'Alibaba in Pakistan validates our e-commerce potential' an interview with CEO, TCS Holdings

M.A. Mannan is the President and CEO of TCS Holdings (Private) Limited with over 25 years of local and international experience. Prior to joining TCS, Mannan served as Executive Director at Silk Bank, as Chief Executive of Dubai Islamic Bank and has held the Deputy CEO position at UBL. He started his career with Citibank with a focus on consumer banking and has since held leadership positions in Pakistan and abroad. Mannan holds an MBA from the Institute of Business Administration (IBA).n an interview with BR Research last year, Mannan talked about the booming courier and logistics industry and TCS's pioneering role in its growth. The company also foresaw a huge potential in the e-commerce sector and ventured into its own brand of online retail. BR Research met with him once again to talk in detail about the e-commerce business and the future of online retail in Pakistan. Here are some excerpts from our discussion.
BR Research: Tell us a little about TCS position in the logistics industry and where it is headed?
M.A.Mannan: Pakistan is moving towards record growth in terms of GDP, and logistics will be a key component in it. TCS has positioned itself as a key player in Pakistan's economic growth so that's where we are today. We are here to provide solutions to our customers, whether they are on the logistics side or consumers, corporates, or international customers.
A lot of people have been saying that an e-commerce revolution will happen but I told you last time we met, that it is already happening. We at TCS saw this coming 4-5 years ago, and we started to prepare for it. Today, we are in a good position to ride that wave.
TCS is providing warehousing and distribution solutions, complete supply chain solutions and last mile delivery. We also provide our customers with customized solutions and do specialist projects. For instance, right now we are setting up a huge project with an international company that wanted to come to Pakistan and distribute medicines and so we are providing them the entire solution including picking it up through our global partnership with UPS from wherever they are in the world to providing temperature control warehousing and then distributing them. We have also done some turnkey projects for Chinese firms.
BRR: In which segments of the economy are you seeing the most growth?
Mannan: We operate with almost every sector that wants to work on the logistics side. Whether it is banks, pharmaceutical companies, and telecommunication or e-commerce companies - we are their partners. Obviously, we get to see a part or share of their business. In our view, almost every sector is growing in Pakistan as we speak. This could be a combination of how we are growing with them, and how they are growing as well. As for our own growth, we are a 35-year-old mature company formed by our Chairman Khalid Awan, who has been instrumental in making the giant that it is today. We have grown north of 15 percent over the last 3-4 years with a big revenue base.
BRR: Do you have an estimate of your market share in the logistics sector; both on the courier business side and the value-chain solution side?
Mannan: It would be very easy for me to say a number but you know, the problem is that, in Pakistan, there has never been a survey of the industry that would put a number out for the size of the industry, but therefore being conservative, I would say this to you, that we have gained market share in the last few years.
You have to understand that the courier and the logistics businesses work hand and hand. Most of the logistics solutions that the market is looking for are end-to-end. Without the last mile, you cannot have a logistic business. And that is the most difficult part in the logistics industry, and that is where our core strength is. Take an example of a company that wants to store goods and sell it to the consumer. Storing goods can be done by anyone - you can buy a good warehouse, get two or three people on the team, put in the technology and it's done. But the real challenge is when you have to deliver to a 200 million population across Pakistan with last mile delivery solutions - not easy to do. For us, our biggest strength is the last mile and we do it really well.
BRR: Do other logistics solution providers have last mile capacity, or do they outsource their jobs to a select few?
Mannan: There are a few that have last mile capacity, but there are none that would come close to our last mile service area. Let me give you an example. There are many courier companies who claim they can deliver in Karachi, but the moment they have to deliver in Swat, it cannot be done. Take the example of the e-commerce sector, you have your Karachi, Lahore, Islamabad delivery companies which are many but very few can deliver across Pakistan in far flung areas.
My own estimate is that around 40-45 percent of the e-commerce sales are now happening in the rural areas. If that's the case, you need a last mile solution which can deliver at that geographic distribution level. Nobody matches us when it comes to going across Pakistan. We have over a thousand TCS outlets out there.
BRR: E-commerce is picking up; and the current industry is just the tip of the iceberg in terms of volume. With Alibaba's arrival, and so many different e-commerce businesses entering the market, the potential to provide them with logistics and last mile delivery solutions would be huge. Didn't you think you would lose that huge business if you ventured into your own e-commerce business?
Mannan: Being a home grown Pakistani company, we understood early on where the opportunities were, and where we could add value. We saw there will be a boom in the e-commerce business and we always predicted that Alibaba will enter the market. In fact, we started saying this when nobody was talking about it. We could see the 200 million populations, right next to India and China and sooner or later they were going to come. That is why over the last four years, we have been investing in our e-commerce solutions space.
I'm proud to say we are already working with Alibaba as one of their logistics partners in the country. What we bring to the table as a solution for companies like Alibaba is one of the best in Pakistan.
As for why we launched our own e-commerce platform, we saw that in Pakistan, there were virtually no supply chain solutions available for customers in the rural or far flung areas of the country. We were already shipping consumer products for corporates from Karachi to Lahore, onto Faisalabad and from there to Sialkot; and then these corporates could not sell to the population as such; we saw a gap which we could fill. We believe, we were at the right place at the right time.
It is for that reason that we launched a separate company called TCS E-COM Pvt Ltd, through which we launched Yayvo.com. It is now the second largest e-commerce company of Pakistan in a very short span of time. We will cross a billion rupees in sales this year just on Yayvo.com and our vision is to continue to grow that. We have a strict Chinese wall between our logistics business and Yayvo.
BRR: Tell us your e-commerce business model.
Mannan: Our model is very different from some other popular e-commerce ventures. We have the capacity to pick up something and deliver it. From a technology base, we have now brought most of our vendors to our technology platform where they can show us what inventory they have. Once we know a vendor already has this inventory waiting, we then put it onto our website. The moment we get an order on the website, we are able to pick up that inventory from the vendor and then deliver it. This basically is a win-win situation for everybody. We don't have inventory costs. The vendor did not have to do anything- he just uploaded his inventory on the technology platform. And the customer also won because he got a genuine product. We are not the typical e-commerce company that we buy merchandise, keep it in inventory and then sell it.
BRR: With demand so much higher, and supply still significantly negligible-e-commerce is not even one percent of the total retail shopping in the country-what advantages do you enjoy as one of the first movers?
Mannan: We definitely have the first mover's advantage. We also have a huge advantage that people trust us, which is critical for any e-commerce player in Pakistan. For us, Yayvo.com brings that trust level to people. The most important thing we bring to the table is our customer service. We don't want to compete on price all the time. Our business model is not how much discount we can pass onto the consumer. What's more important is, we will always give you a genuine product, we will always give great customer service, and we will always be there as Yayvo.com by TCS as a brand that you have known and is next to your house close by, having tested us for the last 30 years. That's our advantage and for that reason, consumers will give us that first chance.
BRR: How do you ensure a product on your platform is genuine? Do you have a vetting process?
Mannan: First of all, we only work with vendors who are genuine, who have a track record with us or in the market place. We don't boast about having the most products on our website or that we have the best price. Let me give you an example. There is a law in Pakistan that mobile phones have to be PTA approved. If you go and buy a mobile phone which is PTA approved, it adds to the cost of the phone; the same phone which is not PTA approved may cost you less. Because of the price differential, obviously a lot of people would not buy that product from Yayvo, that sells only PTA approved mobile phones but we stuck to that policy. We lost a lot of sales, but our credibility with the government, customers and vendors has only increased. We put our money where our mouth was.
BRR: Tell us about the return policy on Yayvo.com.
Mannan: On most of our products, our return policy is no questions asked. We work with our vendors on that and we have individual contracts with each vendor. On an average, our return rate is 8-12 percent. Our return process is also one of the best. You can return through a courier, take it to the nearest express center and return there.
BRR: The concept of return in the retail sector hasn't really picked in Pakistan. Most local vendors-unless they are established brands-won't accept returns. But such a policy is central to e-commerce platforms. Is it a trade-off that a vendor is willing to make-given the market online is huge, they'd be willing to take a return.
Mannan: If you look at developed countries, there is a very good return policy at the retail stores. Some offer exchanging a product for a product, some have a policy of upfront refund, but everyone has a return policy. In Pakistan, we aren't on that level but in e-commerce, a good return policy has to be there, otherwise people will not trust the platform.
There is a trade-off and it is worth. Suppose the retailer has a shop in Defence, and has 500 customers walking into the store. If he goes to an e-commerce platform, he is in front of a million people. He can generate 20 percent more sales, by estimation. My own sense is that you will see Pakistan's return policy at the retail centers improving substantially, and it will be led by e-commerce.
BRR: So far the industry has been largely unregulated which has led to a mushrooming of small e-commerce companies that may not be the most reliable. The government is working on an e-commerce policy-do you think it will wean out some of the less credible players that are looking to earn a quick buck at the expense of the consumer?
Mannan: We are fortunate to be one of the leads in that policy and we are in favour of it. The reason we want it to happen is because we are already doing a good job of following policies and regulations, and we believe that every bad experience, whether it comes from a fly-by-night website, or some other experience, takes people away from the e-commerce sector. We want to ensure that the industry needs to grow and ensure that customer experiences would be good.
BRR: How will the industry change with Alibaba now officially in Pakistan?
Mannan: I feel that companies like Amazon or Alibaba have been at this business for upwards of 20 years, and they have worked on their technology side for a very long time. They have expertise both in their front-end and on the payment system side which will expand the industry and bring more interest into it locally and internationally. What we will see from their arrival is that consumers will win in the end, and customer service will get better. More importantly, the general standard of the entire industry will go up. If that happens, we are all for it. The other impact is that they give a validation to the potential of the Pakistani market which is something TCS has been talking about for a while. But the moment this investment comes, it is not a thought process anymore, it is a reality.