International Business Case: An Extreme Counter Offer
Dr. Ling, SingCast Cable's V.P. of Products, was in full control of the meeting. He sensed it was time to push for more concessions from CyberWave's negotiating team. CyberWave, the four year incumbent e-mail platform provider, had been very uncooperative in renegotiating the current contract. But with eWeb's (a Singapore start-up company) competitive offer on the table, Dr. Ling had a real opportunity to significantly cut his growing e-mail operational costs.
Dr. Ling looked directly at Mr. Hua, CyberWave's Sales Director, and stated in a quiet, gentle tone "Mr. Hua, we cannot afford any longer to supplement CyberWave's licensing fees for subscribers who sign up for free accounts. As you will see in the counter-proposal in front of you, we expect your company to charge nothing for these subscribers going forward, but of course we will pay for those subscribers who opt for a 'for fee' package."
Trying to mask his displeasure, Mr. Hua interjected "Dr. Ling, this is most difficult to comprehend."
Barely pausing, Dr. Ling did not respond and continued, "We are also leaning towards outsourcing the entire e-mail hosting operations to the selected vendor. We expect 'all' operational and technical costs to be included: hardware and software, telecommunications bandwidth, and any direct or indirect costs associated with the migration of the subscribers to the selected vendor's facility. Furthermore, we we will go through a formal RFP process if we cannot reach a mutual agreement that meets our satisfaction."
Dr. Ling glanced at the only American in the room. He was surprised that Mr. Hua's manager had not reacted. He knew he was asking for a lot, but it was his job to ask for as much as possible. Dr. Ling knew that incumbent vendors detested formal RFP's. He really did not have the time to orchestrate the RFP process, but he would do so if he thought he could put more pressure on CyberWave to lower their prices. For all he knew, CyberWave might just be desperate enough to agree.
Dr. Ling continued, "Mr. Hua, I am sure you are aware that a new vendor has emerged -- eWeb. They have crafted a very creative business proposition that many within our company view as a long-term business commitment. Obviously I am not at liberty to provide you with the details of their proposal, but I would encourage you to be very creative and aggressive with your business model. We are looking to award this contract for a three year term."
Dr.Ling was not sure how is subtle threat would be received. He liked CyberWave's technology and their ingenuity, but he thought that they were starting to take his business for granted.
He continued, "CyberWave and SingCast have had a good business relationship over the last four years. But as discussed in our last meeting, SingCast feels that your company has not been proactive enough in finding a business model to lower our total cost of ownership. If you value our business, now is the time to demonstrate your commitment."
Patrick Wilson, the American and Mr. Hua's manager, could not believe what he was hearing. Patrick could not remember the last time he heard such an "extreme" opening position for a contract re-negotiation with a customer. Threats, massive price concessions, and a competitive RFP was a lot to digest. It took all of his mental strength to refrain from interrupting, but today he was going to take his cues from Mr. Hua. Since Mr. Hua remained stone faced, he did the same. This was Patrick's second trip to Singapore. After twelve years of selling globally, he knew better than to let his "American emotion" take control of his tongue. Instead of talking, he decided to write Dr. Ling's points down on his note pad. He wrote:
1. Charge nothing for any new subscriber that does not sign up for a "for fee" account
* Reaction - Ridiculous! We have no control of "how" SingCast charges for their packages. Whether they charge or not, a subscriber is using our software, we need to get paid.
2. Outsource entire e-mail operations
*Reaction - Could be a great opportunity to generate new fees and leverage services from a 3rd party outsourced sub-contractor
3. Outsourcing costs would have to include: hardware and software costs, monthly telecommunications bandwidth costs, and all costs associated with the migration of the consumer accounts
* Reaction - Need more fact finding. A model like this has revenue potential, but many risks (we could financially lose our shirts). Not sure how we would account for and control bandwidth costs
4. eWeb is the competitive vendor - Is Dr. Ling threatening us?
* Reaction - Very scary! The CEO, James Li, is an ex-CyberWave VP of Engineering. James was with the company for three years and was responsible for the e-mail solution product development. He took three of the best developers with him to start the company in Singapore.
* James knows our product inside and out and if he has built a new product - it is probably very good.
5. Three year term for the contract. Looking for a new business model that lowers total cost of ownership
* Reaction - Since he said new, probably safe to assume that we have to change all of our pricing terms and the model.
SingCast was Singapore's number two market share broadband vendor. After only two years from receiving its government license to offer consumer services, SingCast was on pace to surpass MediaOne, the market share leader for broadband connectivity and consumer e-mail subscribers. SingCast's multi-million dollar bet of wiring fiber-optic cable directly to consumers' homes was paying off. Consumers in droves were cutting the cord with MediaOne, primarily due to its poor customer service, high prices, and aging technology infrastructure. SingCast's stock was hot, up 42% in 9 months. The shareholders were pleased with SingCast's new strategic emphasis on consumers versus its previous strategy of primarily targeting enterprises.
Dr. Ling was uncomfortable with all of the praise and attention he was receiving. He was the visionary leader who convinced SingCast's CEO and board to bet big on wiring the fiber-optic cable directly to consumers' homes. But with the corporate success, two significant challenges were emerging. First, SingCast's server farm was not keeping pace with subscriber growth as SingCast underestimated just how popular their solution would be with the Singapore consumers. Second, the initial contract pricing model with CyberWave was netting CyberWave millions of dollars of licensing fees for "new" subscribers who could sign up for the SingCast service for free.
Dr. Ling knew early in the project that the licensing fees paid to CyberWave could become a financial issue, but he lost the argument with the marketing department. They were adamant that the only way to get MediaOne subscribers to change vendors was to offer "free" accounts. Hence, hundreds of thousands of subscribers had converted their basic personal email account, but less than the predicted amount opted for the "for fee" packages. To the financial markets and shareholders, the appearance of all these new subscribers was a positive, but in reality SingCast profit margins on these subscribers was very small and the cost of acquisition very high.
1. Construct two possible reactions to Dr. Ling's opening offer and support each with pro's and con's of each reaction.
i. List new possible pricing models.
ii. List ideas to control costs.
iii.Suggest new ideas for Dr. Ling to propose to the marketing department regarding SingCast product packages.
2. List two possible approaches in dealing with eWeb Wizard and support each with pro's and con's.
3. List any relevant issues that may pertain to this customer being in Singapore.