The opinions expressed are personal and are all part of a process of opening up the debate on logistics and supply chain thinking and practice relevant to emerging and developing markets. We thank Arseny for taking the time to talk through the Russian Logistics story.

Rob Bell (RJB): Arseny, you work for a major player in the Logistics arena in Russia and have been reading the Transformational Logistics Blog for a while. Before I ask you about your own views on the Russian Logistics scene can you give us some idea of the area that you work in?

Arseny Yershov (AY): I am the Head of Marketing for the National Customs Broker LLC which is a company offering customs clearance and bonded warehousing services in Moscow region, Saint-Petersburg, Nakhodka and Vladivostok (Russia’s Far East). International and domestic freight forwarding is also offered.

We handle road, air, sea and rail cargoes and almost all kinds of goods – pharmaceuticals, beverages, cars and car parts, chemical products, consumer electronics, industrial equipment, foodstuff, etc. Our customers include retail chains (Auchan, Castorama, OBI), electronics and home appliances manufacturers (Samsung, Sony, Electrolux, Toshiba, JVC), pharmaceutical companies (Nycomed, GlaxoSmithKline, Bristol Myers Squibb, Johnson & Johnson), tyre manufacturers (Yokohama, Goodyear), food & beverage manufacturers (Craft Foods, SUN InBev), industrial equipment manufacturers (Nilfisk Advance, Sealed Air) and others.

We own 4 bonded warehouses in Moscow region, and about 80% of our cargo volume comes by road. The rest 20% are more or less evenly distributed between air, sea and rail – we’ve have offices in all the key airports, ports and key railway stations.

We do not deal with express deliveries, postings, private persons’ cargo and some other items (jewelery, weapons, securities) for which specialized brokers are assigned by law.

RJB: In terms of Logistics requirements how do the needs of different customers vary?

AY: Requirements from different customers vary – pharmaceutical companies’ main concern is for the controlled temperature during storage and transportation; retailers and consumer electronics manufacturers require the fastest clearance without any lading-unlading; importers of luxury items (expensive beverages, for example) and other slow-moving goods, on the contrary, require the possibility of prolonged storage (which isn’t easily available due to the high demand for quality warehouse space). Apart from cargo handling services, large international enterprises (with ERP systems rooted deeply into their corporate management) sometimes require from logistic operators an extended reporting (even at additional cost) which, in turn, demands a certain level of IT infrastructure to be present.

RJB: So, how do you see the Russian  Logistics scene in general?

AY: Russia is developing steadily after a couple of tough years – Russia was hit hard by the fall in the oil price and, manufacturing was slow to pick up. However, investments in Logistics facilities is increasing – not as fast as in 2005-2007, but still new logistic facilities (warehouses, roads, ports, air terminals) and enterprises are emerging.

The government tries to use logistics as a boost for regional development and strengthening of international relations, but there needs to be more consistency in the decision making process where long term investments are concerned. For example, transfer of customs clearance closer to the state frontier was announced as a means to assist in developing remote regions; but in reality this did not work out as intended. Recently declared Customs Union with Byelorussia (Belarus) and Kazakhstan is a great step forward; but this is not helped by political tensions covered in the media.

More importantly, there is a real need to improve the logistics offering. 3PL is a buzzword here, and many companies, involved with transportation, warehousing or customs boast being “3PL providers”. This is new wine in very old bottles. Few Russian companies are offering a fully comprehensive service. This is left to the International logistic operators such as DFDS, Kintetsu World Express, etc.

RJB: Retail has been a major catalyst for Logistics in many Emerging markets. How do you see Retail and Logistics in Russia?

AY: Retail is a major factor in Logistics development in Russia. Again, progress is not uniform. There is a modern and a traditional retail trade and several different approaches depending on scale and product specifics.

There are two basic approaches. Some of them, both with Russian roots and foreign (X5 retail group, Kopeyka, Magnit, IKEA) develop their own logistics – they buy lorries, erect (or buy) distribution centres and the like. Others, mainly international (Auchan, Metro ?ash & ?arry) – use some form of logistic outsourcing, and use services of one (very seldom) or several (more often) logistic providers. The recent recession has boosted the former trend – one’s own logistics, being more controlled, is considered as a means to cut expenses.

For some goods – mainly perishables (say, greenery from greenhouses) – retail chains sometimes use manufacturer’s logistics. In fact, Independent shops usually rely on manufacturer’s logistics. Otherwise, individual companies or sectors rely on their own logistics. For example, the Dairy industry uses its own lorries for delivery; the same with meats, bakeries, breweries and so on.

Imported goods, and the goods that are not produced nearby, are bought from a wholesale depot – but not always delivered by the depot’s transport: many shops use their own small lorries, or even cars, for delivering some goods – that’s where TL could come into play. How can we improve performance of these smaller companies? This is not a focus of modern logistics – they seem to see only the high tech model and no other.

Then, there are the markets. These resemble the other Emerging markets covered on the T L Blog. These markets – although not encouraged by the Government still hold a fair share of trade – especially in food and clothing – and here pickup trucks, cars, hand carts and public transport are widely used. These are the hybrid and asymmetrical supply chains that you have identified elsewhere.

RJB: Russia is a very big country – 11 different time zones. How do you see the Regional differences in terms of Logistics?

AY: Many areas in Russia try to promote themselves as logistic hubs – mostly sea ports (Saint Petersburg, Vyborg, Murmansk, Novorossiysk, Nakhodka, Arkhangelsk, Vladivostok, Temryuk, Vanino – even some Caspian sea ports – Olya, for example), but also frontier parts of Pskov, Smolensk, Bryansk, Kursk and Belgorod regions, located along major road and rail links to Western and Southern Europe. However, the reality is that they all struggle to attract FDI (Foreign Direct Investment) and depend on State and domestic investors.

Foreign investors aren’t in a hurry to invest in long-term projects. That is, major international logistic operators (DHL, TNT, UPS, Schenker, Fiege, FM Logistic, Itella and the like) are present in Russia, they’ve got offices, warehouses and their own truck fleets – but as for really large, infrastructural projects – they’re usually not ready for it yet.

RJB: Why do you think Foreign investors have a problem with investing in Russia?

AY: There are several reasons for this.First, in reality Russian investors have enough money themselves (as the failed purchase of Opel/Vauxhall by Sberbank has demonstrated), so the foreigners may expect to take part only in less lucrative projects. The Energy companies have huge resources and this has an impact.

Second, our political system does have an impact on foreign investors. Our Presidential system concentrates power during an 8 year term of office and, however good a President is, large infrastructure projects, like Port construction, may take 10 to 15 years to complete.Third, respect for ownership rights and property protection hasn’t fully taken root in Russia.

And, the last but not least, the government’s economic policy, although in general goes in the right direction, is locally subject to abrupt changes and unexpected U-turns. These concerns are especially acute with customs logistics – it is very vulnerable to arbitrary treatment by state officials and hence could be taken away rather easily.

It’s worth mentioning, that the largest acquisition on Russian logistic market so far – the purchase of NLC – was accomplished by Itella, which is owned by the Finnish government. So, foreign investments may come in substantial quantity only to business areas, which are vital for foreign governments. They are well known – export of oil, gas, ore, timber and so on. No one in Western Europe or China will be bothered if Russia can’t import food or electronics. But if Russia can’t export oil and gas – it’ll be a blow, not life-threatening, of course, but inconvenient and costly (the prices will soar at once). In fact, Russia could use its growth to develop domestic consumer products and thereby reduce overseas investments in logistics projects. So, the export of raw materials is the area which is secured by foreign governments – and that’s where major FDIs are possible. The priority areas are well known – Saint Petersburg and Novorossiysk with their oil terminals to be extended and “Nord Stream” and “South Stream” gas pipelines to be constructed.

Of course, as a byproduct of this the surrounding logistic infrastructure will most likely be improved; although the experience of Novorossiysk port shows, a high volume of export cargoes rather makes importing more difficult, than simplifies it – customs officials aren’t interested in checking, say, an import container with 100 different items of industrial equipment while they may get the same duties (levies) from export of several tons of oil – which needs much less paperwork.

RJB: What about Moscow and St Petersburg?

AY: Moscow region’s population is about 3 times bigger, than Saint Petersburg’s; Moscow is surrounded by densely populated, industrially and agriculturally developed areas of Central Russia while Saint Petersburg is near the border and its neighbour regions have relatively low population; road network in Moscow region is considerably better developed, than in Saint Petersburg – partly for historical reasons (Moscow is almost 600 years older), partly for natural causes – Saint Petersburg is jammed between the sea and Ladoga lake (the largest in Europe) and is surrounded by marshes. Just an example – the construction of Saint Petersburg’s outer ring road was started only in 2001 and isn’t fully completed by now (2010); it has only 4 lanes; while Moscow’s outer ring road was opened in 1962 and now has 10 lanes. And, of course, Moscow is the capital, which means more wealthy people and, hence, more consumption.

Saint Petersburg is Russia’s largest sea port and, as far as the export of raw materials is concerned, it is rather independent; but the most part of the goods, imported to Russia through Saint Petersburg’ port, still comes from there to Moscow region for further distribution – partly because the major rail and road ways from Saint Petersburg to the other parts of Russia go through Moscow. So, the volume of cargoes, going to (and through) Moscow region is considerably higher – it includes most of Saint-Petersburg’s and also those coming by road and rail through Byelorussia and Ukraine, by sea to other Baltic ports, Black and Azov sea ports, from Arkhangelsk etc. – and so is the logistic market size.

As for the new logistic projects concerned, in Saint-Petersburg they are mainly linked to the sea (Ust’-Luga port and the like) while in Moscow region they are mostly road, and sometimes rail, terminals (Moscow is a river port, too; but the volume of river cargoes is relatively small). It means that development of the new logistic projects in Saint-Petersburg region is more difficult and expensive, than in Moscow region – while a warehouse with road connection may be built virtually anywhere, free shoreline suitable for port construction is limited; construction and maintenance of a port is a much more demanding task, than an ordinary warehouse – especially in Saint-Petersburg, where the sea freezes in winter and one requires icebreaking tugs for year-round operation. At the same time, competition from Finnish, Latvian and Lithuanian ports (and, to some extent, non-freezing Russian Murmansk port) doesn’t allow the margin to be too high.

All this, taken together (less market capacity and greater capital investment, needed to enter the market) leads to bigger market monopolization in Saint-Petersburg region. For example, as for customs brokerage concerned – in Moscow region it is more or less evenly distributed between several dozen companies, the largest of which (National Customs Broker, Declarant-T, DHL) hold no more than 5-6% each; while in Saint-Petersburg almost a half of the market is held by one state-owned brokerage company.

Generally, the further from the central, most populated areas of Russia, the more logistics is focussed on the export of raw materials (oil, coal, timber, grain, etc.)  and less on the import and distribution of consumer goods. So, beyond Moscow and St Petersburg, logistics is all about raw materials and local logistic companies pick up the rest. Only the largest Russian and international companies have much chance of  entering provincial logistic markets, and even they may spend several years to make progress there – a difficult decision when you are looking for quick returns.

RJB: All Emerging markets are experiencing massive investment and huge infrastructure projects. However, without the skilled workers to use the equipment effectively and efficiently, an investment could become become a bottleneck. How do you see skills for Logistics in Russia?

AY: There are training courses and educational centres which teach different logistic skills – from forklift operation to warehouse management; there are even logistic sub departments in some universities. But, as far as I know – and this is not my expertise – most logistic companies rely on one form or another of internal training and don’t send employees to external courses.

On the other hand, in some areas (customs, for example) certain instruction and testing is compulsory and is provided by the state institutions (for a fee). Russia has to raise its standards but we must be careful to make sure that we don’t lose practical experience. Raising standards will do a lot to improve Professionalism in all aspects and this could have a direct impact upon inward investment. There is little point in a foreign investor making a commitment to a Region when there is a shortage of skilled labour. Maybe this could be part of a Regions Business Case.

RJB: In the past few years there has been much talk of the BRIC economies – Brazil, Russia, India and China. These are the places that by 2050 will be some of the biggest economies on earth. How do you see the BRIC concept? Is it helpful or, just a an iodea that is not rooted in reality?

AY: BRIC is a terrific concept but, let’s not get carried away – there are significant differences. These countries have some things in common (mostly large size) but, China, India and Brazil have risen to this level while Russia has fallen there. The Soviet Economy back in the 1980-s was approximately the same as the USA – the living standards were lower, although the differences were exaggerated. And, the Soviet Economy was well ahead of China. Brazil was nowhere near.

Russia is heavily dependent on the Energy sector and this means that economic performance across all sectors is subject to the volatility of global oil prices. Other BRIC countries are not in this position and are making significant moves to diversify their economies. Russia needs to do more in this area. Otherwise, other countries like Indonesia, Pakistan, Vietnam, Turkey or Mexico will catch up – or even overtake Russia.

From a purely Logistics point of view there are other significant differences: for China, India and Brazil the most convenient way to the world’s most lucrative markets – West Europe and North America – is by sea, while for Russia the shortest and the fastest way to EU markets is by land (that’s why the comparison of TEUs in Russian and Brazilian ports on the T L Post isn’t perfect). It’s an advantage for Russia, of course, and that gives a big ground for TL ideas here, because for overland transportation the cheapest means may be used – unlike for the maritime one.

RJB: Finally, we have been talking of a number of Global and Local issues. How do you see the way forward for Logistics in Russia. Specifically, do you see a role for Transformational Logistics to become a catalyst for Logistics and Supply Chain thinking and practice in these Emerging economies?

AY: Transformational Logistics can be very important for Russia. When we spoke about BRICs I pointed out that Russia, unlike the others, depends far more on roads than seaports. And, with the low level of 3PL and other specialist Logistics services in the market, there is much to be done for Russia to reach International standards.

In my opinion, TL – or Logistics relevant to these emerging and developing markets – is an important step to raise standards and performance in Russia. We need to build techniques that apply in Russia and not just in Western Europe or the USA. Having said that, more needs to be done to raise the profile of T L in the marketplace. Many Russian Logistics managers look to the West for best practice – even when the same conditions just don’t apply.

RJB – Summary

Many, many thanks Arseny. This has been a very useful discussion and adds to the earlier Post on Transforming Russian Logistics. Taken together, it is clear that Russia is a market with huge potential and, that Logistics can play a major role in delivery. However, there are significant Regional and Sector based differences and these have a significant impact on Logistics and Supply Chain thinking and practice.

You point out that there is a real need to improve Logistics standards and performance and, that Transformational Logistics could be a useful catalyst for techniques that are inspired by ideas from elsewhere but, practical enough to be or local and immediate relevance. We are working on a number of ideas to raise the profile of T L in Russia so, watch this space.

Interview by: Rob Bell, Transformational Logistics Blog

AHL: Could you tell us a bit more about the background of this project? Why was it initiated?

MV: We have been involved in supporting the government to implement malaria prevention programmes like bednet distribution in Zambia since 2005. However, over the course of our programmes we realised that, although the government was quite successful in preventing malaria, the people who still were infected could not get adequate treatment due to a lack of malaria treatment drugs at the rural health centres. Our analyses showed that those drugs were available at the central level and district level; but somehow they did not arrive at the health centres. Clearly, there was an issue with the supply lines between MSL (the central medical store), the districts, and the centres. We partnered with other major donors like the UK and US governments as well as JSI and Crown Agents as implementers, and with MIT to ensure academic support. Our joint analysis pointed towards placing commodity planners at the district level as the most promising option. When we discussed this with the Zambian government, we were given a strong commitment for for a pilot project to try this out.

AHL: So what exactly did the pilot entail?

MV: The pilot included 24 districts, 8 of which were used as controls (continuing the use of the ‘old’ system), and in 16 districts we implemented either of two models. Those 24 districts represent about a quarter of the whole country, so especially for a pilot project we had very good coverage. Model 1 involved the placement of a commodity planner at each of the districts. Their tasks were to facilitate communication with the health centres about commodity needs and levels and to prepare orders to MSL. Once the orders were filled and had arrived at the district warehouse, they would also be responsible for packing and dispatching the orders to the health centres.

Model 2 was very similar to model 1, but in this model the separate orders for the health centres would already be collated at the central level and would arrive pre-packed at the district level; the commodity planner was only responsible for preparing the order and for forwarding the packed order to the health centres.

AHL: And the results?

MV: They were spectacular, especially in the districts that used model 2. For example, availability of the main drugs for artemisin-based combination therapy (ACT) improved from an average of about 50 per cent to nearly 90 per cent. If we would extrapolate this to the whole country, this alone would prevent more than 16,000 deaths a year. But, of course, the effects have been much wider than just ACT; although the commodity planners concentrated on malaria supplies, availability of other supplies like antibiotics and contraceptives has increased as well.

When I started on this project, I did not know much about the logistics side of public health, but these results have made it very clear to me how important supply chain management really is for the people’s health.

AHL: So what do these results mean for other programmes? And perhaps other countries?

MV: Of course you cannot translate the results one-on-one to other programmes or settings, but what this trial has made clear is that a relatively modest investment in supply lines can deliver spectacular results. In most developed countries, supply chain management takes up more than ten per cent of the cost of the supplies themselves; in Zambia this was less than half that percentage. Whether you should aim for a similar proportions as in developed countries remains an open question, but it seems to be clear that a modest increase could lead to greatly improved health outcomes. However, I must say that we have not yet finalised our cost-effectiveness analyses; although it was fairly easy to to quantify the extra costs involved, it was not so easy to calculate cost savings, e.g. in model 2 the cost of labour that was no longer needed for repacking at the district level. Nevertheless, even if the cost savings turn out to be very modest, we expected that the improved access to medication and the resulting lives saved would make it more than worthwhile.

I think it is important in this sense to think of integrated supply lines. Although this project was initiated as part of the malaria support, the focus was on supporting the supply of all essential drugs.The results for other pharmaceuticals as for example antibiotics or contraceptives was positive as well. I think that shows that we could make even more gain if we could move away from the disease-based silos and work on approaches to strengthen an integrated supply chain

AHL: What happened after the trial ended? Are the commodity planners still active?

MV: Yes, they are; and, in fact, the districts that were not included in the trial as well as the model 1 districts were so impressed with the results that they are now requesting the country-wide implementation, and the Ministry of Health now has committed to a phased roll-out across all districts.

AHL: This project involved a large number of partners: besides the World Bank, people from DFID, USAID, JSI, Crown Agents, MIT, and of course the Zambian national and district governments were involved. Was it difficult to coordinate such a big group of actors?

MV: I think we were lucky in that that Zambian government gave us a clear commitment and took ownership of the pilot. What also helped was that we all had fairly clearly defined and complementary roles with a minimum of overlap. Thirdly, sufficient funding for the whole project duration was safeguarded from the start. And finally, monitoring and evaluation were integrated into the trial from the start, making it possible to present a result that could be accepted by all parties. All this meant that we could work very well together with a minimum of conflicts; it also meant that we could draw upon each other’s strengths to get things done.

I recently spoke to Rasmus Buskov, Managing Director at Penta Business Solutions, a seasoned professional in the Enterprise Resource Planning (ERP) industry in Vietnam.

TN:  What is Penta Business Solutions?

RB:  We are a team of experienced business consultants focused on providing affordable yet sophisticated open source ERP solutions, namely Openbravo, to businesses in Vietnam. One of our focus industries is medium size manufacturers, for example the textile industry.

TN: What are the advantages of open source ERP?

RB:  In short, open source gives you access to the source code and you are free to use, change or distribute the software. With open source you are also not tied to a specific vendor and if you are not satisfied with the service you receive, you can go to a third party. Proprietary software is not that flexible and it does not allow you the same freedom. The open source community also attracts a large group of software developers that are always searching for challenges and looking to overcome technical difficulties. With open source you are part of a much bigger community, because you are not tied to restrictive licensing fees and there are no hidden costs. With proprietary software, normally half the cost of the ERP system is the license fee and the other half is the implementation cost.

TN: What advice would you give to a company when implementing an ERP system?

RB: It is important not to try to do too much. Manage scope creep and focus first on the basics when implementing an ERP system. Extreme customization is likely to land in trouble.  It is also important to have a serious look at your business processes. For example, the basics would include knowing your inventory levels and having a clear understanding of the value and cost associated with them. It is also important to establish clear terms with your vendor and assign detailed responsibility. A successful implementation of an ERP system is normally also based on a good partnership with you service provider.

TN: What advice would you give companies when training staff with regards to ERP?
RB: I would focus on one-on-one training or small groups. From experience I can tell you, putting a large group of people in a training room just does not work.

TN: How has the ERP market changed the last 5 years?

RB: ERP has moved to the forefront and a lot of companies have implemented ERP or are seriously looking at ERP solutions. WTO entry has a lot to do with that, as local companies look to compete with foreign entries.

Aquatabs – the Hybrid Social Distribution Model

Last month I spoke to Michael Gately, Marketing Director of Medentech.  The company is well known for its Aquatabs brand of rapidly dissolving tablets. It is one of the best known and most respected names in point-of-use water purification globally and is used to disinfect billions of litres of water every year.

TN: What is the public private partnership?

MG: It is a collaborative model that involves WHO (World Health Organization), UNICEF (The United Nations Children’s Fund) and at country level it also includes central, local governments and NGOs (Non-Governmental Organizations).

TN: Your Route-to-market strategy revolves around a hybrid model. Can you elaborate on this?

MG: The hybrid model includes three legs:  Emergency preparedness, retail sales supported by above the line advertising and door to door social marketing.  At the retail level we normally work with local importers. However , in a number of countries, NGOs such as PSI (Population Services International) can also fulfill the role of importer and distributor at the retail level.

TN: Can you explain the door to door distribution?

MG: In some countries NGOs are organizing a door to door sales person. This person fulfills the role of a community based distributor and also an outreach worker. They derive their income from the sales of Aquatabs and other products. Door to door distribution is very important as the sales person finds himself right there where the child might be sick today. The sales person also has the opportunity to hand them a behaviour change message and handle any objections they might have. This is very hard to do with above the line advertising.

TN: What is your pricing strategy?

MG: We don’t arrive in a country with a price point and we normally work backwards to make sure everybody in the sales channel earns a livable wage. We also want to make sure that our prices are in line with what people are willing to pay for our products. The margins that people can earn are very attractive and Medentech has a long term commitment to keep their prices affordable.

TN: How do you forecast demand?

MG: Pre-positioning is a big part of what we do and we have stock pre-positioned all over the world. The businesses we are in have enormous search capacity. You don’t know when another Tsunami might happen.  We normally plan five years ahead and are currently constructing a new factory in India. Our capacity is way beyond what any urgent search might require. However, having products available in local shops is the ultimate in crisis preparedness.

TN: Do you provide any training to partners?

MG: We have developed a comprehensive training program for emergency water treatment. It is a day long training program that we provide to all of our distributors. The training program covers key issues such as water treatment options and what to do in an emergency.

TN: What does the future hold for water purification?

MG: The water sector is going to become more and more stressed and the need is growing.  There are 5,000 children a day dying due to diarrhea and we can have a substantial impact. Hybrid social marketing is still a relatively new science and we are learning all the time.  However, there are organizations with expertise in the area, in particular, PSI, AED and Path. The mood among our network is that we just need to get on with it and do it.

I recently spoke to Patsy Day, an intellectual property attorney from Rouse Legal based in Ho Chi Minh City, Vietnam. Rouse is a leading global intellectual property firm, with offices in more than twenty countries. Rouse has been handling IP cases in Vietnam since 1997.

TN: Which sectors are most infringed?

PD: The sectors where we see most infringements are alcohol, clothing and pharmaceuticals. As the Vietnam market becomes more sophisticated, so do the infringements. Infringers have also become more IP savvy and we are seeing a move away from direct copying to “lookalikes”.

TN: What is important for companies entering the country?

PD: Vietnam has made considerable progress over the last couple of years with regards to intellectual property rights. However, there is still a gap between the law and the implementation of the law. This is important, as companies need to have confidence that their IP rights will be protected.  Franchising is essentially an IP driven business and franchisors are concerned that they won’t be able to control their franchisees or stop third parties from imitating their brands.

TN: What advice would you give to franchisors?

PD: Protect your intellectual property.  Register your trademarks, domain name and any copyright. Do your due diligence and pick a partner that understands the importance of IP. Get a strong contract in place with your franchisee. Many international franchisors use their standard agreements which have been developed over the years. This is a good thing as it makes it easier for the in-house legal department to manage. However, it is important to run it by a local lawyer. For example, some standard agreements have very detailed insurance provisions. The insurance market in Vietnam is still developing and the franchisee may not be able to obtain the level of insurance you require. You could be putting an obligation on them that, from a practical point of view, they cannot adhere to.

TN: How can franchisors assist franchisees with regards to IP rights?

PD: Education is very important. Communicate to franchisees the key objectives you would like to achieve with your brand. Franchisees need to have clear guidelines on how to use your brand properly.

TN: How can you track your brand?

PD: Do regular audits and keep an eye on the use of your brand. Ensure that the standards are being maintained. For many companies, their brand is essentially their biggest asset. You want to have control over your brand.

TN: For many companies, parallel imports are also a big issue. What can they do?

PD: It is very difficult to stop parallel imports because it is not illegal. Products are just imported through a different channel. Some brand owners will identify the weak link in their supply chain by tracing back the parallel products and then rely on contractual obligations to control the flow. It is, however, critical that you register your own trademarks.  In the past a more relaxed attitude was to allow the distributor to register your trade marks in their name. However, when the relationship goes bad it is very difficult to recover your trademarks.

TN: The Danone and Wahaha trademark dispute in China was followed by many industry observers. What are the lessons for Vietnam?

PD: Do your due diligence carefully and deal with intellectual property disputes as they arise. Ensure your contracts have carefully drafted IP transfer clauses and that any intellectual property rights that are meant to be assigned, are in fact assigned and any licences registered, as appropriate. It is also important to look at the structure of your business in Vietnam and what role you will play in the company. In some cases a joint venture might not be the right option so companies should explore, for example, licensing agreements.

JvN: Holcim (Vietnam) Ltd. is a leading producer of cement and ready-mix concrete. The company was registered in February 1994 as a join-venture company between Holcim Ltd. and Vietnam Cement Industry Corporation (VICEM), a state owned enterprise of Vietnam. Holcim Vietnam employs around 1,500 people at its five main sites.  Our current focus is in South Vietnam and in particular Ho Chi Minh City and the Mekong Delta.

TN: With the current economic climate and with new capacity coming online, experts have warned of an oversupply in the Vietnam market. How do you think oversupply will affect you?

There is a concern about oversupply. However, globally there is an oversupply and the situation is not unique to Vietnam. Countries like the US used to be net importers of cement but are now net exporters. In Vietnam there is more capacity being built and this will put more pressure on prices.  However, we are very positive about Vietnam’s economic prospects and continued foreign direct investment. The future of infrastructure projects is bright and this will have a positive impact on our business.

TN: Can you tell us more about your distribution strategy?

We currently have direct control over our bulk delivery. We operate a fleet of bulk vehicles that we schedule and control to ensure improved efficiency and improved value for customers. Currently, bulk sales volumes  represent about 35% of our total sales with bagged cement being the balance. The level of bulk sales is often used as an indicator of relative sophistication of a market. In Vietnam this ratio is steadily growing as the market develops. Compared with some other markets we have a lot of scope for growth. In the USA or Europe for example bulk sales represent 95% of volumes in many sub markets. We expect to see a growth in bulk sales and bulk delivery will form a key part of our distribution strategy in the future. For our bag business, customers are collecting directly from our facilities and it is definitely a part of our supply chain that we want to improve on. With better control and scheduling, we can reduce the bottlenecks at our facilities to improve cycle times and so improve customer service.

TN: How important are distributors to your business?

JvN: Distributors form an important part of our supply chain strategy. At the same time we have a need to get closer to our end consumer to better understand how we could add further value and our distributor network is one area we would like to focus on to help deliver improvement. We have several distributor programs and the key is to find distributors that know the market and add value to our business. This can sometimes be challenging. The market in Vietnam is highly fragmented and competitive and exclusive distributors are rare. It is not uncommon in Vietnam for a distributor to sell three different brands of cement.

TN: Can you give us an overview of the technology you are using in your supply chain?

JvN: Holcim uses SAP in all of the more than seventy countries where we operate. We are currently not integrated up to distributor level and it is definitely something we will address in the not too distant future.

TN: Transportation overloading is a big problem in Vietnam. How are you addressing this as a company?

JvN: Overloading is a huge problem in Vietnam and it is something that Holcim take very seriously. We also want to move away from old technology tankers and we see a big potential for aluminum tankers with a bigger capacity.