Big Customers. Small Suppliers. Can Specialisation Shift the Pricing Power?

By Dr. Rakesh Doshi | Article #1 from my interaction with Mr. Siva Ganapathi, Managing Director of Gokaldas Exports Ltd.

I had the privilege of meeting Mr. Siva Ganapathi, Managing Director of Gokaldas Exports, at The Dhandho Valley event organised by Niveshaay Investment Management Pvt. Ltd. in Surat. During our interaction, I came across an interesting perspective on supplier-customer relationships.

I asked him whether supplying large global brands puts manufacturers at a disadvantage. After all, when the buyer is much bigger than the supplier, doesn't the buyer naturally dictate the terms?

His response was interesting.

A Small Supplier in a Big Customer's Business

He explained that GAP, the iconic American clothing brand and one of Gokaldas Exports' customers, procures merchandise worth approximately $4 billion, while Gokaldas supplies around $100 million.

At the overall level, Gokaldas is a relatively small supplier to GAP.

But instead of trying to supply everything GAP buys, Gokaldas has focused on specific product categories, particularly women's shirts (tops), where it has established a significant presence.

And that changes the equation.

A supplier may be small in the customer's overall business but significant in a specific product category.

The more specialised and difficult to replace the supplier becomes, the greater its potential bargaining power.

This is the power of specialisation.

The Lesson for SMEs

There is an important lesson here for SMEs.

Many businesses try to grow by adding more products, entering more markets and serving more customers. In the process, they spread their resources too thin.

Perhaps a better strategy is to identify a specific area where they can build exceptional capabilities.

Specialisation Alone Is Not Enough

As Mr. Siva further added, specialisation alone does not create bargaining power. You must combine it with superior expertise, consistent quality, reliability and capabilities that competitors cannot easily replicate.

The Question Every Promoter Should Ask

The question every business promoter should ask is not merely:

"How can I become a bigger supplier?"

It should be:

"What can I do to become a supplier my customer cannot easily replace?"

Sometimes, the smartest way to grow is not to supply more. It is to become indispensable in what you already supply.

An interesting business lesson from my interaction with Mr. Siva Ganapathi.