Maybe you’ve heard the term vertical integration before. It’s being thrown around a lot, especially in a time when companies are looking for competitive advantages in order to make an impact in global markets like India. With an enormous population and burgeoning middle class, India is shaping up to be the next economic powerhouse. With a market share this big, it only makes sense that companies are looking to get a piece of the action, while also cutting down costs and making their business models efficient and cost-effective. That’s where vertical integration comes into play.
Vertical integration is when a company controls more than one part of the supply chain. There are two facets to this type of integration, forward integration and backward integration.
Forward integration is when a company owns a facet of the supply chain that is “upstream” from them, an example would be an oil drilling company also owning a refinery. Backward integration is when a company owns a part of the business that is “downstream” from them, an example would be a sandwich shop owning a factory that produces bread. When a company owns one or more of these steps in the supply chain that company is considered a vertically integrated one.
When it comes to entering the Indian market it will be essential for companies to vertically integrate to stay competitive and deliver, literally.
The ability to deliver products to customers in a timely fashion is going to be one of the most difficult challenges for e-commerce companies in India to achieve. Due to India’s subpar infrastructure companies are going to have to find creative ways to get products into the hands of their customers in a timely and efficient manner. This is why some companies are looking into drone technology in order to, in the future, own their own reliable means of delivery.
Drone delivery, however, is far off in the future, but there is a way that companies can make it easier for themselves when it comes to navigating India’s tricky terrain right now. Quantified Commerce, a vertically integrated company that builds their own brands and sells directly to the customer via the internet owns its own factories, warehouses, call centers and trucks, the latter of which allows them to keep both the cost and time of delivery down compared to their competition.
We spoke to co-founder of Quantified Commerce, Agam Berry, to see how vertically integrating allows for his company to stay effective in India. “In India, it takes most companies 5-7 days to get their product in customers hands, but because we own our own infrastructure it only takes us two.” The advantage Quantified Commerce has owning the supply chain end-to-end not only leads to happier customers, but also allows for them to hold inventory for a shorter period of time, “we don’t hold our inventory as long as other companies do, which gives us a huge advantage, and since we’re able to sell directly to the customer via the internet we cut the cost of a retailer, and pass those savings on to the customer” said Berry.
Berry also pointed out the benefits his company sees from owning and maintaining their own warehouses and manufacturing, which allows Quantified Commerce to avoid the pitfalls that other companies run into while trying to gain a foothold in India, “other companies don’t realize that price is really key for the Indian consumer, and by owning manufacturing and warehouses we are able to keep our costs down, which allows us to pass that saving to the consumer.”
Those low prices Berry talked about aren’t at the sacrifice of quality or customer experience. “We own our own call centers as well, which allows us to provide superior customer service,” said Berry, “and the fact that we can sell directly to our customers means a better customer experience.” A better customer experience is extremely important, especially in a day and age when the competition is just a click away.
While India is still growing, it is fast becoming one of the bigger markets in the world. The country is complex to navigate, but companies are going to need to figure out how to navigate it if they’re going to thrive in the ever-expanding world of digital e-commerce. While there are many problems facing companies that are looking to make inroads into India, vertical integration is becoming a necessary step to doing it successfully.
( Originally published on Apr 24, 2018 )