The announced demise of the auto industry in Australia really came as no surprise, Aloca have followed and there will be more, but the question to be explored as business owners and entrepreneurs is just what type of business you are in, or perhaps may wish to be in?
In short there are typically two types of business – ones that we can refer to as ‘dependant’, the others as ‘independent’.
With the closure of car manufacturing we will see a devastating knock-on effect of other industry closures; we refer to these as consequential effects and those industries as dependant industries. These industries by and large only exist as component suppliers to the people that produce the final product that goes to the ultimate purchaser, usually the consumer.
Motor cars are sold direct to users, thus one may suggest that the car makers are independent industries, the parts suppers are of course dependant.
Other examples of independent industries are the likes of Coca-Cola, whose product is sold direct to the user, but the suppliers of their bottles, labels and ingredients such as sugar and flavours are of course dependant. They rely on the fact that the soft drinks giant will continue to source from them, and thus they really are at their mercy. Coca-Cola could choose another local supplier, or use competitive tension to drive prices down, or even decide to source the products they need offshore, all of course to the betterment of their profit – and why not?
Primary produces such as fruit and vegetable providers in theory are independent industries because they are not parts suppliers, their product is directly used by the end user without modification, but there is a catch.
The supermarkets, which are by far the major route to market for such commodities, have now inserted themselves into the value chain to such an extent that to all intents the supermarket –not the consumer – are the real customers. When viewed in this light we see the commodity suppliers have in effect become dependent suppliers at the mercy of their intermediate supermarket customer.
Of course, once the supermarkets have won this dominant role they can now squeeze the margins of their dependant suppliers to almost breaking point.
The major hardware chains have now also managed to squeeze out many of the small independent hardware shops, and as a result have in essence become the only effective route to market for hardware manufacturers or importers. Again these suppliers have become dependent industries at the mercy of the middleman.
This brings us back to the question, what type of industry are you in, and moreover, what measures can you take to break from the clutches of the middlemen that have wrested from you total control of your route to market?
The internet has provided one means of bypassing the retail outlets dominated by so few. Many internet-savvy consumers are saving huge amounts by direct purchases that avoid the mark-ups of 40% and more from retail outlets. (These mark-up are clearly possible, that’s why outlets can afford 50% off sales.)
The internet sales model needs to be reinvented or innovated to allow all manner of items, including perishables and low-value purchases, to be sold via the web.
The mechanism is there, all it needs is some co-operation and collaboration between relevant industries and associations, and perhaps this new paradigm can be realised.
The tools are there, it now just needs to intent.
