1. Background Information
1.1. Lakshmi Software
One of companies’ benefited that most from Y2K industry was Laksmi Software, a company with headquarters in Chennai India. It’s low cost software engineering. Even before Y2K passed that new market would be needed such as enterprise resource management with SAP and People software leading the way. Many companies implementing such software often need help; especially as they needed to integrate their current system into the new software .It is good, but uneven market.
The company began to seek opportunities in product development such as Video games, telephones and other electrics. The greatest opportunities were in manufacturing automation, specialized automation insurance and finance and other areas that they can support SAP and People software integration.
The company was successful in European (especially German) and US. Because it’s managers had experience in German and US. But second largest software market in the world is Japan. Lakshmi management had targeted Japan as an important objective. One of the company’s largest Japanese customers was Sonpan.
1.2 Sonpan Products Company (SPC)
Sonpan Produces Company (SPC) is a leading Japanese company specializing in providing automating solutions for financial, insurance and manufacturing applications. It also produces PC’s midrange computers and peripherals for the Japan market. SPC is well known in the Japanese market as a software producer of very high quality. Due to its wide range of hardware, software and networking solutions, it is also one of the largest system integrators in Japan.
With economic recession, SPC is under increasing pressure to cut down cost. It looked outside Japan to outsource software development at lesser prices. So it has evaluated and chosen Indian software a company including Lakshmi. Japan is the second largest software market in the world. Lakshmi has invested in setting up Lakshmi-Japan in Tokyo.
2. The Current Relationship and Current Scenario
Lakshmi realized that SPC is its largest customer in Japan because SPC has been giving business worth a few million dollars every year to Lakshmi. And also through SPC, Lakshmi has the chance to get the cutting edge technology to improve its technology and develop other potential customers. Therefore, the relationship between SPC and Lakshimi is very important if Lakshmi wants to expand business in Japan.
To maintain their competitive position, Indian software companies are now investing heavily in training, communication skill, working way with foreign customers and leading-edge programming skills (Hill, 2002). Lakshmi realized that language, working model and price are major issue in dealing with Japanese business and keeping a long-term good relationship. Lakshmi has invested in forming Japan desk in charge of language translation and interpretation requirements, also invested in Japanese computers and software. Through communicating with IPT, Lakshmi set up the Japanese way of working – Japanese subcontractor model, which work in a model similar to Japanese subcontractor, to improve the relationship, and bring more business from other SPC business units. Lakshmi has a competitive price policy for the customers on the rates to be used for its project proposals such negotiated price, fixed rate for on-site service.
In this case, KOS, a division of SPC dealing with end-customer projects, is in the process of bidding for POPS – a large system development and system integration project. IPT recommended Lakshmi to KOS, which never worked with non-Japanese subcontractor before. IPT has outlined the cost advantages and Lakshmi’s Japanese working model to KOS to make it feel comfortable. Finally, Lakshmi became one of subcontractors to discuss with KOS to prepare the proposal. However, in the process of cooperation with KOS and IPT, Lakshmi confronted a lot of problems and have to find solution for all problems.
3. Problems
Ethical business issues, product quality and proper communications within the groups were the main problems that lakshmi and SPC has faced in the course of working mutually. The issues of business ethics have become increasingly important in the globalize business environment where comparative advantage and competitive edge are central to business decision-making. In a highly diverse and intensely competitive environment, managers are faced with difficult situations and often have to take tough decisions, which are right, fair, and proper but also effective (Hosmer, 2000).
Lakshmi believe that long-term, give-and-take relationships are the hallmark of a harmonious relationship. For communities and organizations to function efficiently and effectively, all members must rely on and support the efforts of one another. Where as SPC believes on only give and take relationship, unlike other Japanese company who takes long time to build a better relationship with their subcontractors. Following ethical problems were perceptible in this case study-
• SPC were too dominant,
• Lakshmi were not clear about their role and work style,
• Confusion about project size and other requirements,
• No supportive assistance from the Japanese company, where language is a great barrier.
• Too many sub groups took place between order placer and taker.
The B2B selling process is more time consuming and ultimately more personal than the consumers’ process. In B2B selling, the complexities of successful selling require the buyer and seller to develop mutual respect and trust, a luxury that sellers in consumer markets seldom have the opportunity to achieve (Vitale et al., 2002). This achievement is often called; relationship marketing that does not exists in the case of SPC and Lakshmi. There are few criteria that help to make healthy relationship within channel members, those are;
• Concern
• Trust and commitment
• Service (Francis Buttle, 1998)
• A supportive culture (mutual co operation and interdependence between customer and supplier)
• Internal communication
• Customer expectations
• A sophisticated customer database
• Organizational structures
Lakshmi is an Indian company, influenced by Indian manner, which is basically comfortable with working as a group rather than making things complicated by forming units, sub units between two companies. Lack of coordination in one-side makes the relation even complicated and on the other hand it losses the productivity and quality. As SPC looks for better quality and zero defect software from Lakshmi, but due to some financial or some other constraints they could not meet the demand of SPC. For better quality Lakshmi needed to increase its productivity from its baseline and they have agreed to works on it if some cooperation they got from SPC. It is also noticeable that, to create more dependency, SPC arranges all the meetings in Japanese language and creates models in Japanese form and never tried to facilitate Lakshmi with any concern.
Again it can be said that, increasing globalization of businesses has also increased emphasis on doing business ethically. In a highly diverse and competitive environment manager’s are faced with difficult situations and in order for them to act ethically, they are expected to have a well-developed moral imagination. Though both of these two companies has different attitude towards their work style and perception but due to lack of coordination they could not able to build an appropriate business relationship.
According to anthropologist Benjamin Lee Whorf, language shapes our worldviews, our behavior toward others, and our manner of acting. To him language is obviously a major though not the only- component of culture. However, it is for many reasons under emphasized in international business literature. First language seems to be translatable: there are dictionaries and, if need be, professional translators (Jean Claude
et al. 2000). When any joint venture takes place between two nations where English is not the mode of language, communication obstruction seems to be the greatest setback there. In this case, there were not such good communication between Lakshmi and SPC, even when; Lakshmi Japan has appointed a Japanese manager for interfacing with customers. Lack on dependency and reliability between sub groups made the relationship unpleasant and they ran off with the business harmony.
4. Effects
Buttle (1996) points out those marketing problems are by nature information handling problems. Due to the poor relationship (lack of coordination) and lack effective communication, which not only leads to losses the productivity and quality but also leads to high cost.
4.1 Losses the productivity
There were two main reasons lead to losses the productivity and delay the project.
Uncertain and Vague Project Specification Requirements
From at the end of May to September, IPT offered the information about the project was uncertain even wrong, which delay the Lakshmi start preparing for the project. Lakshmi has to waste a lot of time to wait formal requirement. For example, On June 3rd IPT informs that project size has gone up by three to four times, detail of the project requirements were still not known. Until 8th June, Lakshmi has to inform KOS that they will assume the manpower requirements.
The Responsibility of IPT
SPC has set up the India Project Team (IPT) in order to streamline the outsourcing procedure. As this role, IPT should take responsibility to help Lakshmi understanding the business practices and culture of Japanese customer. As an intermediator to help project manager of India cooperated with KOS to get right information in time and effectively communicate with subcontractor and end-user; however, the IPT just as an unfriendly megaphone. Finally, IPT shifts the total responsibility of the project to Lakshmi and Lakshmi Japan.
4.2 High Cost
The project had been in full swing before the formal request proposal (RFP) to be received by Lakshmi in September. Lakshmi finally decided to quote USD600, 000. KOS and IPT are shocked. Lakshmi explains the fixed bid subcontractor model and detail the on-site Japanese cost. Idle time cost of engineers, offshore translation cost (Japanese into English and back, Infrastructure cost, and software development cost)
Translation Cost
In this project (POPS), most of these have Japanese screens and Japanese reports. In other word, translations are required. In addition, Lakshmi Japan has to arrange for two Japanese staff to help in translation and for attending meeting because all meeting in Japanese.
Idle Time Cost of Engineers
Lakshmi spent quite long time on waiting the project size and specification
requirement. But Lakshmi is asked to start preparing for the project. In June, the project manager started to arrange for relevant training for the project team members. As a result of this, the idle time cost of engineers is high.
5. New scenario & Recommendation
In this case, IPT had the project for the POPS which was expected to be 17,000 hours and 233applications. Also, these documents would be in Japanese and would have to be translated for use in the project. As a result, this project needed Japanese staff. However, during the time of planning this project, IPT usually changed the needs of the project and Lakshmi couldn’t get the information, which it wanted. Then, Lakshmi didn’t give IPT and KOS the reasonable price for the project. Nevertheless, IPT and KOS refused this price. Now the project starts with 25-engineer team. KOS and IPT send one engineer each to help the team.
Relationship building and management is a leading approach in modern marketing practice, (Jackson, 1985; Dwyer et al., 1987) and is viewed as a paradigm shift in marketing strategy (Gronroos, 1996). These problems happened in this case because of difference in culture and lack of communication, also need improving the relationship. Both companies spent long time to negotiate detail such as cost, project and requirement.
In our opinions, we suggest that Lakshmi should focus on relationship marketing in the Japanese market. Relationship marketing is about healthy relationships, which are characterized by concern, commitment and service (Francis Buttle, 1998). One of major implications of derived demand is that business marketers must understand their customer’s customer. The business marketer can design products and service to fully benefit customers and hopefully, anticipate changes in levels of demand instigated by the customers’ market. In this case there are some suggestions for successful relationship marketing such as supportive culture, internal marketing customer expectations, sophisticated customer and organizational structure. Also, Lakshmi and IPT should establish a pricing strategy (Demand-Based Pricing, Cost-Based Pricing, Profit-Based Pricing, Competition-Based Pricing and International Pricing ) and manage pricing adjustments (Monetary Price Adjustments,
Product Adjustments, Price Discounts and Allowances and Geographic Price Adjustments) for relationship marketing.
6. Conclusion
Sonpan Produces Company (SPC), one of the largest system integrators in Japan, wanted to reduce the cost of its products. Therefore, Lakshmi Software, a company with headquarters in Chennai India, became SPC’s partner. To maintain Lakshmi’s competitive position in Japan, it is investing heavily in Japan such as training and communication skills. Then, Lakshmi became one of subcontractors to discuss with KOS, a division of SPC dealing with end-customer projects, to prepare the proposal. In this case, SPC and Lakshmi faced ethical, language and cultural problems. As a result of these problems, there were two main negative effects. One is loss the productivity and the other is high cost. The main reason is relationship marketing. As a consequence, Lakshmi and SPC should develop successful relationship marketing. Otherwise, their next case still has these problems.
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The Newcastle University of Australia
Peter Lee
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