Trading companies add value by bringing suppliers and buyers together. To build a successful and growing trading company, there is much to be learnt by bench marking with successful ones, and working on some drivers that will enable the company to unleash growth. This paper discusses some of the drivers for improvement.

1. Page 1 of 4
Unleashing growth in trading
companies
R.M Sanjay, Director (Sales and Marketing Practice)
rmsanjay@browneandmohan.com
Abstract: Trading companies add value by
bringing suppliers and buyers together. To build a
successful and growing trading company, there is
much to be learnt by benchmarking with
successful ones, and working on some drivers
that will enable the company to unleash growth.
This paper discusses some of the drivers for
improvement.
Introduction
Trading companies are the most widespread channels for manufactures to reach into far flung
markets. Trading companies are complex organizations that have their own culture, diverse
functions and customer relationships. They can range from small entrepreneurial set ups to
professional companies focusing on a given market, to large global trading companies like the
Japanese sogososhas that are global corporations. Some succeed and others just get by. This article
brings to focus the common challenges among trading companies, and key drivers that differentiate
the good companies from the average ones.
With offices in multiple locations, warehouses, strong logistics capabilities, back offices and a very
strong finance (especially since they survive on wafer thin margins), there is a high premium on
efficiency and response. Managing and owning the relationships with buyers and sellers is a core
function for any trading company.
Sales
Sales and business development teams build relations on the customer front. Every trading firm has
to own these relationships. This is the core asset and competence that will enable revenue growth
and build the supplier base. Many trading companies treat this function casually. They aggregate
sales teams and grow over time. But the reps are initially hired for the contacts and “rolodex” they
bring. Initial success is good, after which the reps solely depend on their existing customers to give
them repeat business. There is no professional sales engine that will systematically acquire a new
customer base. Even among the large firms, most of the reps work as individuals. There is no
organizational backing. Even for large million dollar projects, there is rarely an organization backing
for the rep in terms of the sales strategy and required intelligence to convince the customer. For a
group of companies that are solely dependent on being sales driven, poor sales function structuring
is surprising. Some of the more successful companies though appoint the sales rep as a one point
contact to the customer. All matters regarding product, delivery schedule, status, import clearances,
after sales support are handled by the sales rep. Customers cannot be expected to be calling sales,
despatch clerk, logistics clerk, and CEO of the trading company to have problems addressed.
Servicing customers and making procurement easy for them should be the motto of great trading
firms.

2. Page 2 of 4
Sales have to be aligned to the products, markets and strategy of the firm. Sales objectives need to
be set in terms of targets for brands, product lines, new customer addition, cross selling to existing
customers, market coverage etc. When these targets get aligned with company strategy, all sales
activity and processes will follow suit. Then it is matter of implementing the right processes, metrics
and reviewing for success.
Marketing
Even among firms whose revenues run close to a hundred billion dollars, marketing is almost
rudimentary or non-existent. They have not been found to be regularly reaching out to their
customers to inform them about the wide range of products available through them. Suppliers of
top brands and products can usually provide a lot of thought leadership material. Content therefore
need not be generated from scratch. Informing markets about these products regularly, and
positioning the trading services on top of customer minds is rhythm that needs to be implemented
diligently. Trading companies have also not been found to be regularly doing dip sticks on customer
preferences. Their customer insight, understanding of preferences and trends is usually poor. It is
only after sales collapses, that the product line is shelved and perhaps another added without
sufficient analysis. Hence Sales and Marketing are two areas that trading firms can strengthen and
drive strategically to move to a position of strength.
Supplier Management
The other major strength of a trading company is supplier relationships.In areas like plastics,
chemicals, high end branded products and precision machinery, only a few countries have strong
manufacturing capabilities, and the manufacturers rarely bother to serve all markets. Most
economies however still need these products and it is only through the trading company that such
products can be obtained in the required quantities. If the trading company is not strong with
supplier relationships, customers do not get served. Larger companies have teams in their home
countries who build strong supplier relationships. They are almost like an extension of the suppliers’
sales team. The level of integration and relationship is very high. But mid size and smaller companies
are more transaction oriented, and do not invest in this area. In many mid to large trading
companies, a relationship is struck between the CEO and the supplier and they start to represent the
supplier in the market. However, managing supplier relationship goes far beyond top level
friendship. The trader needs to build a working relation with sales, marketing, operations and
despatch departments of the supplier. This needs a deep integration of systems, constant access to
information and ability to work as a team across two companies. Companies make the mistake of
relegating this function to a logistics or procurement manager, who is mainly concerned with a
particular consignment but not the relationship as a whole. It's only when relationships are mapped
and kept warm that there is effectiveness on the supply side. This is crucial since delivery times,
immediate despatch from stock etc are committed and executed only for preferred buyers. For a
trading firm to retain and build loyal customers this becomes important. Japanese trading
companies typically have very strong relations with suppliers. They invest in suppliers sometimes,
and have dedicated teams managing these relationships. When number of suppliers or brands grow,
implementing this structure is important.

3. Page 3 of 4
Logistics
Logistics, shipping and trading are synonymous. Singapore grew as an efficient trading hub because
of the sophistication of logistics. An effective logistics function involves the ability to analyze and
predict the total supply chain costs from the source of supply to its final point of distribution. Gone
are the days when this was calculated by the venerable shipping clerk. Modern trading companies
have people trained in management accounting and have an ability to calculate costs for various
options and have alternate options to fall back upon. They manage risk and delight the customer.
They are adept at calculating both international and domestic logistics costs by product and delivery
route, accurately calculate all the applicable duties, tariffs, and other customs-related costs while
factoring in any preferential trade agreements. More advanced capabilities would include the ability
to model and estimate inventory levels and total carryingcosts.Stocks need to be maintained close to
the market to make immediate deliveries for breakages, replacements etc. The ability to analyze
past data, calculate a minimum order quantity for stock and be data driven is necessary. However,
most trading companies have junior staff with no experience handling such a critical function. They
are unable to answer even basic questions like - Where is it? When will it arrive? Is the expected
date different from the planned date? They have no visibility. They are not improving sourcing time
and delivery times. No one works on process improvement. They are not constantly finding ways to
improve landed costs. All of these need to be looked into and worked upon. It is continuos
improvement. When employees are trained, and skills to manage the global supply chain are
imbibed, growth will be easy and scalable.
Strategy
On the product front, most trading companies grow organically adding new lines and suppliers
arbitrarily. They do not have a coherent strategy in choosing products and markets based on
predictability, profitability, sustainability and risk. Supplier, brand and product strategy has to be
analysed and planned carefully. How many brands could be carried in the portfolio without creating
confusion? How many product varieties can be carried? When a full range of products need to be
offered to the customer, is there an ability within the organization to integrate the offering from
various suppliers and co-ordinate? Line extensions, brand extensions, multi-brands and new brands
are strategic choices that need to be made. Should relations with suppliers be exclusive or non-
exclusive?
In the area of product or service itself, most offer the core product as they receive it from the
supplier merely acting as agents. But there could be opportunities to provide value added services,
like special prices, soft loans, credit period, service and support, consulting, system integration, etc.,
that will lead to an augmented product and hence immense value addition. Support is another area
that companies can create structures and processes to excel, thus keeping customers delighted, and
thereby helping build and position the brand of the trading company. Once strategic orientation is
set, it should translate into a list of activities that are easily executable by all functions within the
organization.

4. Page 4 of 4
Invest in Technology
Modern IT systems provide real time data, visibility into status of orders, shipments, stocks, sales
etc. An effective CRM system helps manage customers, pipeline and the geographically spread out
sales team effectively. It helps review existing opportunities, and allows insights into sales and
marketing activities. With a good ERP, stocks across warehouses can be instantly viewed, optimum
reorder levels can be set, the minimum order quantities can be calculated and synchronised with
Demand patterns. Profitability of shipments can be calculated accurately. This helps in fixing the
right discount levels, and in customer negotiation. Integrate the systems with suppliers and study
their supply patterns, and get visibility into status of shipments, take corrective action, and keep
customers happy and loyal. Technology products be it a CRM, an ERP or any lightweight cloud based
product, help fast track the trading business, and should be used effectively.
Human Resources
Most trading firms are an aggregation of a diverse set of people with no belongingness to the
organization. The HR functions in small and midsize trading companies are very rudimentary, and
rarely are employees engaged effectively. Since the underlying culture of the trading firm is one that
works on commission, the thinking is that while employees are being paid, nothing should matter.
Human beings are diverse, and there cannot be one incentive plan for all. Most trading firms use a
straight line commission payout curve for sales people, and worse, they cap the commissions. To
encourage overachievement, there is need to relook at commissions, and perhaps ratchet up the
percentages for higher sales targets. An appropriate mix of fixed and variable salary can be designed
based on whether it is a commodity business that is more predictable, or a project business that is
longer term in nature. While commissions can motivate sales reps, there also need to be bonuses
based on firm performance to motivate other staff, so that everyone partakes in the firm’s success
and work as a team. Trading firms are as complex as any other type of organizations, and
investments have to be made to build effective Performance Measurement Systems that align the
performance with the objectives of the company. Training is another important aspect. While
product training is a must for all employees and especially so for sales, there needs to be leadership
training that enables them to learn not just about the products, but also about competition, the
market, suppliers etc. Training should enable them to plan how to be more effective in interacting
customers and suppliers. Right Training coupled with the right incentives, will certainly unleash the
potential in any organization.
It is not too difficult to build a world class trading organization that can be self sustaining, once the
foundation blocks are strong. Most trading organizations are short term oriented. But once they
realize their strengths, and elevate themselves to see the forest, rather than the trees, there is
clarity in direction. Emphasis needs to be on organization development and implementing best
practices, so that the business becomes predictable and sustainable. Unrelenting focus on customers
and suppliers coupled with strong internal capabilities will bring in the much needed performance
advantage and unleash growth.