June 17. 2000
Ms. Michelle Piffer, Vice President
Bonanza Boutiques Inc.
52 Billeil Road
Boston, MA 01829
U.S.A
SUBJECT: Transaction of Raincoats and vision
Dear Ms. Piffer:
As you requested in our conversation last week, I am writing to inform you
of the result of our transaction in raincoats. Unexpectably, we had met much
difficulties during negotiations in Korea. But the results are not so negative.
We here are all quite satisfied with the results of dealing in raincoats and
somewhat excited to announce that in this letter. We hope that the following
will satisfy your expectation.
We can say confidently that our company should continue dealing in raincoats
because we can get a profit as we expected through this deal. As well as this
profit, there is also the possibility that we could deal more effectively based
on this first deal experience and get much more profit in the future. However,
as I said, we have found a few problems with our strategy, readiness and information
of sellers. So we should consider these lackness to ensure successful performance
in future transactions. In this view, it is meaningful to observe the transaction
of raincoats and consider recommendations for more effective and efficient future
transactions.
A Brief History of dealing in raincoats
As you know, our company buys raincoats for resale to American retailers. And
we came Korea to negotiate conditions for the purchase which will yield the
largest profit for our firm when the raincoats are resold. Initially, we made
effective strategy to achieve our goal but the reality was different so we had
to adjust it. Our original strategy was as follows:
Steps to the goal & results
We met two companies (Olympic, Black Star) two times. First, we were divided
into two teams to meet two companies at the same time because we didn't have
enough time to get much information. But, first meeting was unsuccessful because
we didn't study ways to cope with the problems which could occur during the
meeting. For example, we didn't apprehend the guideline our company gave us
so we didn't get appropriate information from the selling company. In addition,
the selling company gave us wrong figures when we asked the product price per
unit. The figure was manufacture cost so we were confused a little while.
Through the first meeting with the two companies, we know the delivery schedule
and quantity of raincoats which two companies could provide were same. There
were five options of quantity according to the delivery schedule. One of the
options was that the maximum quantity of the raincoats within 13 weeks is only
6,000. And another option was that they could provide 15,000 raincoats within
17 weeks. And even though they didn't mention the price of product, we also
could assume the product price based on the manufacture cost. At the end we
realized that we should adjust our original strategies 3 and 4. First, it will
be beneficial for us to deal with the company which is providing lower price
per unit because the delivery schedule and quantity they can provide is same.
Second, the quantity and delivery schedule is fixed so we should consider another
case that buying less than 1,500¢®¨£the maximum they could provide us¢®¨£instead
of insisting buying 20,000 within 13 weeks. After adjusting the strategy due
to the realities encountered, we met two companies again. The detail conditions
(Quantity according to the delivery schedule, price including shipping, insurance
and special packaging) two companies provided us as follows.
Chart I: Conditions two companies provided us
| Olympic | Black Star | ||||
| Delivery (weeks) | Quantity | Price / unit | Delivery (weeks) | Quantity | Price / unit |
| 13 | 6,000 | $35.00 | 13 | 6,000 | $35.00 |
| 14 | 6,000 | $32.00 | 14 | 6,000 | $32.00 |
| 15 | 6,000 | $30.00 | 15 | 6,000 | $29.00 |
| 16 | 10,000 | $26.00 | 16 | 10,000 | $27.00 |
| 17 | 15,000 | $24.00 | 17 | 15,000 | $25.00 |
As you see Chart, I, the conditions that two companies suggested us were similar
as in the price and quantity according to the delivery schedule but the price
Olympic suggested ($24) was a little bit cheaper than Black Star did ($25).
So we decided to contract with Olympic but, unfortunately, Olympic had already
contracted with our competitor company High Line Inc. at the price of $23.50.
Although we failed to strike a deal with Olympic, we got a remarkable result
after compromising with Black Star. As you see in the chart, they offered $1.20
discount on the raincoat which they could provide within 17 weeks. And we found
if we buy raincoats at the price of $35, $32, we will get much loss. So we decided
to buy 15,000 raincoats at the price of $23.80 per unit. And as shown in the
attached contract, the profit per unit is $3.28 with the grand total profit
of $49,200. The following Chart will help you to understand the profit calculation
according to the price they offered. .
Chart II: Profit calculation according to Black Star's offer
| Delivery (weeks) | Quantity | Price | Landed cost | Total cost | Proceeds | Total profit |
| 13 | 6,000 | $35.00 | $14.40 | $49.40 | $47.00 | -$2.40 |
| 14 | 6.000 | $32.00 | $13.20 | $45.20 | $42.00 | -$3.20 |
| 17 | 15,000 | $25.00 - $23.80 | $9.92 | $33.72 | $37.00 | -$3.28 |
Evaluation of deal
As I said at the beginning of this letter the result of our deal in raincoats
is quite satisfying. There are two points that we can say we are satisfied with
the deal. The first point I'd like to make is that we achieved our goal to negotiate
conditions for the purchase which will yield the largest profit for our firm
when the raincoats are resold. Second point is that we have a good chance of
success in the next transaction of raincoats. It was the first deal in raincoats
so there were many problems such as wrong information, misunderstanding of our
guideline. However, through this experience we can expect good performance in
deal with other company in the future.
Needs for better work in the future
If our company intend to continue dealing in raincoats, we should bear in mind
a few points. First, we should concentrate on the information of selling company.
If we had known the conditions Olympic suggested more fast, we could have dealt
with the company in lower price. So I recommend that Bonanza should make a good
information department accumulating latest information of selling companies
so that we make a good strategy when it comes to the next negotiation. In addition
to getting information of selling company, we should set up customer center
to help Bonanza understand clients' needs about design, color, and price of
the raincoats we will resell and consider them in the next deal. Furthermore,
I recommend to seek a new market because Korea is far from the U.S.A. so if
we find new market near our country, we could decrease the charge of shipment.
Conclusion
In conclusion, we think we will obtain two benefits through the deal with Black
Star. First, we will get total profit $49,200 when we resell the raincoats we
bought Another thing we get through this deal is our company's vision in raincoats.
We didn't expect whether our company can get a benefit through this trade because
it was our first try to deal in raincoats. But now we get much information about
selling companies and buying skill that was obtained by the problems we encountered.
As it were, we got much confidence of success in dealing in raincoats. That
was the most remarkable result.
We hope that our deal with Black Star will satisfy our company's expectations.
And we want to express our gratitude for your concern and help. If you have
any questions or suggestions about our opinions, please call me. We'll be at
Shilla Hotel until Tuesday.
Sincerely,
Chung Mi Jong
Consultant
Raincoats Trade
Enclosure: Copy of our contract and profit calculation