Tranzum Case Study Distribution and Channel Management

The College of Business

Management

Tranzum’s Telecom
Troubles:
A case study* on the dilemma faced by Tranzum’s Road
Transport division with the distribution of consumer
goods for the major players in the telecom sector.

This case was written by Syed Ali Ahmed and Rizwan Naeem, MBA students of the College of Business
Management, under the direction of their professor Mr. Ekhlaque Ahmed, and was intended to serve as a
basis for discussion rather than as a narrative of either effective or ineffective management on the part of
the Tranzum Group.

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A Step Forward
The Tranzum Enterprise, which is the parent organization of several different business units,
most notably TCS, the leading courier service company in Pakistan, has recently diversified into the
consumer goods distribution business with the induction of their division called TCS Road Transport.
They have structured the move by utilizing their present infrastructure and extensive delivery network so
as to better serve their existing corporate clientele. The company believes that by serving this added
function of distribution and warehousing, they will be able to further cement the relationships they have
built with different companies, as well as being able to tap into an added source of revenue.

Tranzum has built its reputation on three key defining points, trust, reliability, and value for
money. Customers choose Tranzum services over competing ones for these reasons, and that is why the
company feels that it is incumbent upon them to offer their customers a wider service portfolio. By
providing their corporate clients with both warehousing and distribution options for their products,
Tranzum hopes to further expand its area of expertise, and will allow them to take on the mantle of ‘total
logistics solutions provider’.

Recently Mr. Qassim Qayyum, Business Manager for Warehousing and Distribution at Road
Transport, was contacted by two sales executives of Mobilink, the telecommunications giant. These
executives outlined a business proposal for Mr. Qayyum. Mobilink would enlist the services of Road
Transport for the distribution and warehousing of their entire line of prepaid scratch cards as well as
†
sims , under one condition; that they would be served exclusively by TCS who would not carry or
distribute the products of any competing telecom brand such as Telenor or Ufone.

Telenor was Road Transport’s first client and helped them develop their business model from its
initial development stages into fruition. Because of this, Mr. Qayyum held Telenor as one of their key
clients, and conceded that it would not be realistically possible to break off their business arrangement
with them. Also, if TCS goes ahead with the deal, they will in turn end up alienating their existing
corporate customers who will lose their trust in TCS, and this will resultantly tarnish TCS’ solid
reputation.

On the other hand, TCS Express, the courier division of Tranzum, provides Mobilink with mail
management services for the allotment of its billing documents, and this current highly profitable
business arrangement would be jeopardized as a consequence of not going ahead with this deal.
Furthermore, Mobilink is the current market leader with over 50% of the total market share, and by
giving up on this business deal Tranzum may be forsaking not only a vital source of revenue in the long
run, but also the chance to fortify their growth in the distribution sector in the near future, and added
business from potential clients based on the fact that Mobilink is on their roster.

Mr. Qayyum must now decide whether to green light the Mobilink deal or not. The route that
he takes will have to ensure the continued success of the group and cannot in any way jeopardize the
fabric of their business. He knows that whatever decision he makes will have significant consequences
on the future of the Tranzum Group.

†
Sims refer to airtime connections in the form of mobile phone chips.

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The Tranzum Group

Tranzum is a progressive master parent organization that operates in diversified industries
through its company holdings. The companies that comprise the Tranzum Group are TCS Express
(courier and logistics), Intiana (travel and tours), Visatronix (visa facilitation), Sentiments Express (gifts,
greetings, and mail order), Flying Warehouse (custom air freight solutions), and Octara (trainings,
conferences, and events). Of the six business units, TCS as a brand is most identified for its role as an
express and logistics services provider (see exhibits 1-5). Recently, TCS Road Transport has been initiated
to handle the distribution and warehousing requirements for consumer goods companies.

“The Tranzum Group has emerged as a leading business enterprise, with a team of over 4,000
employees and 300 offices worldwide. Today Tranzum continues to grow on its humble beginnings
and enjoys great leverage on its worldwide infrastructure and operating strengths with the experience of
‡
over two decades in the industries it serves.”

The company not only has a strong presence in Pakistan, its country of origin, but also in the
Middle East and North America, having its headquarter located in Toronto, Canada. Tranzum’s services,
which are more commonly identified in Pakistan through the brand TCS, has come a long way since it
started operations over 22 years ago in Pakistan.

Ever since its inception in 1983, TCS in Pakistan has managed to dominate the courier and
logistics service industry through its innovation, pioneering spirit, commitment and passion, qualities
that have allowed it to strategically position itself as the first mover in the industry. Starting with just 25
shipments on its first day of business, the TCS network now reaches five continents. TCS, with its
international look now caters to a wide market with over 2,000 locations in Pakistan alone. TCS Pakistan
has also largely helped redefine the very path of the delivery industry and has set precedents at several
key stages for the entire industry to follow.

TCS Road Transport

TCS has now been providing logistic solutions for a little under a year to a few of its main
corporate clients through TCS Road Transport, which currently operates as a handling agent. It works
on a commission basis from job to job, and its duties do not expand beyond that of delivering a
manufacturer’s product from their waypoints to distributors and wholesalers. Recently, however, they
initiated a project undertaking that saw the development of three more state-of-the-art warehouses
across Pakistan. Adding to their existing warehouse in Karachi, one more will be opened in each of the
major cities, Karachi, Lahore and Islamabad, and through these warehouses, TCS Road Transport will
provide their customers the added service of housing their products at different locations before they are
shipped across the country.

TCS Road Transport’s first customer was Telenor. The telecommunications company charged
TCS with the distribution and later warehousing of their entire line of prepaid scratch cards. Since
Telenor’s target scope was extensive and wanted to have as wide a market coverage and reach as any of
their competitors, they chose TCS to handle their logistics requirements. However, because the
commercial value of scratch cards and sims is exceedingly high, there is a significant risk involved in
warehousing and distributing the products from TCS’ end. Therefore, the warehouses are equipped
with the latest in high-tech security, such as cameras, smoke detectors, and automated locking
mechanisms. These devices help to insure TCS’ responsibility for the stock, as well as to further reassure
their customers. Also, the activities at each warehouse are continuously monitored through the WMS, or

‡
Sourced from www.tranzum.com

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warehouse management software, which is responsible for the managing of inventory including stock-in
and stock-out information. It also allows for online tracking on a real-time basis.

For their services, TCS Road Transport charges customers a 10-15% premium over other
distribution agencies. This is because TCS is an established brand that is highly reputable for on-time
deliveries at the utmost convenience to the customer. Although this premium is not fixed, and can vary
depending on client requirements on a job-to-job basis.

TCS’ advantages over other distribution agencies are not limited to only its brand equity. Their
competitive advantage is a result of three factors; technology, speed, and reliability. All TCS Road
Transport personnel are equipped with handheld GPRS based devices. These devices allow the speed of
deliveries to be optimized, and also help to reduce human error. Furthermore, as discussed above, the
WMS allows for added speed and efficiency in maintaining operations at the warehouse.

TCS Road Transport is currently focused on serving niche segments, mostly their existing clients,
and offering them customized solutions to their logistic requirements. Because of the fact that the
company is currently a handling agent and not a proper distribution agency yet, the services on offer are
limited to the transportation of goods to wholesalers and distributors, and not to retailers. There are
plans to change this scenario within three years. The first phase of implementation was aimed at serving
the telecom industry. The second phase sees them targeting pharmaceutical companies and the final
phase sees them going after the FMCG and CPG sectors.

Road Transport’s current infrastructure revolves around TCS’ existing setup. Depending upon
the needs of the customer, Road Transport will appropriate the required number of vehicles, either small
vans, Suzuki pickups, Shezore or Hilux trucks, or even large Hino container trucks. The type of vehicle
appropriated will depend on the nature of the customer’s product as well as the quantity or volume of
product being delivered.

Courier Industry in Pakistan

TCS is the current market leader in the courier industry, with the domestic courier service market
in Pakistan a little over Rs. 2 billion, and the international market operating out of Pakistan estimated to
be about Rs. 2 billion, which makes the total industry sales Rs. 4 billion, of which TCS has nearly 55% of
the share. Therefore TCS manages annual sales of Rs. 2.2 billion, which signifies its robust position in the
industry. TCS has managed to attain considerable profitability in an industry that is reasonably attractive
to be in.

The major players in the courier industry operating in Pakistan are TCS, DHL, FedEx, OCS, and
the relatively recent introduction of SpeedEx, PIA’s own courier division.

FedEx
Federal Express is the pioneer of the overnight package delivery courier business, and has since
entrenched itself into far reaching corners of the world. By establishing itself as the world leading courier
service provider, FedEx has taken advantage of effective positioning. Customers all over the world
associate FedEx with timely and high quality service, and regard it as the number one courier company
in the industry. This is exactly the power that a pioneer of a new category is able to leverage. IBM had it
with personal computing, Dell had it with customizable and on-demand computers, Heinz had it with
ketchup, and Kleenex had it with pocket tissues. Thus by establishing a new category, the pioneer is at a
significant advantage, and even with little strategic enforcement, with stagnant marketing
communications, the leader can still retain its edge in the minds of consumers.

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DHL
Being a huge international player, DHL’s main area of focus is the European markets. DHL is the
leading courier company in Europe, and also has a large worldwide network. It is a more diversified
company than TCS in that its services number more than 25 to 30. With such diversification, it remains
extremely difficult to maintain focus on core competencies.

OCS
OCS’ main markets are in East Asia, yet as with most of these aspiring courier companies, OCS
also has managed to infiltrate international markets effectively, and is now positioned so as to further
expand its international operations.

SpeedEx
One major advantage to SpeedEx is its ability to leverage its parent company PIA’s extensive
airline fleet for its own use. This strategic cost saving approach has allowed them to charge lower rates
on overnight deliveries than their competitors. Furthermore, since PIA offices operate on a 24-hour basis,
the SpeedEx service is available on a 24-hour basis as well, making it the only guaranteed 24-hour outlet
for customers with rush nightly orders. Although several outlets of other competitors and even TCS’ are
operational on a 24-hour basis, the large majority of them are not. This is the key difference between
PIA’s smaller, more focused SpeedEx, and the other players in this industry.

Pakistan Post
Although, by its own admission TCS does not consider the domestic post office as a direct
competitor, it still represents a major threat in the external environment of the courier industry. The post
office serves as a viable and oft-times preferred option to overnight delivery services.

Distribution Industry in Pakistan

Of the distribution companies operating in Pakistan, IBL, or International Brands Limited, is the
current market leader. It has been functional since before the inception of Pakistan, and since 1947, they
have been enlisted by numerous multinationals and large local companies to distribute their products.
In the eighties the company branched off into two sub-groups, UDL, or United Distributors Limited, and
IBL. The diversified company is now increasingly being identified as the IBL Group (see exhibits 6-8).

Another major player in the distribution industry is Muller and Phipps (see exhibits 9-12). The
company has several key accounts, yet has not yet been able to match the formidable infrastructure of
their key competitor IBL.

The structure of the distribution industry in Pakistan is such that there is relative dominance by
these few key players in the industry. Business is done on a long-term loyalty basis, with companies
enlisting the services of these distributors for years, and often decades.

Threat of new entrants

The threat of new entrants in the distribution industry is relatively low, because to match the
extensive infrastructure setup that the current market leaders have would require extensive investment
and time. This would add to the attractiveness of this industry.

Bargaining power of suppliers

In the case of the distribution industry, their suppliers are their customers; those companies who
provide them with products to be distributed. Therefore, the bargaining power of suppliers would be
medium to low, depending on a case-to-case basis. One customer may wield more power because of its
established brand name, whereas another may not have power because it has increasingly become

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dependant on its distributor to push its product. Therefore this has no great impact on the attractiveness
of the industry.

Bargaining power of buyers

The buyers in this industry happen to be wholesalers and retailers. Therefore, since the power
that these players hold is significantly higher than that of a distribution company, this would subtract
from the attractiveness of this industry.

Threat of substitutes
Substitutes in this industry are different ways in which a company can get its product to end
consumers. This includes the company distributing its product itself, through its own distribution fleet,
similar to Pepsi. Also a company can create retail outlets from where customers come to them to
purchase their products, this would also consequently serve as an alternate substitute to the reliance on
distributors. Yet because these methods are highly costly and do not guarantee success, the threat of
substitutes is very little, thus adding to the attractiveness of the industry.

Rivalry among existing firms

There are a few major players in this industry, yet the competition is not very heavy. This is
because long-standing agreements with manufacturers do not warrant highly competitive practices, nor
cutthroat marketing campaigns, nor price wars. New business is developed through word of mouth and
therefore, the rivalry is minimal, which adds to the overall attractiveness of the industry.

Weighing the industry’s attractiveness through Porter’s five forces helps us identify that the
distribution industry ends up with a plus 2 score, signifying that it is a relatively attractive and profitable
business to be in.

Telecom Industry in Pakistan

The telecom sector in Pakistan has seen a massive boom in recent years. This rise can be
attributed to a general betterment in the economy as well as to major changes in social trends. The
cheapening of prices of mobile phones, coupled with a social lifestyle readjustment for middle class

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citizens and even some of the upper lower class to carry a cell phone, has vastly opened up target
potentials for the players in the telecom industry. From mid-2005 to early 2006, the size of the telecom
industry almost doubled. This boom is representative of the entrance of several major international
players like Telenor and Warid into the industry a few years ago which resulted in increased competition.
Since their appearance, these companies have been steadily working towards undercutting Mobilink’s
leadership.

Mobilink
Mobilink is the runaway market leader, with over 51% of the total market share in Pakistan (see
exhibits 13-17). The company has over 12 million subscribers and is the pioneer, innovator, and first
mover in the industry.

Ufone
Ufone, a local player, has managed to maintain its number two spot even in the face of
tremendous competition from internationally backed players. It has consistently targeted the youth and
its focus has allowed it to dominate this segment of the market.

Warid
With a huge capital expenditure budget, Warid has managed to storm into the Pakistani markets
and steal significant market share in a short period of time. They have amassed the largest infrastructure
in the industry and have positioned themselves so as to challenge Mobilink for the top spot.

Telenor
With a relatively slow start as compared to Warid, Telenor has now refocused its activities, and is
targeting multiple segments with the introduction of its dJuice package. They are gaining market share
at a slower rate than competitors, but with the added advantage of having the backing of a reputable
international telecommunications company that is dominant in many of the markets it serves in Europe,
Telenor is confident that in time they will be able to extend their share of the market.

Paktel
Although Paktel has managed to attain a corporate makeover in recent years, it still struggles to
find the kind of market share it once enjoyed. Even by offering the lowest rates of any provider in the
country, the company remains largely unable in its attempts to amass a stable consumer base.

Instaphone
The only service provider that has experienced a loss in terms of subscribers in the past year is
Instaphone. The company has consistently not been able to maintain competitiveness in the telecom
industry.

Appraising the Situation

Telenor, the European telecommunications giant has been a long time client of TCS, and has
recently entrusted them to carry and distribute their entire stock of both prepaid scratch cards and sims
chips. If Mr. Qayyum green lights the Mobilink deal, he will be putting at risk this delicate relationship
between TCS and Telenor. Also, he would jeopardize TCS’ long-standing reputation as being a
trustworthy service provider, which is one of the main selling points in both the courier and distribution
industries. Other corporate clients will most assuredly discontinue working with TCS if they find out that
the company has dropped Telenor’s account in favor of pressure from their competitor. Due to the
nature of the industry they are operating in, relationships with customers are key, in that they guarantee
future revenues. Especially in the distribution industry, where if TCS hopes to make any inroads, they
will need to focus their efforts on cementing relationships with key clients, similar to IBL and Muller and

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Phipps who have been operating in Pakistan for decades, and have been fortifying their relationships
with customers for decades.

If TCS chooses not to go ahead with the Mobilink deal, however, they will potentially forsake a
substantially large source of future revenue. Not only that, but TCS Express will lose an extremely
important business in the form of handling Mobilink’s mail management services for their billing
documentation. TCS Express contributes the largest share of sales of all their business divisions, over
80% of their total revenues, to the Tranzum Group in Pakistan, and Mobilink is strategically leveraging
this arrangement to their benefit. Furthermore, by having Mobilink on TCS’ roster, the company will
attract many more high profile customers to use their Road Transport services. Yet this strategy will
entail a different scenario. Instead of creating long-term relationships, TCS will have to start depending
on high turnover of clients, each with one-time business deals. This will substantially undermine TCS’
competitiveness in the distribution industry.

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Exhibit 1
Tranzum Group’s Partial Organizational Chart

Chairman

Group CEO

Group COO

Head of Marketing and Sales Head of Logistics and Business Development

• 3 RGM
• 3 RSM
• 3 RM Planning &
Implementation

North

South

Central

Area Business Manager

Station Manager Sales Manager

Territory Manager

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Exhibit 2
Tranzum Group’s Service Portfolio

Sales Growth
Business Division Services Clientele
Contribution* Potential
Courier & Parcel Consumer/Corporat
1. TCS Express 80% 15%
delivery e
Consumer/Corporat
2. Intiana Travel & Tours 2% 13%
e
Consumer/Corporat
3. Visatronix Visa facilitation 1% 8%
e
4. Sentiments Express Gifts & Mail order Consumer 7% 10%
Custom air-freight
5. Flying Warehouse Corporate 5% 6%
solutions
Trainings,
6. Octara Corporate 1% 11%
Seminars & Events
Distribution &
7. TCS Road Transport Corporate 4% 25%
Warehousing
Total 100%
* Based on Estimates

Exhibit 3
Tranzum Divisions’ Sales Contributions

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Exhibit 4
Tranzum Divisions’ Growth Potential

Exhibit 5
Tranzum Group’s Existing Network Infrastructure in Pakistan

No. of vehicles Delivery modes used Express Area Coverage Route Coverage
Centers in Karachi
- Dedicated aircrafts
- Express runners
- Delivery vans
- 300 four wheel
- On-train couriers
vehicles - 12 zones
- On-board - 200 outlets - 2000 locations
- 2000 - 300 routes
couriers/Ground
motorcycles
runners
- Container
movements

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Exhibit 6
IBL’s Key Accounts

DUNKIN’ IMPERIAL MEAD

GILLETTE MARS
DONUTS PAINTS JOHNSON

SARA MASTER
SEARLE CANDEREL KELLOGG’S
LEE FOODS

SHEZAN P&G PTCL MOBILINK WRIGLEY’S

Exhibit 7
IBL’s Channel Coverage

Rural area
Wholesale Supermarket
Retail Market Institutions markets
Markets or chain Store
(RCP)
Consumer General Stores CSD stores Various markets Various markets
Pharmaceuticals Medical Stores Army Welfare Shops
General Stores Hotel & Industry’s
Baker shops welfare stores
Photo stores
Kariana shops
PAN shops
Cosmetic shops
Hardware stores

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Exhibit 8
IBL’s Partial Organizational Chart

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Exhibit 9
Muller and Phipps’ Market Coverage

Towns directly visited by our staff 587

Total outlets covered directly
Retail Chemists 13,147
Retail Chemist cum General Store 3,816
Non Chemist retail outlet 13,925
Total Direct Coverage 30,888

Indirect coverage
Through Wholesalers & Stockists 35,000

Exhibit 10
Muller and Phipps’ Distribution Infrastructure

Central Warehouses-Karachi Warehouse space 40,000 sq ft.

Cool Area 10,500 sq ft.
Cold Storage 2,200 sq ft.

Sales Offices/Satellite warehouses Eighteen locations countrywide

Warehouse Area 171,000 sq ft.
Sales personnel 259
Delivery Personnel 178
Merchandisers 46
Packers/Drivers etc. 534

Delivery Vans & Trucks

Consumer Products Division 43
Pharmaceutical Division 125

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Exhibit 11
Muller and Phipps’ Key Accounts

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Exhibit 12
Muller and Phipps’ Organizational Chart

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Exhibit 13
Telecom Industry Market Share Snapshot

Subscribers*
Service Provider Market Share
(in millions)
1. Mobilink 11.9 51.4%

2. Ufone 5.5 23.7%

3. Warid 2.3 9.9%

4. Telenor 2.1 9.1%

5. Paktel 0.96 4.1%

6. Instaphone 0.41 1.8%

Total 23.17 100%

* As on January 2006

Exhibit 14
Telecom Industry Market Share Pie Chart

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Exhibit 15

Exhibit 16
Breakdown of Province Wise Coverage

Exhibit 17

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