Electric Motors India Limited

Electric Motors India Limited (EMIL), is a reputed firm manufacturing electric motors. It
manufacturers low tension squirrel cage 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 standardised products. Frame size, types 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) are common to all manufacturers. That is to say, a 30 hp, 4 pole,
TEFC motor of EMIL can be perfectly submitted 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 to beverages. It has Original Equipments (OE) customers as
well as retail customers. Its OE customers include turn-key plant suppliers in the fields of sugar,
cement, diary, brewery, distillery, cogeneration, power generation plants, and equipment
manufacturers for pollution control, material handling and foundry machinery etc. The
advantages of supplying to OE customers in 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 35 % (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 the 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 crore. SIIL, in turn, placed its orders on its vendors for the supply of boughtout
items of which electric motors was apart. EMIL received order for the supply of the electric
motors for all the contracts received by SIL. As a rule of the thumb, one sugar plant needs about
30-40 motors of various horse power. EMIL was very happy with the new order book position,
which, in reality, was impressive.

However, the cooperative societies could nor raise the amount necessary, and as a result, all the
projects slowed down to zero in the initial stage itself. EMIL could not supply it s motors. This
position continued for a period of 3-4 years. In the interim, cooperative societies did their best to
raise funds so as to go ahead with the project. A few societies did their best to raise substantial
amount, 4-5 of them came back to SIL and started renegotiating the value with all other
conditions of the contract absolutely unchanged. All sugar plant suppliers, including SIL, were
constrained to entertain their requests for a downward price revision, and ultimately, a price of
Rs. 28 crore was fixed in lieu of Rs. 32 crore.

The only way for SIL to cover up or improve the margin was to force its vendors to reduce their
process. It adopted a methodical approach, and formed a cross functional team consisting of
representatives from the project group, the procurement and the finance functions to re-negotiate
with its suppliers. The team started with high cost bought out items like turbines. There were
only two manufacturers of turbines and they had enjoyed the duopoly for the last 39-40 years.
However, SIL managed to convince the turbine manufacturer to reduce its price by 18%.
Looking at the value, this saving was substantial and SIL was encouraged to push for other
products, too.

Now, it wa the turn of EMIL. 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. EMIL visited SIL, the next day to attend a meeting with the team.
Although, representatives of EMIL knew these team members from minimal interaction that took
place occasionally, they were a little surprised to see hem renegotiating price. A lot of meetings
took place between representatives of SIL and EMIL. EMIL tried to impress upon them the long
standing business relationship, good pre sales and post sales support given by the EMIL in the
past. It also reassured that the price at which deals were closed were indeed rock bottom.
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. EMIL was in serious trouble.

Questions

1. Comment on the marketing intelligence and the sales effort of EMIL

2. Could EMIL have either better explained the situation or 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?