2. 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
4. 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
5. 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.
6. 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.
7. Dialogue n°1
$400 000 worth of gears $400 000 worth of shoes
Harding Tool Corporation
Companhia 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
8. 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
9. 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
10. 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
14. 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
16. 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
17. Statement
Should we take the risk and change our
business habits ?
What is the long-term vision
of Harding tool company ?
18. 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
19. 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
20. 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
21. 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
22. 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
