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 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.