10/2017 – The joint venture way to business success
by Tan Thiam Hock
During his speech, the headmaster of Caring Pharmacy School was rather emotional as this was their first annual dinner held since the listing of the group in 2013. His management team had just been too busy adjusting to corporate requirements of managing a Bursa-listed corporation. It was a steep learning curve for this group of pharmacist partners.
Like all annual dinners, many kinds of awards were given out to the staff, from long service awards to best performing stores, best department performing employees etc. What stood out among the awards were the best joint-venture awards. About 60% of the 106 Caring Pharmacy stores are in joint ventures with the store pharmacist with CPGB retaining majority control.
Going back to late 1990’s, Caring Pharmacy planned to expand beyond the six stores that were managed by the original five partners but the industry was facing a shortage of pharmacists. It was also difficult to hire a pharmacist who is willing to work 12 hour shifts every day and having to keep the shop open for seven days a week.
To overcome this problem, Caring started this joint venture concept for new stores by offering equity to an individual pharmacist thus converting them to a partner entrepreneur. The pharmacist can leverage on the strength of bulk discount purchasing, organised promotion with appropriate advertising, administrative and accounting support and a strong brand name. In addition, the pharmacist can take personal leave and rely on the group to find temporary replacements as the law requires a qualified pharmacist to dispense medicines.
In return, CPGB has a store manager/ pharmacist who is willing to work long hours, totally trustworthy and managing the business like his/ her own. What is amazing is some of the long serving joint ventre partners have become area managers helping to manage other stores as well. Many other independent pharmacies have tried to group together to imitate the Caring business model but to date none have been as successful.
Key components contributing to the successful Caring business model are both sides must share the same vision and ideals, fair distribution of income and costs, inclusive management practices, fair partnership practices and trustworthiness. There is no short cut. Just consistent practices that helps to mould a lasting relationship amongst equal partners.
Just over lunch, I had suggested this concept to an F&B entrepreneur who is planning to set up a chain of franchised restaurants. While franchising is the way to go for fast food concepts, I thought that for restaurants, a much more personalised approach works better. If you have a capable manager managing your restaurant, why not retain him in your organisation by offering him equity in your new restaurant? Not only will you create another entrepreneur, you will have a life long trustworthy partner looking after a business that requires less of your time. Just make sure you retain majority control so that you can make the final call whether in a sale or if there is a fallout among partners.
Much has been said and discussed about technology disrupting industries and how digital e-commerce will restructure our distribution and retail landscape. This is inevitable and entrepreneurs just have to be much more aware of the type of products that are selling well over e-commerce. There is much concern that it will impact the entire value chain, from manufacturers to importers to distributors and finally to retailers.
The success of an e-commerce model depends on its ability to drive down the final retail price to the consumers. Only by eliminating the importers, distributors and brick and mortar retailers can e-commerce reduce the intermediate margins in the value chain. It is faceless and does not recognise partnerships. SMEs and entrepreneurs that do not jump onto their platforms will be disrupted and see their role in the value chain diminished. Margins will continue to fall or you just flatly cannot compete at all.
It will be good for our distribution and retail industry if one smart aleck can come up with a digital solution, a network or a platform where our importers, distributors, brick and mortar retailers can latch onto, in a partnership sort of arrangement that can face the onslaught of the e-commerce giants.
Giving an example, assuming Alibaba imports the excess manufacturing capacity of apparel from China onto our shores, how can we use digital technology to drive down costs to help our importers of Chinese apparel, their distributors and the retailers compete with Alibaba? The business model of importer-distributor-retailer-customer will have to be drastically reduced to a platform of importer-retailer-customer plus importer-customer (online) with all parties having invested as partners in the new platform or setup. SMEs operating alone will find it difficult to compete and will eventually disappear in the value chain. So will the apparel retail stores.
The restructuring of the distribution retail industry will be painful and merciless. The various levels of players in the affected value chain must seriously consider the option of vertical integration as partners to compete against a faceless behemoth competitor. Or we will tell our grandchildren how Alibaba and the forty thieves stole our lunch and dinner in the blink of an eye.