Avoid strategic missteps
Manufacturers' acquisitions often create multiple, competing distribution networks
By David Hamud -- Industrial Distribution, 12/1/1999
Historically, acquisition and consolidation behaviors strengthened the size and geographical sphere of influence of the large industrial distributor. However, manufacturers who seek to expand their distribution channels through acquisition and consolidationmake strategic missteps that have long term consequences. The goal of building competitive immunity and market dominance is often unattainable.
When a manufacturer identifies the acquisition target for an expanded distribution network, the consequences can be costly. The difficulty is that the manufacturer being acquired has its own distribution network in place. Often, this distribution network was the major contributor to the corporate identity, product specification and market penetration of the acquisition target.
The parent company seeks further market identity in large end user accounts and OEMs. Other objectives are preferred vendor distinctions, and integration of the acquiring firm's product offering within the newly acquired distribution network.
Unfortunately, the parent company often rewards its new lines to its existing distribution network. The distributorship for the acquired firm is now conscripted into a pricing war resulting from regional competition with the parent company's distribution network.
To further complicate matters, the parent company is more interested in pursuing competing companies than growing the new subsidiary.
Clearly, such behaviors result in multiple distribution, which cultivates resistance, confusion and alienation from the new regime. This confusion adversely affects the accounts that the parent company hoped to target. Orders are awarded to newly appointed distributors by default. The newly recognized distributors are enjoying the fruits of the labor of the original network.
Further confusion occurs when there are both engineered sales and MRO sales organizations. The proficiency level of distributor sales personnel attached to the subsidiary is often overlooked. Sales personnel often control the destination of a purchase order because of their engineered sales orientation. Furthermore, such organizations effectively work with architectural and engineering firms, mechanical contractors and end users. By contrast, MRO sales organizations typically lack comfort and knowledge regarding project-driven business. Instead, the MRO territory sales personnel often focus on aftermarket needs of the end user.
The original distributor organization that supported the acquisition target has no alternative but to insulate its account relationships. Critical account information must be protected. A reluctance to joint call will occur to protect the vested interest of the company. Joint sales calls with factory personnel will virtually halt. Product specification effort will diminish and the possibility of outsourcing and vendor placement will become eminent.
Furthermore, product managers and regional managers attached to the parent company have displaced loyalties. It is not feasible to call on two competing distributor organizations within the same zone and those managers will also likely be unable to make objective evaluations.
Once a distribution network is alienated, competition enters the corridor. Major distributor organizations make every attempt to liberate from the new parent company of their former principal supplier. Also, they must work to protect their account relationships from regional competition.
The project-driven sales effort must be both respected and protected. When this is not respected by the manufacturer who pursues broadened distribution channels, the outcome is often failure.
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