Course : Principle of Marketing Use case to answer the questions below. National Gummi has problems. For them it is a new problem, but it is close to that being faced by many small to medium-sized companies these days as their major local customers become part of major multinational companies. Years spent building up relationships with them are in danger of being devalued as their customer's HQ is suddenly centred in a new culture oceans away. What is even more worrying is the standardisation of products; the rationalisation of suppliers and the use of alien e-purchasing systems often follow the consolidation of companies into global giants. All this is happening to National Gummi AB whose major customers, Ford and GM, have swallowed Saab and Volvo, respectively. National Gummi is a small company situated in the south of Sweden. Founded in 1941, it is now managed by the third generation of the founding family. It has 145 employees and a turnover of Skr 175 m (20m). National Gummi's main business is making rubber seals that go round the doors and windows of vehicles. Between them Saab and Volvo account for two-thirds of National Gummi's turnover, so to lose their business would be catastrophic. Through close personal relationships over the last 40 years the two Swedish carmakers have learned to trust National Gummi and recognise that the company that can solve their door and window sealing problems. The product Most sealing systems are made of rubber, a material with some drawbacks. Rubber cannot be recycled, it is expensive, complicated to handle in manufacture and is seen by final consumers as being environmentally unfriendly. National Gummi's aim is to change from using rubber to more environmentally friendly Thermo Plastic Elastomers (TPE) that are partly plastic and part rubber. Being a compound, its properties can be changed to fit the needs of doors and windows, while rubber has fixed properties. TPE is also recyclable either as waste material left over from manufacturing or as recovered from a scrapped vehicle, is easy and fast to use in production, has lower production costs and is generally more environmentally friendly than rubber. TPE's main disadvantage is that it is less 'elastic than rubber so does not form an effective seal in some parts of all cars, which means that it will have to be used alongside rubber in car assembly. National Gummi aims to solve TPE's elasticity problem but expects that everyone else in the industry is trying to do the same thing. Following the tradition of past partnerships, in 1998 National Gummi, Saab and Volvo set up a joint project team to develop better TPE seals. After some discussion, the team was made up of two National Gummi engineers, one engineer from each of Saab and Volvo, a polymer-researcher from IFP Research Ltd and a marketer from Halmstad University. Members of the project team all contributed different skills. The National Gummi engineers knew a lot about seals but had little experience with the rest of car assembly. In contrast, the Saab and Volvo engineers had limited experience of seals but knew a lot about cars generally. The IFP researcher had expertise in plastics and rubber generally rather than in their use as seals. It is common for the Swedish carmakers to work with suppliers on new projects. For components such as floor mats or light bulbs there is little reason to involve suppliers until late in product development. However, with a component such as a seal, which will affect both design and assembly, early participation of all parties in design is very important. The engineers do not have it all their own way in design. The carmakers' marketing people will be championing their customers' requirements, while the purchasing department will be fighting to get costs down. A relationship without marketing It is very difficult to become a new supplier to either Saab or Volvo. New "partners' have to fill all technical requirements, have a low price and be someone that the companies can trust. The relationships are important since the quality and value of the final product are only as good as the components. Of course, National Gummi's 40 years of service and numerous long-standing personal friendships with the carmakers' people give National Gummi a great advantage. Saab and Volvo feel that the people at National Gummi are more than just business partners. They are friends with whom they have worked for many years and who have cooperated in solving many business problems. Through long partnership, National Gummi know the needs of Saab and Volvo and how to work with them. Of course, National Gummi's relationship with the carmakers has changed over the years. One of National Gummi's early advantages was their extreme proximity to the car plants. When that was the case it was possible to make a visit and solve design or manufacturing problems within hours. Over the years, Saab and Volvo had become more international with operations all over Europe. In some markets National Gummi had to deal with Saab and Volvo through agents and the business had shifted from one with a single language and culture to a multilingual, multicultural entity. IT had started to play a bigger role in routine communications between the carmakers and their suppliers. Meeting the needs of quality management and just-in-time management had also applied pressures, and National Gummi had to establish representation and extra facilities adjacent to car plants. It had become harder and harder for a small independent company to survive in a rapidly changing and increasingly global industry. Increasingly, communications between National Gummi and the carmakers were electronic: email, telephone, fax and shared software to handle orders and design drawings. However, personal communications remained paramount in maintaining understanding between National Gummi and its customers. Video-conferencing had been used to work with more geographically distant partners and National Gummi knew of several cases of small companies exploiting global markets through the World Wide Web. The closeness of National Gummi to its customers had allowed the company to develop without the need for conventional marketing skills. Engineers did technical selling and new customers had always found National Gummi rather than the other way round. This worked fine as long as Saab and Volvo remained good partners who respected the profit margins needed by subcontractors. The threat now was the tendency of the industry to seek system solutions rather than components, for example, subcontracting the provision of whole door assemblies, window and door seals included, rather than lots of bits and pieces. These jobs were hard for a small company like National Gummi to tender for and demanded lots of skills that they did not have. Saab and Volvo were also part of large American companies that put less emphasis on the personal relationships that had been National Gummi's major advantage for so long. Saab and Volvo retained marketing operations in Sweden but these were becoming servants to the global operations, such as Ford's Berkeley Square-based Premier Automobile Group which manages Volvo alongside the Aston Martin, Jaguar, Land Rover, Lincoln and Mercury brands. Covisint, the giant electronic automobile component exchange with its headquarters in Michigan, was also being set up by DaimlerChrysler, Ford, GM, Nissan and Renault. Expected to have a turnover of $250 billion (280 billion), the Internet exchange would have at least one office in Europe. One of the aims of establishing Covisint is to squeeze margins out of suppliers to the tune of $1,000 to $4,000 per car in the US where costs are already low. As a small components company with limited potential for systems solutions or advanced research, National Gummi knew it would have to change in order to survive. Advisers had suggested several alternative ways ahead for National Gummi: 1. To become a sub-subcontractor and supply one of the major subcontractors with components. In this case, National Gummi's customers would become the car manufacturer's prime vendors who supplied door assemblies. 2. To specialise in components that are not a part of a system so are sold separately to carmakers. 3. To increase that part of their activities that does not go to Volvo or Saab by finding new customers or selling inore to existing customers. Aside from Saab and Volvo, National Gummi has about 2,000 smaller customers. 4. For National Gummi to be more proactive in trying to find customers instead of waiting for customers to find them. Questions 1. Why is National Gummi facing the problems it is and what could it have done to avoid them? 2. Since National Gummi survived for so long without any marketing activities, would it have been an unnecessary luxury to develop them until recently? 3. How did National Gummi add value to its service to its past clients and how can itu continue to do so? Does the development of electronic exchanges mean that relationships between customers and suppliers are history? 4. Since the close relationships between National Gummi and the Swedish carmakers were the foundation of its past success, does the company's present state suggest a danger in relationship marketing? Does relationship marketing differ from what National Gummi has been doing? 5. Examining the strengths and weaknesses of National Gummi, what strategy would you propose for them