1)The creation and organization of the Export Department. Analyze the alternative chosen by the manager.

2) The Internationalization Plan: Market research and selection

3)The selection of Al-Hamra Trading as Commercial Agent

4) The negotiating strategy of the parties and the results obtained with AL-HOSSEINY

CASE STUDY: NEGOTIATION IN SAUDI ARABIA

BACKGROUND: THE COMPANY AND ITS PRODUCTS

Ramon Bru was boarding a flight from Barcelona (via Paris) to Riyadh, Saudi Arabia.

About 8 months ago he had joined the company SUMELEC, SA, in Cornellà de Llobregat, a municipality located in the industrial belt of Barcelona, as Export Manager.

SUMELEC was a very active SME in the electrical equipment sector. Its main products were electrical cables of:

-domestic installation

-low and medium voltage

-special cables (elevators, irrigation and others)

Its potential clients: the Electric Companies, the Installation Companies and the stockists of electrical material.

The SUMELEC company manufactured products according to ISO standards, and its technical capacity allowed it to adapt without any problem to BS (British Standards), VDE (German standards), NF (French standards) or IECS (International Electrotechnical Commission Standards) specifications and in general , to any other specification.

THE CREATION OF THE EXPORT DEPARTMENT

The incorporation of Ramon had come about as a result of the decision of the manager of the company, Esteve Rabassó, to diversify sales to other countries and reduce the risk of exclusive dependence on the Spanish domestic market, in which important European companies were already operating, after Spain's incorporation into the EEC.

Ramón was 25 years old. He had completed a Business Degree in the UK, was therefore fluent in English and had a Proficiency Certificate.

Because of his family background he also knew French, although he had never studied it. His vocabulary was correct, not very extensive and rather colloquial.

Before joining SUMELEC, Ramon had worked for a year as Assistant of Export Sales for a Spanish manufacturing company in the same sector. His boss had assigned him to the Southern Europe area and had visited stable clients in Portugal and Italy.

Ramon was highly appreciated by the manager Esteve Rabassó, a kind of self-made man with no more business training than what he himself had forged with his own efforts over the years. His strong point was his managerial capacity and his experience, however focused on the Spanish market. He did not speak languages and this was his main handicap.

Ramon had made a very good first impression He was bright, outgoing and a born public relations man. He knew how to improvise and was used to getting out of sticky situations.

This ability, however, led him to somewhat neglect the preparation of matters, and to a certain superficiality in the treatment of topics. He liked to impress people with his knowledge, and he always took advantage of a favorable situation to show off his level of culture.

RESEARCH-MARKET SELECTION AND MARKETING ACTIVITIES

Ramon was a good strategist and had an excellent global vision of the way forward to try to achieve short-term results in the international markets, which is what the management wanted.

As a first action in the international area, Ramon recommended to management to participate in the Energy-Hanover Messe Fair, with a small stand within the sector group. 

This Fair, said Ramon, had a strong impact on the sector and attracted visitors from many countries.

This participation was a relative success as it was visited by numerous installers operating in the Middle East. One of them was AL-HOSSEINY ELECTRIC WORKS, a major installation company from Riyadh, Saudi Arabia.

Its manager, M. Al Hosseiny, showed special interest, since she had been awarded an electrification project in the central zone of the country, which included a large batch of medium-voltage electrical cables.

Ramon invited said firm to visit the Cornellà factory, taking advantage of the existence of an inverse Trade Mission sponsored by the Chamber of Commerce

The visit was very positive and Mr. Al Hosseiny commented that he would definitely take them into account for his projects.

At the same time, Ramon wanted to verify how his potential clients (Electric Companies, Installers and Warehousemen) bought. A first contact with the Economic and Commercial Offices of Spain in the Middle East (Ofecomes), confirmed the expected results.

The Ofecomes, at Ramon's request, provided him with lists of the main companies in each line.

Ramon ruled out contacting the electricity companies, since he understood that he had tppreviously find a specialist Agent well-introduced in the world of public tenders. So he initially focused on installers and stockists and to all those who showed interest , he sent them a password to access the company's corporate website, in order that they could see their technical and commercial references (projects carried out)

SELECTION OF A COMMERCIAL AGENT FOR SAUDI ARABIA

Influenced by the fact of the origin of his first potential client (AL-HOSSEINY ELECTRIC WORKS), Ramon decided to prioritize the Saudi Arabian market and therefore went to Ofecomes of Spain in Riyadh requesting a list of Commercial Agents specialized in the electrical sector. , in order to obtain their support and collaboration to accelerate their entry with the Installers and stockists, who were their main objective.

The Ofecomes immediately sent him the said list, which included specific information on each agent (commercial structure, seriousness, territorial coverage, represented companies).

Ramon noted that one of the Agents (Al-Hamra General Trading Agents) was among the largest trading companies representing Saudi Arabia, it managed well-known companies (IBM, Mercedes Benz, Câbles de Lyon, among others), operated in various industrial sectors, and had a projects division.

Ramon sent a small dossier on Sumelec to Al-Hamra and two other agents who seemed potentially interesting to him, although they did not have the size and renown of the first.

A few days later he received via e-mail a proposal for an Al-Hamra agency contract sent by a person in charge of the company. Ramon reviewed it and agreed, returning it duly signed and ruling out further contact with the other agents.

The duration of the contract with Al-Hamra was two years, renewable. The proposal did not provide for a sales target clause.

After two weeks, Al-Hamra asked SUMELEC for an offer of electrical cables for a very important client in Riyadh. The offer had to be valid for three months, and include a 5% commission.

Ramon sent him his prices, waiting for the agent's comments. After this period had elapsed without having received any news, he telephoned Al-Hamra, whose manager informed him that the order had already been awarded to another firm.

Although Ramon insisted on knowing more details for future operations, he was unable to obtain any relevant information or get Al Hamra to explain what promotional actions he was carrying out.

For this reason, Ramon suggested that the agency contract should be rescinded. Surprisingly, the Al-Hamra representative accepted this cancellation proposal immediately.

CONTACT RETAKE WITH Al-Hosseiny Electric Works

The failure of this first collaboration experience in the Saudi market led Ramon to discard the figure of the Commercial Agent as an entry strategy to access his potential clientele.

Curiously, this disappointment was somehow offset when, shortly after, SUMELEC was consulted by AL-HOSSEINY, who requested an offer in US$ for a significant number of Medium Voltage Cables, in position CFR Jeddah (Saudi seaport). , and a validity of 120 days.

Ramon met with Management to decide the price level to be offered and it was agreed to be at the minimum level, including an additional margin of 8% for eventual negotiation.

Once this decision was made, Ramon passed his offer according to the request received, indicating as payment method: Irrevocable Documentary Credit (CDI) payable at sight.

After a few days, SUMELEC received the following e-mail:

From Al-Hosseiny, Riyadh To Sumelec, Spain For the attention of Mr. Ramon Bru, Export Sales Manager RE: Electrification Project R/01CP Riyadh Central Province

Your quotation SA 089

In order to start negotiations you are kindly requested to visit us next Saturday at 9 am in my office, 3, King Faisal Road, 2nd floor, Al-Munia Bldg. Regards

Antoine Jahshan, Project Manager

THE TRIP TO RIYADH AND THE MEETING WITH AL-HOSSEINY

Ramón confirmed his visit and on the scheduled date and time he showed up at the AL-HOSSEINY offices. The meeting could not start until 10:30 as Mr. Jahshan WAS absent that morning due to urgent business.

Mr. Jahshan was Lebanese, had studied in Paris and was fluent in Arabic, English and French.

Upon receiving Ramon, he addressed him in French, and he replied in that language, which was used between them throughout the course of the negotiation.

In a first phase, general topics were discussed: the plane trip, the weather in Spain and Arabia, how hot he was in Riyadh, etc.

Mr. Jahshan introduced him to the project engineer, who asked Ramon for additional technical information on the offered product, which in fact occupied the whole morning and which Ramon explained in detail.

At 1 pm the meeting broke up, resuming around 5 pm With the technical aspects completed, Jahshan suggested starting to discuss prices and delivery times.

Ramon had serious difficulties in arguing and was frequently overwhelmed by Jahshan's dialectics.

He informed him that Sumelec's prices were considerably higher than those of the competition in Korea and Taiwan and even higher than those offered by French and German manufacturers.

He also told her that the merchandise had to be shipped within 90/120 days from the order date. Most of the offers received, he pointed out, gave longer terms.

This deadline did not seem to be a problem for SUMELEC, given the low order book it had at that time, so he indicated to Jahshan that they had no difficulty in scheduling production immediately and meeting the required deadline.

At the end of the afternoon, Jahshan informed him that he could place the order if he reduced his prices by 10%. Ramon after a few moments of reflection, accepted the proposal.

Closed the agreement on the product, the price and the delivery time, Jahshan informed Ramon that in the next few days he would send Cornellà the Official Order together with the General Purchase Conditions (GCC).

When the official request arrived, Ramon observed that the payment method that AL-HOSSEINY had established with all its suppliers (as indicated by its CGC) was through CDI, payable:

-90% 4 months after shipment

-10% upon installation of the material (10 months after shipment).

Other conditions were that, according to Saudi regulations for electrification projects, the supplier had to issue an additional 1% of the contract value in free of charge spare parts.

Before shipment, the merchandise would be subject to technical inspection according to international standards. To this end, AL-HOSSEINY would move two of its technicians to Cornellà for three days. The trip and the inspection expenses would be paid by AL-HOSSEINY, but the accommodation and stay expenses in Cornellà would be paid by SUMELEC.