Marketing Ukrainian Coats
Petrus Palms
> In article <Pine.SUN.3.91.950117...@eskimo.com> you write:
> >Thank you for your comments
> >
> >On Sun, 8 Jan 1995, Frank Didik wrote:
> >
> >> products. A strong military keeps trade routes open.
Please tell me how.
To give you
> >> a current example: the Ukraine produces excellent wool coats, similar
> >> coats sells in the US for $250 and in the UK for up to 300 pounds
> >> (500USD). How much do the Ukrainians sell them for?....only $12 EACH
> >> AT THE PORT OF NEWARK IN NEW YORK!!! In only 2 years, the Ukraine
> >> captured about 30% of the market in this area. In late 1994, the US
> >> slapped trade quatas on these products.
> >>
> >I posted an article earlier on this subject pointing our that the import
> >duty was nominal and did not effect the financial viability. Quotas are
> >more serious if thehave been set so as to efect last years shipment
> >which I understand was about 1 million coats
> >
> >> The point is that a quality product does
> >> not equate trade, nor does the size of the industry, nor does the
> >> marketabiltiy.
There are many parts of the world where marketability does equate trade.
Strength seems to be the only determining factor.
How?
> >> The decisions at the 11 year long GATT talks were related to each countries military
> >> strength. I am not a hawk, but these facts can not and must not be
> >> overlooked.
> >>
What are the facts. What evidence is there that there is a relationship
between strength and trade.
> >I don't overlook tham but there are other markets than the U.S. and
> >Europe and I do believe from experience that quality products at
> >compettiive prices have a market in our global economy. I would welcome
> >the opportunity to demonstrate that to Russian exporters if your have
>
> How about Ukrainian exporters?
Russian Ukrainian, The Baltics, and all the CIS. Sure.
Even if they have not specifically
> contracted for your services,
If they haven't contracted for my services I can't afford to provide
them. My time is only a fraction of the cost of such a project. Mainly it
involves expenses out of pocket for market research and development.
At 1 million coats, every extra dollar of sales price negotiated for the
manufacturer provides $1 million potential additional revenue. It requires
a business decision by the Ukrainian factory to invest $100,000 to secure
such potential markets. At $90 retail assuming a 40% profit margin the
potential sales price of the manufacturer could be as much as $54.
Certain it is possible to think modestly in terms of $10 more per cost
which is $10 million.
The question is simply, Now that the Ukrainian factory has sold 1 million
costs at $12 do
they invest 10% of it in R&D to find out how to get at least $25 for the
next million coats and how to find alternate demand in excess of quotas
elsewhere.
I would like to see Ukraine be able to
> find markets for their coats at more than $12.00 a piece, if they
> sell for $250-$350 in the USA and England.
I would like it also. The factory ought to like it also. In fact if the
factory doesn't do something about it the management ought to be fired for
incompetence (or perhaps collusion with their only customer). It would be
a good business decision for them to engage someone competent to arrange
it. Obviously it can be done. The party who bought the 1 million coats
last year had no trouble finding a buyer at $50 and making a profit nor
did the stores which sold them have trouble selling them for $90. So
failure of the Ukrainian factory to figure out how to accomplish this
themselves and eliminate the intermediaries that made an unjustifyable
portion of the profit is part of the business mangement responsibility of
the factory.
If they don't do it, someday someone is going to come along and buy their
factory for below market value because the factory won't know how to
realize its full economic potential. Then the scenario will change with a
new "intermediary"/owner, but without increased benefit to the workers or
the former owners. You can only realize economic value if you produce the
added value yourself. Until you find your own channels of distribution you
will be at the mercy of whomever wants to buy the coats. They will not
offer more than they have to. A manufacturer without alternative sales has
to take the best offer he can get. Manufacturing accomplishes nothing
without development of channels of distribution.
Would you attribute the
> dumping of these coats on the US market at $12.00 just a case of bad
> salesmanship?
At $90 retail these costs weren't dumped. A Ukrainian cost at $90 can
compete with a European or American coat at $250.00. Priced the same, the
ability to move goods decreases and people revert to "proven reliable
suppliers" whose merchandise has proven acceptance and who support their
goods with national advertising budgets to create demand. The demand for
the Ukrainian coats is generated a low price which is facilitated by not
advertising, keeping the cost low and passing the savings on to the
consumer. The $250 coat may have a cost component of $100 in advertising.
But the point is it wasn't necessary for the Ukrainian factory to get
only $12 of the $50 dollars.
They weren't dumped on the U.S. market at $12. They left Ukraina at $12.
They were offered in the U.S. market at $50 wholesale and $90 retail.
Someone made a lot of money which could have gone to the factory, had it
spent $100,000 to figure out how to get $50 per cost instead of $12.
By not addressing this question they saved $100,000 and lost $38 million.
Imagine what it could do for the standard of living of Ukrainian workers
and the economy if they invested in developing higher prices for their
production. Until the Ukraina hires "economic mercenaries" to teach them
marketing they will be exploited by those who use these skills in their
own service by risking their capital ($12 per coat) and banking on their
marketing expertise. Who therefore really owns the factory and its
workers???? You guessed it, the marketing experts.
That is the entire problem for the Ukraina. They don't understand the
value of "service" enterprises in consulting, marketing, industrial
engineering, fashion design, legal, accounting etc.
It isn't bad salesmanship, it is lack of understanding of marketing
strategy and management and the need to develop alternative markets.
The last time Sears became my only customer they dictated that I reduce
prices 50% to keep their account and I had no alternative but to comply.
If the factory had buyers at $18, and I was buying at $12 and selling to
American retailers at $50 (who sell them at $90) I would be forced to pay
18 to continue my profitable business. I would have no choice. If they
factory has only one customer, it can't raise prices even if its price is
providing an extraordinary profit to its customer.
( I would offer to pay more. But I have an ethical principle that is not
shared by many in this competitive world).
Yes, this is a typical case of not investing in export representation. If
a knowledgeable person investigated the market and demand on behalf of
the factory, as their fiduciary agent, he/she could see
to it that the spread between retail and import price inured to a greater
extent to the benefit of the manufacturer.
> >someone in particular that seeks a market for such production. > >
Anyone who does that, would keep the difference between the $12.00 and
what such new customer would be willing to pay, UNLESS, the factory hires
someone to do it for them.
The risk taker in problem solving receives and keeps the value of the
solution. Why would anyone, acting as an independent contractor at his
own expense, who finds a customer for more than $12.00, pay any more to
the factory????
The factory must hire an agenct to do that, who has the fiduciary
responsibility, as agent for the factory, to pass the results of his work
on to the factory which has rihgtful title to ownership of the results.
That indeed is the task. I certainly can perform it. Our company is in the
business of doing just that. We time share this expertise to our clients.
They must calculate if the potential increase in revenues on coats ( maybe
$10 million, maybe $20 million) is worth the risk of the cost of our
services (maybe $100,000 ) plus incentive compensation upon performance.
Every year more than $50 billion in goods leave the CIS at a fraction of
the market value. That is part of what is hurting economic recovery.
Instead of hiring experts to save these losses, CIS companies want
guarantees of performance first. Therefore they get a guaranteed $12
while someone else takes the marketing risks and the reward.
Can you imagine General Motors settling for one customer who sets the
price they will receive for their cars of and owns the dealer
network which sets the price to consumers?
Until the CIS understands a market economy they will suffer enormous
financial penalties.
More importantly this also explains why, as investment bankers, it is
impossible for us to invest in Ukrainian companies if they undervalue
their products. Our capital would not earn an ROI for us and the
Ukrainian factory but go to someone else.
Economic value-added activities are far more significant than who owns
the land, buildings, workforce, or tools of production. What is more
important. To own an empty office building or have a co-investor who can
fill it with paying tenants? What is an empty office building worth?
> --Rostyk
>
>
Thanks for your comments.
Dr. Piotr Johannevich van de Waal-Palms
Palms & Company, Investment Bankers
Ukrainian Venture Capital Company of America
United States Interbank Karbovanet Currency Exchange