Harding Tool Corporation
Transcript of Harding Tool Corporation
Harding Tool Corporation
Paul CHEVRIER, Dimitri ESMAILZADEH, Thomas POLLIAND
ECE-Paris – 2014 - Crisis as opportunity
Background Companies:
Harding Tool Corporation : an American manufacturer of large and small machine tools and parts, gears, valves, and bearings, was a major supplier to industries and companies worldwide
Companhia Internacional de Comercio : a Brazilian commodities broker
Overseas Development Corporation :an American commodities broker
Harding Tool CorporationCompanhia Internacional de
ComercioOverseas Development Corporation
Main characters:
Lloyd Willcox : Overseas sales manager, Harding Tool Corporation
Jose Cabral : President, Companhia Internacional de Comercio
Julia Peters : Commodities broker, Overseas Development Corporation
Background
Presentation of the deal
Because of the rise of the U.S. dollar on foreign exchange markets and serious financial crises in many countries in which Harding did business, sales, particularly to Latin America, began to decline.
In the fall of 1986, a unique proposition was received from Companhia Internacional de Comercio: In exchange for US$400,000 in assorted gears, Harding would receive the equivalent in Brazilian shoes, which it could sell in the American market.
Presentation of “countertrade” ?
Countertrade or Barter : Exchange of goods or services directly for other goods or services without the use of money as means of
purchase or payment.
Countertrade start growing during the 1970s. Nowadays, it is estimated that countertrade accounts for between 20 to 25 % of total world trade.
At the start of it, it was mainly the developing country that were using it for common and basic goods.
Countertrade can also occur when countries lack sufficient hard currency.
Dialogue n°1
$400 000 worth of gears $400 000 worth of shoes
Harding Tool CorporationCompanhia Internacional de Comercio
(CIC)
Commission on the sale of the shoes : +7% sales worth $430 000
HTC doesn’t have the assurance to be paid
Call specialists to deal with the shoes will cost money
$9.60 for each pair of shoes
Dialogue n°1
Lloyd Wilcox Jose Cabral
Surprised and skeptical
Wants to talk with his associates and specialists
before giving an answer for the deal
Try to set Mr. Wilcox’s mind at ease
Advises on how to handle the situation
Agrees to send specs and samples
Wants more information and some samples
Exhibit n°1
Men Women
13 200 pair of shoes
31 670 pair of shoes
7, 7½, 8, 8½, 9, 9½, 10, Widths: B, C, D, some E, 11, 11½, 12, 12½
5, 5½, 6, 6½, 7, 7½, 8, 8½, 9, 9½, 10 Widths: some A, B, C
brown, black, gray, burgundy, leather uppers, crêpe soles, foam insole; natural dark brown
eather uppers and soles; natural light brown, natural dark brown, black, tan, navy
Exhibit n°2
Interested in selling the shoes, used to handle countertrade
Needs more information to proceed
A 2% commission on the sales
$9.6 => $9.4 for each pair of shoes
1978 1979 1980 1981 1982 1983 1984 19851000
1200
1400
1600
1800
2000
2200
2400
Total
Exhibit 3:Total Harding’s Gross Sales to Latina America, 1978-1985(in thousands of US$)
1978 1979 1980 1981 1982 1983 1984 19850
100
200
300
400
500
600
700
Argentina Brazil Colombia Venezuela Mexico Chile
Exhibit 3:Harding’s Gross Sales to Latina America, 1978-1985(in thousands of US$)
1978 1979 1980 1981 1982 1983 1984 19850
100
200
300
400
500
600
700
Brazil
Exhibit 3:Harding’s Gross Sales to Brazil, 1978-1985(in thousands of US$)
Brazil Economy
Currency Inflation (Cruzeiro-US Dollar) between 1978 and 1985 : + 50 000%
Foreign debt between 1977 and 1982 :+ 225 %
By the end of the 1970s, country is forced to meet payment interest
Self-sufficiency policy during the ‘70s : Promote import of basic industrial equipment
During the 1980s, also called the « lost decade », the GDP (Gross Domestic Product) increased at an average annual rate of only 2.9%.
Harding Tool sales rose
Harding Tool sales nose-dived
1978 1979 1980 1981 1982 1983 1984 198510
100
1000
10000
100000 Exchange rate Cruzeiro-US Dollar, 1978-1985(in thousands of Cruzeiro)
Exhibit n°4
Harding should add 5-10 percent on to the cost of the gears to cover additional
costs.
Harding needs to make sure they could actually sell the shoes.
The title to the shoes should be received before “even one gear” was shipped.
New situation for Harding Tool Corporation
No final decision taken during the meeting
Statement
Should we take the risk and change our business habits ?
What is the long-term vision of Harding tool
company ?
Solution 1 – Decline the offer
+• No risk with the shoes -
• Loss of a potential benefit
-• Loss of influence in the
Latin American market
Advantage Drawback
Solution 2 – Accept the offer
+ • Develop a new way of trading for the future
+
• Make profit
+ • Increase our influence on the Latin American market
-
• Take the risk to not sell the shoes
-• Pay the 2% commission
-• Appear desperate
Advantage Drawback
Solution 3 – Negotiate the offer
+• Bargain to gain a better
deal
+
• More time to think about it
-• Take the risk to cancel the
deal
-
• Increase the commission
Advantage Drawback
Solution 4 – Try with a sample of the shoes
+• Decrease the risk
+
• Check the integrity of the Brazilian company
-• CIC may lose patience
-• Slower income
-• Complicate the process
Advantage Drawback
Solution 5 – Create a subdivision to deal with the shoes
+ • Save money by not paying the commission
-• Take a big risk
-• Invest money
-• Take time
Advantage Drawback
Sum Up1
Reject the offer
5Create a
subdivision
2Accept the
offer
3Negotiate the offer
4Try a little
deal to test
Suggested Solution
2Accept the offer
1Reject the offer
Sum Up1
Reject the offer
5Create a
subdivision
2Accept the
offer
3Negotiate the offer
4Try a little
deal to test
Thank you for your attention.Any questions ?
Sources : International Economics
G.W. University
Analysis of recent trends in U.S. Countertrade