Supplier synergy in the business unit of distributors

Abstract

Business synergies are one of the critical components of corporate strategy. Thus, there are multiple ways that corporations try to benefit from synergies across their businesses, whether it is an operational, financial, or managerial synergy that a corporation intends to gain a competitive advantage over its rivals. However, discussing a corporation in which distributors form business units proposes a unique challenge to create and manage synergies. Due to the complex nature of distributors, the corporation needs to consider many things when evaluating formidable synergies among the distributors. Admittedly, when the corporation’s business synergies target distributors operating in relatively similar industries in multiple sales markets, the focus steers to possible gains on combining the supplier base. Furthermore, the benefits of synergies lie in leveraging the current supplier base of the business unit to allocate the suppliers to more markets through the sales of the local distributors. Nevertheless, the corporation’s synergy barriers need to be assessed before realizing the synergies. The objective of this thesis is to evaluate the possibilities of supplier synergies within a business unit of distributors. To reach this objective, an extensive review of the literature on business units, distributors, and their contracting and synergies of independently operating companies was reviewed. In addition, an empirical study explored the realities of supplier synergies and barriers that withstand the synergies across a business unit. These results were discussed to build a comprehensive understanding of the subject. Based on the analysis of previous literature, this thesis proposes that the most convenient way to establish supplier synergies is to directly shift the supplier to the other distributor or cross-sell the products within a business unit. Furthermore, based on the previous literature, synergies are frequently challenging to create successfully; therefore, synergy barriers can decrease these possibilities. In particular, contractual impediments and knowledge limitations of products are presented as barriers to supplier synergies. Based on empirical study, the contractual barriers diminish the options for supplier synergies, as many of the suppliers have existing distributors in the markets, in which the desired expansion through synergies is due. Additionally, with some product types, lack of knowledge becomes a barrier, as other business unit companies lack the information needed to provide sufficient service for the supplier and customer. However, based on the empirical study, there are possibilities to create growth through supplier synergies. These synergies could be captured by finding the gaps in the supplier's current market or leveraging the business unit's current solid market power to capture more markets from the supplier. Furthermore, the type of distributor in the business unit also influences the possibility and growth potential of the synergy, for example, when a company operating in a niche market could expand its sales across the business units' markets.