Market conditions: Dealing with errant buyers and shortage of supplies

In this episode, the writer speaks about the problems he faced when market conditions were tight and negotiated prices became the norm. Besides, with shortage of pig iron products from India it became necessary to seek products from China. This is the fourth part of the series describing the travails faced when setting up an international business in the seventies

The market conditions of bouncing cheques and some of the traders taking the easy way out to run away from the country, leaving their employees in the lurch and millions of rupees worth of unpaid bills became the norm of the day. No one accepted the purchase orders anymore nor the post-dated cheques, which became the substitute practice, when POs were declined. But, then, post-dated cheques did not assure the holder that payment is guaranteed on the due date!

After a spate of such runaway partners, it became a mandatory practice to have all the passports of senior executives also in custody of the owners. Before, it was the junior staff who had to surrender the passports once they got the ‘pataka’ or the local ID.

Most of us played it safe. We would rather give the buyer a cash discount than his personal and ‘guaranteed’ assurances that the cheque would be honoured. Even when contacts with the buyers were ‘close’, almost every time a cheque became due, there would be a ‘personal’ request that it be presented on so and so date, or after we get a call from them.

The situation in the market was tight. Prices came down for the cash customer. The foolhardy method of inflated imports to meet the big demands in the near future was no longer the mantra.  We did not allow buyers to loiter around our godowns.  It was tense.

The ‘buyers’ in general were a special breed. In the heydays of supplies, they would come around to the market, which was mostly located in the old town, known as ‘Deira’; Bur Dubai was the new township across the creek, where multi-storied buildings and well-designed apartment houses began to come up. The Karamah colony was about to be completed, as Al Shaab was already full, brimming with residents.

The buyer would carry his POs and requirements for the site under construction or even completion. He would carefully choose his supplier, with whom he had a few dealings in the past, which ‘mutually’ benefitted them.  Let us say, he wanted to get 30 half inch galvanised pipes, as required by his site engineer. If the market price, of which he had a chart of several prospective suppliers with prices, delivery, payment schedules, etc was ranging between (per piece of 6 metres) Dh 11 to Dh 13.50, he would ‘negotiate’ and choose a supplier who was pricing his wares at, say, Dh 13.  He will make phone calls, from various shops, and convince his site manager to accept the ‘final’ price of say Dh 13.25, when, in actual practice, he ‘concludes’ his buying price at Dh 12.75 with the shop assistant. The difference of 50 fils is to fill the pocket of the buyer and the assistant. One would not know how much of this pocketed difference would go to the site engineer or the cashier/accountant when the payment becomes actually due. By and large, the kick-back arrangement was rampant, and greatly aided by hundreds of ‘floating’ brokers, who would be moving about the market and stores/godowns.  It was a mugs game, with no end in sight.

As for lower prices in his chart, the delivery was promised four to six weeks from date of payment. There would be such ‘recordings’ which would probably be attached to final purchase order sheet, so that, it will be on record that every effort was made to get the goods at the best possible price and ensure delivery so that work at site does not ‘suffer’.

Our own salesmen, too, would come back and spin their yarns. It was confusing but we had to get on with work and pricing and collection of dues became the most important aspect of our business.  Sometimes, we landed up being the only stockists of an item, whose demand and urgency had suddenly cropped up at site, without whose physical supplies, work and ‘delivery’ could not be completed. At such events, we simply made a price killing and demanded advance payment before delivery.

While we had continuous orders for supplying manholes to Abdullah, and many of our regular clients stocked our quality goods, they also bought supplies from other sources (in India) and China. We earned a commission for sales in Saudi Arabia, but our bread and butter had to come from our local sales.

Sometimes, we bought with cash and sold at much higher prices on credit because the client was ‘solid’ and would definitely make payments, even if there was a slight delay. We began to look into other areas to set up offices and diversify in to new items. We opened up new supply sources, like going to Bucharest (Romania) to obtain pipes to supplement our own foundries, which were making pipes in feet, while, we could get pipes in metre lengths.  This involved persuading site engineers to make the necessary adjustments, and if completion was the sole objective, to get the metre pipes and cut them to size!  All such actions were crazy, but, at times brought us good profits.

Since our contact in Saudi Arabia was good and regular, we would get information about the shortages in that market. We would them mop up the available supplies from the local market and await the buyers to pick up our stocks at profitable prices. Sometimes, such moves backfired on some of the items in which we had not gained adequate experience, and after a couple of beatings, withdrew from the scene, slowly, and concentrated on what we knew best.

In the meantime, one of our big and regular buyers could not make payments when the bills became due. But he was honest enough to admit this and requested that we take a lot of his steel scrap in lieu. We had dabbled in getting quantities of scrap cables from Jebel Ali Free Zone contractors and learned the art of salvaging the copper wires, other non ferrous items and had made a good profit. So we accepted this steel scrap, which lay with us for more than a year, until one fine morning we got a call to kindly supply this scrap so that the Dubai rerolling mill  continue to work its furnace. We did make a small profit, but more importantly, we sold the scrap that was a “dead loss” investment which was occupying a lot of our godown space!

The bad news from India was delays and short supplies of pig iron from primary producers, despite guaranteed supplies for exporters.  There was a lot of commotion and public debate on this issue, and direct pig iron imports was permitted. We had good contacts in China and our Hong Kong agents had some connections, at least they claimed they had. We had some feelers from the Pakistani businessmen in the local market that they could obtain supplies from their steel mills.

After hectic parleys, we decided and attempt to buy pig iron from China, which was trying to establish commercial relations in a big way with India. We felt, if a good number of Indian buyers were to get supplies from China, maybe, just maybe, their supplies of cast iron products to our market come down. Many offers were in the market from Pakistan, and we decided to investigate this further by visiting their plants. 

Amanda, our representative in Hong Kong confirmed that she would be able to get the visa for a visit to Beijing. Vijay joined me in Dubai and we took our flight to Hong Kong to obtain the visa, for onward journey a couple of days later, as they had two flights a week at that time.

We had a couple of days to prepare ourselves for the tough negotiators in China, which we were visiting for the first time.

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts. From being the advisor to exporters, he took over the mantle of a trader, travelled far and wide, and switched over to setting up garment factories and then worked in the US. He can be contacted at [email protected].)

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