San Fabian Case Study Essay Example

sector, they maintain lists of architects and contractors who salespeople frequently contact. They also have relationships with Chinese dealers in the wholesale sector like Paul Cheng. Additionally, they have personal connections with individuals at all levels of government across multiple departments, enabling them to drive sales and collections in departments such as Public Works.

Aside from selling MacDowell's products, San Fabian offers a range of other building supply products that complement MacDowell's offerings as part of end-to-end solutions. They provide feedback to MacDowell on the Philippine market and potential for more product; however, this advice is often ignored. Furthermore, San Fabian stands out as one of the few dealers in the Philippines willing to carry MacDowell products in inventory and provide shelf space to showcase them to customersMacDowell is a reliable customer for San Fabian as they consistently pay within 60 days. The MacDowell business is highly attractive to San Fabian due to its strong brand name, exclusive distribution approach, valuable relationships, complementing product offerings, and timely payment habits. In terms of profits, San Fabian's earnings from MacDowell products align with their overall gross profits of about 19%. Dealer sales, which make up 22% of total MacDowell product sales, result in a profit of 15% (2% loss). On the other hand, government and retail sales account for the remaining 78% of MacDowell product sales and earn a profit of 20% (3%). Despite this profitability, MacDowell plays a crucial role in helping San Fabian become a housing market solutions provider in the Philippines. There are limited alternatives available for San Fabian. For instance, Permalite pipes cannot be replaced since the only two other Filipino suppliers already have

exclusive distributor relationships established. Furthermore, cast iron pipes are much more expensive than Permalite pipes, especially for sizes below 8", which currently constitute 85% of Permalite sales. Plastic pipes are unsuitable for the target market and imports carry high duties making them non-viable options for San Fabian.In the Philippines, there are only two suppliers of Pyrolite corrugated sheets, which offer cement-based alternatives similar to Permalite's products. San Fabian currently has exclusive distributors for galvanized iron, but the profit margins on this product are insufficient to cover costs. Furthermore, galvanized iron lacks fire resistance, has limited differentiation, and faces challenges in distribution networks. Aluminum is a potential alternative option; however, it is not as strong as Pyrolite in extreme weather conditions. Nevertheless, faulty installations may also undermine the effectiveness of Pyrolite. The same two Filipino suppliers provide Pyrolite flat sheets. Plywood and mindamar are inadequate substitutes that would damage San Fabian's reputation for high quality products.

Regarding the MacDowell business, it is crucial not to completely abandon them since they hold strategic importance within San Fabian's product portfolio. Despite a decrease in profit margins, MacDowell accounted for less than 14% of sales in 1986 (44,051/320).

619) The retail portion of San Fabian's sales in 1986 was only 4% and is projected to decrease even further. It is vital to maintain a relationship with MacDowell in case they change their minds and want to negotiate a new exclusive distribution agreement. Hence, Paul Cheng should not help MacDowell enter the Filipino market. Instead, he should concentrate on his long-term objectives and devise a strategy to achieve them.

According to MacDowell's market understanding, the best solution for addressing the market is

entering an exclusive distribution agreement with their partner, San Fabian. Meanwhile, Paul should keep stocking MacDowell products to maintain a complete product line but reduce specialized staff to improve profits and decrease the profitability threshold. It is also important to relocate staff within San Fabian or offer them voluntary buyouts with non-competes to prevent MacDowell from hiring them and creating their own customer service division. It should be noted that Brevett's examples of sales growth through increased dealerships were all in the consumer packaged goods sector (such as beverages and personal health products), which may not directly apply to this situation considering it involves building supplies.

Questions for MacDowell:

1) What are the reasons behind MacDowell's dissatisfaction with San Fabian? Has San Fabian met the expectations of being a good distributor?

MacDowell is unsatisfied with San Fabian due to several factors. They believe that San Fabian has not put enough effort into convincing dealers to carry their inventory. Additionally, they feel that San Fabian has not effectively promoted the benefits of MacDowell products or educated customers on proper installation and handling. MacDowell is also skeptical about San Fabian's cost structure, which results in higher prices. Furthermore, MacDowell wants to eliminate the middleman and retain more profit for themselves to invest in sales activities without reducing prices. Moreover, despite earning a higher profit margin compared to other distributors, this has not translated into a significant market share.

Furthermore, MacDowell suspects that San Fabian has not made sufficient efforts to increase their market share. This lack of effort has led to excessive capacity and fixed costs for them. Specifically, in terms of market share percentages: pipes - 15% (while Verenez has

45% and cast iron holds 15%), corrugated sheets - 10% (while Verenez holds 20% and galvanized iron takes up 55%), flat sheets - 5% (while Verenez holds 10%, and plywood occupies 55%).There is a possibility that San Fabian has not informed MacDowell about the fact that the majority of sales in each of their three product lines come from only a few products out of many options. MacDowell could have helped reduce manufacturing costs by actively assisting San Fabian in this matter. Additionally, it is inconsistent with MacDowell's usual business practices in other countries to have an exclusive distributor. It remains unclear how much benefit MacDowell would gain from terminating its relationship with San Fabian. The fact that most of MacDowell's competitors in the Philippines also have exclusive distributors suggests that such relationships are advantageous for entering the Filipino market. Furthermore, having a non-Chinese leader at MacDowell not only hinders them but also worsens the situation as they lack the personal connections that San Fabian has utilized successfully over nearly two decades to sell their products. It is difficult to imagine that without San Fabian, both commercial and government sales for MacDowell would either increase or remain consistent; there is a high chance that those sales would decrease instead. Even if there were higher profit margins on lower sales numbers, it could still lead to reduced profitability for MacDowell.Moreover, the building supply market operates under different buying dynamics such as higher prices, institutional versus personal purchases, and the significance of personal relationships. Therefore, the effectiveness of a dealer approach in this market has not been tested. Considering MacDowell's weak products in the market, it is

reasonable for them to terminate San Fabian's exclusive dealership agreement to explore new strategies that can boost sales. Ultimately, San Fabian and MacDowell depend on each other mutually - San Fabian needs MacDowell as much as MacDowell potentially needs them.

The available information does not provide enough details to determine why MacDowell has not gained significant traction. However, it can be argued that San Fabian prioritized maintaining margins over generating market momentum for MacDowell. This situation also presents an opportunity for MacDowell to evaluate other potential dealers and explore the possibility of establishing a new and improved distributor agreement in the future.

Now, Jean Brevett faces the question of what to do next and what his ultimate goals should be. His primary objective should be to retain San Fabian as a dealer since they have been long-term partners and strong advocates for the product line. Given the significant influence of Guanxi in the local business environment, people in the Philippines will pay attention to San Fabian's opinion of MacDowell. Therefore, Brevett should consider providing San Fabian with some form of preferential treatment, no matter how small, to ensure their satisfaction while concurrently executing the remaining steps of MacDowell's plan to assume more control over the sales process.

His ultimate goal is to maximize MacDowell's capacity and boost sales. If San Fabian's suggestion of having an exclusive distributor is correct, he should prioritize their satisfaction and keep them prepared to sign a new distribution agreement if needed. However, if San Fabian is mistaken, Jean should focus on building strong connections with government and commercial contacts like San Fabian has done and integrate MacDowell into the market. As for dealers,

Brevett should draw on his experiences in Australia, but adapt his expectations accordingly due to the different market dynamics in the Philippines and the possibility of being perceived as an outsider.