CASE NO.

4 ELECTRIC MOTORS INDIA LIMITED Electric Motors India Limited (EMIL) is a reputed firm manufacturing electric motors. It manufactures low tension squirrel cage induction motors in the range of 1 hp to 300 hp. Since its inception thirty years back, it operates in a highly competitive environment; there are six players in the market inclusive of EMIL, prices of all firms are at par, and the market is shared almost equally by these players. Low tension squirrel cage induction motors are very standardized products. Frame size, type of insulation (e.g., F. B). enclosure type (e.g.. TEFC. SPDP) and standard of enclosure (e.g.. IP 55, IP 22). number of poles (e.g., 2, 4, etc.) are common to all manufacturers. That is to say, a 30 hp, 4 pole, TEFC motor of EMIL can be perfectly substituted by a motor of the same specifications of another make and vice versa. This product has a wide range of application and a much diversified customer base; it extends from agriculture, pharmaceutical, chemical, automobile and automobile ancillary to mining, food, and beverages. It has OE customers as well as retail customers. Its OE customers include turnkey plant suppliers in the fields of sugar, cement, dairy, brewery, distillery, cogeneration, power generation plants, and equipment manufacturers for pollution control, material handling, and foundry machinery, etc. The advantage of supplying to OE customers is the large volume and lower promotional expenses. The disadvantages are lower price, very high service level, heavy dependence on one buyer and accommodating requests for out-of-turn delivery or delaying a delivery, etc. The suppliers value the OE business heavily. EMIL is doing business with Sugars India Limited (SIL), an accomplished supplier of sugar plants in India with a market share of 35fl (it has only 3 competitors) since its inception thirty years back. In early nineties, Maharashtra government permitted almost 100 new sugar plants of capacity 2500 ted (tonnes of sugar cane crushing per day) to be set up in various districts of the state. These sugar plants were to be set up by cooperative societies. Some of these cooperative societies approached SIL and signed a contract with them for the supply of sugar plants. (Other societies approached competitors of SIL for the plants.) The contract value was around Rs. 32 crores. SIL, in turn, placed its orders on its vendors for the supply of boughtout items of which electric motors was a part. EMIL received order for the supply of the electric motors for all the contracts received by SIL. As a rule of thumb, one sugar plant needs about 3040 motors of various horse power. EMIL was very happy with the new order book position, which, in reality, was impressive.

1. However, the cooperative societies could not raise the amount necessary, and, as a result, all the projects slowed down to zero in the initial stage itself. EMIL could not supply its motors. 2. This position continued for a period of 3-4 years. 3. In the interim, cooperative societies did their best to raise funds so as to go ahead with the project. 4. A few societies did manage to raise substantial amount, 4-5 of them came back to SIL and started re-negotiating the value with all other conditions of the contract absolutely unchanged. 5. All sugar plant suppliers, including SIL were constrained to entertain their requests for a downward price revision, and ultimately, a price of Rs. 28 crores was fixed in lieu of Rs. 32 crores. 6. The only way for SIL to cover up or improve the margin was to force its vendors to reduce their prices. 7. It adopted a methodical approach. 8. It formed a cross-functional team consisting of representatives from the project group, the procurement, and the finance functions to re-negotiate with its suppliers. 9. The team started with high cost bought out items like turbines. 10. There were only two manufacturers of turbines and they had enjoyed the duopoly for the last 30-40 years. 11. However, SIL managed to convince the turbine manufacturer to reduce its price by 18%. 12. Looking at the value, this saving was substantial and SIL was encouraged to push for other products too. 13. Now it was the turn of EMIL. 14. Its local branch manager received a telephonic message from a representative of SIL, whose name was unknown to him or the office, to attend the re-negotiation meeting on the next day. 15. EMIL visited SIL the next day to attend a meeting with the team. 16. Although representatives of EMIL knew these team members from minimal interaction that took place occasionally, they were a little surprised to see' them renegotiating price. 17. A lot of meetings took place between representatives of SIL and EMIL. 18. EMIL tried to impress upon them the long standing business relationship, good pre-sales and post-sales support given by EMIL in the past. 19. It also reassured that the price at which deals were closed were indeed rock-bottom.

20. However, it appeared that this fell on deaf ears and a situation arose wherein SIL rudely threatened EMIL of cancellation of existing orders and stoppage of future orders as and when they come. 21. EMIL was in serious trouble. QUESTIONS:1. Comment on the marketing intelligence and the sales effort of EMIL. 2. Could EMIL have better explained the situation and justified that its prices were indeed rock-bottom with no scope for downward revision of prices? 3. Should EMIL reduce the price and retain this account or prefer to lose business?