Leadership Academy

The context pertains to the 1980s.

A PSU, Hindustan Photo Films located at Ooty, TN was a manufacturing and marketing of Photo films for cinema industry, professional photographers and individuals across the country. Among various raw materials- chemicals, one chemical solvent Methylene Chloride was imported since indigenous supply was inadequate.

Mettur chemicals and industries was located at Mettur, Salem Dist manufacturing caustic soda and chlorine as main chemical products. While caustic soda was transported across the country to various consuming industry, chlorine gas was supplied to a neighbouring industry to manufacture PVC. Since demand for Caustic Soda had been good, the challenge for the company was utilization of chlorine. Neighbouring industry’s off take of Chlorine was dependent on demand for PVC. Therefore Mettur Chemicals diversified to manufacture of Chlorinated Methanes, all chemical solvents, Methyl Chloride gas, Methylene Chloride liquid , chloroform and Carbon Tetra Chloride. Thus Mettur Chemicals started offering Methylene Chloride to Hindustan photo Films as an import substitute.

For HPF it was a good offer since the company saved foreign exchange and pricing was competitive.

Both the companies were satisfied since it was a win win situation. price of Methylene Chloride was adjusted periodically as and when raw materials’ cost, transportation cost  and utility cost went up.

Then appeared another indigenous competitor Gujarat Alkalis and Chemicals Ltd, Baroda, Gujarat. GACL offered Methylene Chloride at a lesser price than Mettur Chemical to HPF. This offer enabled HPF to negotiate for a competitive pricing. They were in a command situation. GACL offered lesser price in spite of their heavy transportation cost.

Since GACL was disturbing Mettur Chemicals on pricing of Methylene Chloride, Mettur Chemicals started undercutting price of Caustic Soda to few customers of GACL. This unhealthy competition was making customers smart and also HPF.

Both the companies realised the price realisation had become so low,it was no more viable to supply products at prices being offered. The top management of both companies took the initiative of discussing with the marketing teams. The members of marketing team agreed the price of any product supplied to customers will he determined by the company who is located closer vicinity. For example the price of Methelene Chloride to HPF will be decided by Mettur Chemicals and GACL will not offer less than the quoted price. 

It was April 1985. HPF invited Mettur Chemicals to negotiate the terms of supply of Methelene Chloride, price and delivery schedule. Marketing Manager of Mettur Chemicals was briefed by his boss that not to yield on price pressure and maintain profit margin since profit margins of other chemical solvents are under pressure because of competition. 

HPF was keen to  negotiate better price since there are two competitors and if necessary give the suppliers a threat that they will start importing if the price is not satisfactory.

What is your recommendation to Marketing Manager to negotiate with HPF keeping the interests of his company,Mettur Chemicals?