS’ solid reputation. On the other hand, TCS Express, the courier division of Tranzum, provides Mobilink with mail management services for the allotment of its billing documents, and this current highly profitable business arrangement would be jeopardized as a consequence of not going ahead with this deal. Furthermore, Mobilink is the current market leader with over 50% of the total market share, and by giving up on this business deal Tranzum may be forsaking not only a vital source of revenue in the long run, but also the chance to fortify their growth in the distribution sector in the near future, and added business from potential clients based on the fact that Mobilink is on their roster. Mr. Qayyum must now decide whether to green light the Mobilink deal or not. The route that he takes will have to ensure the continued success of the group and cannot in any way jeopardize the fabric of their business. He knows that whatever decision he makes will have significant consequences on the future of the Tranzum Group.

†

Sims refer to airtime connections in the form of mobile phone chips.

Syed Ali Ahmed Rizwan Naeem

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Tranzum Case Study

Distribution and Channel Management

The Tranzum Group Tranzum is a progressive master parent organization that operates in diversified industries through its company holdings. The companies that comprise the Tranzum Group are TCS Express (courier and logistics), Intiana (travel and tours), Visatronix (visa facilitation), Sentiments Express (gifts, greetings, and mail order), Flying Warehouse (custom air freight solutions), and Octara (trainings, conferences, and events). Of the six business units, TCS as a brand is most identified for its role as an express and logistics services provider (see exhibits 1-5). Recently, TCS Road Transport has been initiated to handle the distribution and warehousing requirements for consumer goods companies. “The Tranzum Group has emerged as a leading business enterprise, with a team of over 4,000 employees and 300 offices worldwide. Today Tranzum continues to grow on its humble beginnings and enjoys great leverage on its worldwide infrastructure and operating strengths with the experience of ‡ over two decades in the industries it serves.” The company not only has a strong presence in Pakistan, its country of origin, but also in the Middle East and North America, having its headquarter located in Toronto, Canada. Tranzum’s services, which are more commonly identified in Pakistan through the brand TCS, has come a long way since it started operations over 22 years ago in Pakistan. Ever since its inception in 1983, TCS in Pakistan has managed to dominate the courier and logistics service industry through its innovation, pioneering spirit, commitment and passion, qualities that have allowed it to strategically position itself as the first mover in the industry. Starting with just 25 shipments on its first day of business, the TCS network now reaches five continents. TCS, with its international look now caters to a wide market with over 2,000 locations in Pakistan alone. TCS Pakistan has also largely helped redefine the very path of the delivery industry and has set precedents at several key stages for the entire industry to follow.

TCS Road Transport TCS has now been providing logistic solutions for a little under a year to a few of its main corporate clients through TCS Road Transport, which currently operates as a handling agent. It works on a commission basis from job to job, and its duties do not expand beyond that of delivering a manufacturer’s product from their waypoints to distributors and wholesalers. Recently, however, they initiated a project undertaking that saw the development of three more state-of-the-art warehouses across Pakistan. Adding to their existing warehouse in Karachi, one more will be opened in each of the major cities, Karachi, Lahore and Islamabad, and through these warehouses, TCS Road Transport will provide their customers the added service of housing their products at different locations before they are shipped across the country. TCS Road Transport’s first customer was Telenor. The telecommunications company charged TCS with the distribution and later warehousing of their entire line of prepaid scratch cards. Since Telenor’s target scope was extensive and wanted to have as wide a market coverage and reach as any of their competitors, they chose TCS to handle their logistics requirements. However, because the commercial value of scratch cards and sims is exceedingly high, there is a significant risk involved in warehousing and distributing the products from TCS’ end. Therefore, the warehouses are equipped with the latest in high-tech security, such as cameras, smoke detectors, and automated locking mechanisms. These devices help to insure TCS’ responsibility for the stock, as well as to further reassure their customers. Also, the activities at each warehouse are continuously monitored through the WMS, or ‡

Sourced from www.tranzum.com

Syed Ali Ahmed Rizwan Naeem

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Tranzum Case Study

Distribution and Channel Management

warehouse management software, which is responsible for the managing of inventory including stock-in and stock-out information. It also allows for online tracking on a real-time basis. For their services, TCS Road Transport charges customers a 10-15% premium over other distribution agencies. This is because TCS is an established brand that is highly reputable for on-time deliveries at the utmost convenience to the customer. Although this premium is not fixed, and can vary depending on client requirements on a job-to-job basis. TCS’ advantages over other distribution agencies are not limited to only its brand equity. Their competitive advantage is a result of three factors; technology, speed, and reliability. All TCS Road Transport personnel are equipped with handheld GPRS based devices. These devices allow the speed of deliveries to be optimized, and also help to reduce human error. Furthermore, as discussed above, the WMS allows for added speed and efficiency in maintaining operations at the warehouse. TCS Road Transport is currently focused on serving niche segments, mostly their existing clients, and offering them customized solutions to their logistic requirements. Because of the fact that the company is currently a handling agent and not a proper distribution agency yet, the services on offer are limited to the transportation of goods to wholesalers and distributors, and not to retailers. There are plans to change this scenario within three years. The first phase of implementation was aimed at serving the telecom industry. The second phase sees them targeting pharmaceutical companies and the final phase sees them going after the FMCG and CPG sectors. Road Transport’s current infrastructure revolves around TCS’ existing setup. Depending upon the needs of the customer, Road Transport will appropriate the required number of vehicles, either small vans, Suzuki pickups, Shezore or Hilux trucks, or even large Hino container trucks. The type of vehicle appropriated will depend on the nature of the customer’s product as well as the quantity or volume of product being delivered.

Courier Industry in Pakistan TCS is the current market leader in the courier industry, with the domestic courier service market in Pakistan a little over Rs. 2 billion, and the international market operating out of Pakistan estimated to be about Rs. 2 billion, which makes the total industry sales Rs. 4 billion, of which TCS has nearly 55% of the share. Therefore TCS manages annual sales of Rs. 2.2 billion, which signifies its robust position in the industry. TCS has managed to attain considerable profitability in an industry that is reasonably attractive to be in. The major players in the courier industry operating in Pakistan are TCS, DHL, FedEx, OCS, and the relatively recent introduction of SpeedEx, PIA’s own courier division. FedEx Federal Express is the pioneer of the overnight package delivery courier business, and has since entrenched itself into far reaching corners of the world. By establishing itself as the world leading courier service provider, FedEx has taken advantage of effective positioning. Customers all over the world associate FedEx with timely and high quality service, and regard it as the number one courier company in the industry. This is exactly the power that a pioneer of a new category is able to leverage. IBM had it with personal computing, Dell had it with customizable and on-demand computers, Heinz had it with ketchup, and Kleenex had it with pocket tissues. Thus by establishing a new category, the pioneer is at a significant advantage, and even with little strategic enforcement, with stagnant marketing communications, the leader can still retain its edge in the minds of consumers.

Syed Ali Ahmed Rizwan Naeem

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Tranzum Case Study

Distribution and Channel Management

DHL Being a huge international player, DHL’s main area of focus is the European markets. DHL is the leading courier company in Europe, and also has a large worldwide network. It is a more diversified company than TCS in that its services number more than 25 to 30. With such diversification, it remains extremely difficult to maintain focus on core competencies. OCS OCS’ main markets are in East Asia, yet as with most of these aspiring courier companies, OCS also has managed to infiltrate international markets effectively, and is now positioned so as to further expand its international operations. SpeedEx One major advantage to SpeedEx is its ability to leverage its parent company PIA’s extensive airline fleet for its own use. This strategic cost saving approach has allowed them to charge lower rates on overnight deliveries than their competitors. Furthermore, since PIA offices operate on a 24-hour basis, the SpeedEx service is available on a 24-hour basis as well, making it the only guaranteed 24-hour outlet for customers with rush nightly orders. Although several outlets of other competitors and even TCS’ are operational on a 24-hour basis, the large majority of them are not. This is the key difference between PIA’s smaller, more focused SpeedEx, and the other players in this industry. Pakistan Post Although, by its own admission TCS does not consider the domestic post office as a direct competitor, it still represents a major threat in the external environment of the courier industry. The post office serves as a viable and oft-times preferred option to overnight delivery services.

Distribution Industry in Pakistan Of the distribution companies operating in Pakistan, IBL, or International Brands Limited, is the current market leader. It has been functional since before the inception of Pakistan, and since 1947, they have been enlisted by numerous multinationals and large local companies to distribute their products. In the eighties the company branched off into two sub-groups, UDL, or United Distributors Limited, and IBL. The diversified company is now increasingly being identified as the IBL Group (see exhibits 6-8). Another major player in the distribution industry is Muller and Phipps (see exhibits 9-12). The company has several key accounts, yet has not yet been able to match the formidable infrastructure of their key competitor IBL. The structure of the distribution industry in Pakistan is such that there is relative dominance by these few key players in the industry. Business is done on a long-term loyalty basis, with companies enlisting the services of these distributors for years, and often decades. Threat of new entrants The threat of new entrants in the distribution industry is relatively low, because to match the extensive infrastructure setup that the current market leaders have would require extensive investment and time. This would add to the attractiveness of this industry. Bargaining power of suppliers In the case of the distribution industry, their suppliers are their customers; those companies who provide them with products to be distributed. Therefore, the bargaining power of suppliers would be medium to low, depending on a case-to-case basis. One customer may wield more power because of its established brand name, whereas another may not have power because it has increasingly become Syed Ali Ahmed Rizwan Naeem

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Distribution and Channel Management

dependant on its distributor to push its product. Therefore this has no great impact on the attractiveness of the industry. Bargaining power of buyers The buyers in this industry happen to be wholesalers and retailers. Therefore, since the power that these players hold is significantly higher than that of a distribution company, this would subtract from the attractiveness of this industry. Threat of substitutes Substitutes in this industry are different ways in which a company can get its product to end consumers. This includes the company distributing its product itself, through its own distribution fleet, similar to Pepsi. Also a company can create retail outlets from where customers come to them to purchase their products, this would also consequently serve as an alternate substitute to the reliance on distributors. Yet because these methods are highly costly and do not guarantee success, the threat of substitutes is very little, thus adding to the attractiveness of the industry. Rivalry among existing firms There are a few major players in this industry, yet the competition is not very heavy. This is because long-standing agreements with manufacturers do not warrant highly competitive practices, nor cutthroat marketing campaigns, nor price wars. New business is developed through word of mouth and therefore, the rivalry is minimal, which adds to the overall attractiveness of the industry.

Weighing the industry’s attractiveness through Porter’s five forces helps us identify that the distribution industry ends up with a plus 2 score, signifying that it is a relatively attractive and profitable business to be in.

Telecom Industry in Pakistan The telecom sector in Pakistan has seen a massive boom in recent years. This rise can be attributed to a general betterment in the economy as well as to major changes in social trends. The cheapening of prices of mobile phones, coupled with a social lifestyle readjustment for middle class Syed Ali Ahmed Rizwan Naeem

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Distribution and Channel Management

citizens and even some of the upper lower class to carry a cell phone, has vastly opened up target potentials for the players in the telecom industry. From mid-2005 to early 2006, the size of the telecom industry almost doubled. This boom is representative of the entrance of several major international players like Telenor and Warid into the industry a few years ago which resulted in increased competition. Since their appearance, these companies have been steadily working towards undercutting Mobilink’s leadership. Mobilink Mobilink is the runaway market leader, with over 51% of the total market share in Pakistan (see exhibits 13-17). The company has over 12 million subscribers and is the pioneer, innovator, and first mover in the industry. Ufone Ufone, a local player, has managed to maintain its number two spot even in the face of tremendous competition from internationally backed players. It has consistently targeted the youth and its focus has allowed it to dominate this segment of the market. Warid With a huge capital expenditure budget, Warid has managed to storm into the Pakistani markets and steal significant market share in a short period of time. They have amassed the largest infrastructure in the industry and have positioned themselves so as to challenge Mobilink for the top spot. Telenor With a relatively slow start as compared to Warid, Telenor has now refocused its activities, and is targeting multiple segments with the introduction of its dJuice package. They are gaining market share at a slower rate than competitors, but with the added advantage of having the backing of a reputable international telecommunications company that is dominant in many of the markets it serves in Europe, Telenor is confident that in time they will be able to extend their share of the market. Paktel Although Paktel has managed to attain a corporate makeover in recent years, it still struggles to find the kind of market share it once enjoyed. Even by offering the lowest rates of any provider in the country, the company remains largely unable in its attempts to amass a stable consumer base. Instaphone The only service provider that has experienced a loss in terms of subscribers in the past year is Instaphone. The company has consistently not been able to maintain competitiveness in the telecom industry.

Appraising the Situation Telenor, the European telecommunications giant has been a long time client of TCS, and has recently entrusted them to carry and distribute their entire stock of both prepaid scratch cards and sims chips. If Mr. Qayyum green lights the Mobilink deal, he will be putting at risk this delicate relationship between TCS and Telenor. Also, he would jeopardize TCS’ long-standing reputation as being a trustworthy service provider, which is one of the main selling points in both the courier and distribution industries. Other corporate clients will most assuredly discontinue working with TCS if they find out that the company has dropped Telenor’s account in favor of pressure from their competitor. Due to the nature of the industry they are operating in, relationships with customers are key, in that they guarantee future revenues. Especially in the distribution industry, where if TCS hopes to make any inroads, they will need to focus their efforts on cementing relationships with key clients, similar to IBL and Muller and Syed Ali Ahmed Rizwan Naeem

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Tranzum Case Study

Distribution and Channel Management

Phipps who have been operating in Pakistan for decades, and have been fortifying their relationships with customers for decades. If TCS chooses not to go ahead with the Mobilink deal, however, they will potentially forsake a substantially large source of future revenue. Not only that, but TCS Express will lose an extremely important business in the form of handling Mobilink’s mail management services for their billing documentation. TCS Express contributes the largest share of sales of all their business divisions, over 80% of their total revenues, to the Tranzum Group in Pakistan, and Mobilink is strategically leveraging this arrangement to their benefit. Furthermore, by having Mobilink on TCS’ roster, the company will attract many more high profile customers to use their Road Transport services. Yet this strategy will entail a different scenario. Instead of creating long-term relationships, TCS will have to start depending on high turnover of clients, each with one-time business deals. This will substantially undermine TCS’ competitiveness in the distribution industry.

Syed Ali Ahmed Rizwan Naeem

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Tranzum Case Study

Distribution and Channel Management

Exhibit 1 Tranzum Group’s Partial Organizational Chart

Chairman

Group CEO

Group COO

Head of Marketing and Sales

• • •

Head of Logistics and Business Development

3 RGM 3 RSM 3 RM Planning & Implementation
North
South
Central Area Business Manager

Station Manager

Sales Manager

Territory Manager

Syed Ali Ahmed Rizwan Naeem

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Tranzum Case Study

Distribution and Channel Management

Exhibit 2 Tranzum Group’s Service Portfolio Business Division

Services

Sales Contribution*

Growth Potential

80%

15%

2%

13%

1%

8%

Consumer

7%

10%

Corporate

5%

6%

Corporate

1%

11%

Corporate

4%

25%

Clientele

1.

TCS Express

Courier & Parcel delivery

2.

Intiana

Travel & Tours

3.

Visatronix

Visa facilitation

4.

Sentiments Express

Gifts & Mail order

5.

Flying Warehouse

6.

Octara

7.

TCS Road Transport

Custom air-freight solutions Trainings, Seminars & Events Distribution & Warehousing

Consumer/Corporat e Consumer/Corporat e Consumer/Corporat e

Total

100% * Based on Estimates

Exhibit 3 Tranzum Divisions’ Sales Contributions

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Tranzum Case Study

Distribution and Channel Management

Exhibit 4 Tranzum Divisions’ Growth Potential

Exhibit 5 Tranzum Group’s Existing Network Infrastructure in Pakistan No. of vehicles

Delivery modes used

- 300 four wheel vehicles - 2000 motorcycles

Dedicated aircrafts Express runners Delivery vans On-train couriers On-board couriers/Ground runners - Container movements

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-

Express Centers

- 200 outlets

Area Coverage

- 2000 locations

Route Coverage in Karachi

- 12 zones - 300 routes

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Tranzum Case Study

Distribution and Channel Management

Exhibit 6 IBL’s Key Accounts

DUNKIN’ DONUTS

GILLETTE

IMPERIAL PAINTS

MEAD JOHNSON

MARS

SARA LEE

SEARLE

CANDEREL

KELLOGG’S

MASTER FOODS

SHEZAN

P&G

PTCL

MOBILINK

WRIGLEY’S

Exhibit 7 IBL’s Channel Coverage Wholesale Markets Consumer Pharmaceuticals

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Retail Market

Institutions

General Stores Medical Stores General Stores Baker shops Photo stores Kariana shops PAN shops Cosmetic shops Hardware stores

CSD stores Army Welfare Shops Hotel & Industry’s welfare stores

Supermarket or chain Store Various markets

Rural area markets (RCP) Various markets

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Tranzum Case Study

Distribution and Channel Management

Exhibit 8 IBL’s Partial Organizational Chart

Syed Ali Ahmed Rizwan Naeem

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Tranzum Case Study

Distribution and Channel Management

Exhibit 9 Muller and Phipps’ Market Coverage

Towns directly visited by our staff Total outlets covered directly Retail Chemists Retail Chemist cum General Store Non Chemist retail outlet Total Direct Coverage

587 13,147 3,816 13,925 30,888

Indirect coverage Through Wholesalers & Stockists

35,000

Exhibit 10 Muller and Phipps’ Distribution Infrastructure

Central Warehouses-Karachi

Warehouse space Cool Area Cold Storage

Sales Offices/Satellite warehouses

Eighteen locations countrywide Warehouse Area Sales personnel Delivery Personnel Merchandisers Packers/Drivers etc.

Delivery Vans & Trucks Consumer Products Division Pharmaceutical Division

Syed Ali Ahmed Rizwan Naeem

40,000 sq ft. 10,500 sq ft. 2,200 sq ft.

171,000 sq ft. 259 178 46 534

43 125

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Tranzum Case Study

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Exhibit 11 Muller and Phipps’ Key Accounts

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Tranzum Case Study

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Exhibit 12 Muller and Phipps’ Organizational Chart

Syed Ali Ahmed Rizwan Naeem

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Distribution and Channel Management

Exhibit 13 Telecom Industry Market Share Snapshot Service Provider

Subscribers* (in millions)

Market Share

1.

Mobilink

11.9

51.4%

2.

Ufone

5.5

23.7%

3.

Warid

2.3

9.9%

4.

Telenor

2.1

9.1%

5.

Paktel

0.96

4.1%

6.

Instaphone

0.41

1.8%

Total

23.17

100%

* As on January 2006

Exhibit 14 Telecom Industry Market Share Pie Chart

Syed Ali Ahmed Rizwan Naeem

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Distribution and Channel Management

Exhibit 15

Exhibit 16 Breakdown of Province Wise Coverage

Exhibit 17

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