Why is it that, despite the harsh laws of capitalism, it isn't always the case that only the best producers of cheap and high quality products survive on the market? Is it true that the future of the industry is in networking? How can transparency help strengthen the aluminium industry? Evgeny Rachkov, Head of Marketing at TATPROF, one of Russia's largest producers of aluminium extrusions, talks about these issues in his article.
WITH VERY LIMITED INFORMATION
It is well-known that general use construction aluminium extrusions are a universal construction material used in the manufacture of a broad range of products, including doors, windows, railings, pipes, connectors, facade elements, and much more.
Today, when customers place an order with you, they expect you to offer them the minimal price possible, while procurement decisions are made on the basis of closed biddings. The problem is, a low price does not always guarantee adequate quality, and quality is directly related to safety and service life. How is the price for standard aluminium extrusions determined on the market today? The practice of concealing information complicates the decision-making process and makes it impossible to talk about fair pricing on both sides. Thousands of people are involved in this process, from sales reps to CEOs. The process of selecting a supplier takes weeks, and in the end the choice is made based on 'limited information' that the buyer found or wanted to find, and which the supplier made available based on whatever current market information they happened to have at hand.
Thus, we're seeing the costs of completing purchase and sales transactions skyrocket, but the result is exactly what the 'hidden hand of the market' would have chosen anyways. The main victim of all this is, of course, the consumer, who gets minimal quality, which keeps getting progressively worse, at a 'competitive' price. This has been the dominant market trend since 2008, when, all of a sudden, supply exceeded demand (though at the time, there were good reasons for this). According to the logic of capitalism, cut-throat competition should result in the survival on the market of the best and the fittest – the best manufacturers of high quality and reasonably priced products. This was not what happened, however.
TRANSPARENCY – THE MAIN TREND OF THE 21ST CENTURY
Is there a way out of this situation? Yes, there is. In one word – transparency: we need the free and fast exchange of information necessary for making the right decisions.
We need to go from closed independent competition to open interaction based on new technologies – this is the main trend of the 21st century. In 2001, the prominent economist and management theorist Peter Drucker formulated the main idea of the network organisation of the economy on the basis of a 'knowledge society'. In his opinion, companies should base their activities on knowledge and information, as opposed to rational organisation. Not only will the organisations themselves change by becoming network companies, but traditional links and relations between them will change as well, bringing about the emergence of company networks. The main feature of the network organisation of the economy in any society is that it creates additional long-term relationships between all the participants of the joint activities. On the other hand, the significance of hierarchical relations gives way to the importance of one's position in the network.
Network organisation of the industry through the pooling of knowledge can create new competitive advantages for the entire industry based on the cooperation of small, flexible self-managed teams (companies). A network-centric organisation offers both a sensible response to the environment and a way of influencing it.
The network principle has already been used for quite some time in many industries. For instance, Yandex.Market or the state industry information system, the largest government controlled system, which is attracting a lot of investment today.
In our industry, we have got the Russian Aluminium Association, whose state functions include development of the industry and promotion of quality finished products in foreign markets. It is unlikely that this can be achieved without effective cooperation between hundreds of companies. Thus, the trend and the goal are clear, there is an organisation; the only thing lacking is an effective cooperation tool. And the positive experience of other industries suggests that a digital platform can serve as such a tool.
So, where do we start to cooperate? To begin with, all market interactions must be transparent and open. This will allow all the participants to objectively assess the market, understand their role in it, and focus on specialisation and cooperation instead of competition. Technically, it is fairly simple: there are lots of examples of both industry-specific online stores and platforms utilising marketplace technology.
THE ALPORT PLATFORM AND THE QUALITY LABEL OF THE ASSOCIATION
Another question is how to make the platform truly representative. Many companies, especially smaller ones, will ask a reasonable question: sounds great in theory, but what are the benefits for me? A digital platform created based on network principles can serve as a venue for sharing information and securing contracts. This means open prices and open delivery dates for aluminium extrusions from all manufacturers in real time, as well as an opportunity to place, pay, and track orders with standard requirements online.
The advantages for the buyer are obvious even now: effective decision-making for all buyers, instant receipt of offers, the ability to contact 100% of manufacturers, a fully transparent purchasing process, reduced costs.
In addition, the quality label of the Russian Aluminium Association and a ranking system ensure that all manufacturers are assessed objectively, thereby allowing to transparently set adequate prices.
Information transparency will strengthen the industry. Due to the synergy of the network organisation, small companies will be able to offer the most suitable extrusions to each of their customers. The platform will also give open access to the global markets for all manufacturers regardless of their size. The Russian Aluminium Association and related state agencies will provide all the necessary legal, informational, and other types of support.
The largest aluminium extrusion producers have already been actively using the AlPort.rf platform since September 2019. Furthermore, with their support, the Russian Aluminium Association is implementing a policy of market transparency. In the near future, the obsolete closed methods of doing business will be gradually replaced, and entrepreneurs will adapt to the new way of thinking based on transparency, where everyone will be able to fully realise their full creative potential.