ILUMINUM

Assignment Questions

1.With the benefit of hindsight, what should Mr. Celik have done differently, if anything?

2.Do you see any other option(s) for Mr. Celik in December 2011?

Which specific course of action would you recommend to him?

3.Please help Mr. Celik prepare few long-term policies.

ILUMINUM, Inc.

On December 10, 2011, Mr. Osman elik, president and owner of Iluminum, was sitting in a plane flying from Istanbul to New York. This trip would be crucial for Iluminum's exports.

In spite of all that had happened until now, Mr. Celik was convinced that his product had to work in the U.S. It was just a question of knowing how to do it.

The company

Iluminum was founded in 1987 by Osman Celik, to manufacture and sell lighting products. Mr. Celik was the firm's president and sole owner. After its founding, the company's sales grew rapidly as there were no products on the Turkish market that could offer the level of design and quality offered by Iluminum.

Sales in Turkey were made through independent representatives on commission. The company also had three sales branches in Ankara, Izmir and Adana. All the representatives held stock as clients required that orders be delivered promptly. Stocks held between the three branches and all the representatives amounted in 2011 to more than 2 million dollars. The 32 representatives reported to a sales manager who in turn reported to the sales director.

There were two representatives abroad, apart from the United States: one in the United Arab Emirates and one in South Africa.

In 2011, Iluminum had about 150 people on its payroll and annual sales amounted to about 9 million dollars.

The start of exports

The possibility of exporting was first considered as a way of balancing the drop in domestic sales in 2008. Two American brothers who had seen our web page spontaneously visited the Istanbul factory bought samples worth US$ 10,000. They paid in cash. They said that these products would sell very well in the United States and that they were taking this small order to use it in their display and sales showroom. The asked to be distributors for New York and, later, for the entire United States.

The first trip to the United States

It was decided not to grant them the distributorship for New York before going there and getting to know them better. On this first visit, made by Mr. Celik, the General Manager and the Export Manager, it seemed that the company ran two shops selling similar articles, that it seemed very successful but they did not have a sales network.

Iluminum decided to attend, in January 1983, the NAHB (National Association of Home Builders) trade fair-convention in Houston, Texas. Mr. Celik commented:

"We spoke regularly with the two brothers in New York. They told us that they had already hired and paid for our stand at the NAHB. We answered that we had not yet appointed them. We proposed that we attend the NAHB jointly and split the costs. They agreed but at the last minute we discovered that they had "inflated" the real costs."

Participants stopped by and showed great interest in the product. This was all the more significant taking into account that it was truly a "trade" fair, i.e. not open to the general public. A Canadian firm bought the entire stock to use in a fair in Canada.

The general run of comments made by those people who had shown interest was that the product was very good but that first it had to be officially approved by the relevant bodies (UL in U.S.A. and CCK in Canada). After receiving official approval, it would be easy to sell 4 or 5 million dollars annually throughout the country. The New York brothers continued to insist and finally in March, 2010, they were given the distributorship for New York and New Jersey. Mr. Celik commented:

"They never had enough time to get down to talking about things seriously. They were representatives for a leading furniture factory in the U.S.A. but they seemed highly disorganized....".

During 2010, with the product still awaiting official approval, these representatives bought stock worth US$ 150,000, which was sold entirely in their shops.

Two other representatives were appointed, one in Texas and another in California. Mr. Celik had the following comments to make on these two companies:

"The Texan company proposed to be our representatives for the whole of the United States". The Canadian who had bought almost all the samples in the fair offered to be our representative in California, where he had a sleeping partner. We granted him distributorship for that area".

The problem of official approval

In order to be able to sell in the United States that the products be approved by the corresponding bodies.. Mr. Celik commented:

"Getting official approval was terrible. We had to import the switches and other electrical components from the U.S. because ours did not meet the American requirements and standards".

The "representatives' convention"

As has been said, three representatives had already been appointed (West Coast, Texas and New York). Furthermore, Mr. Omer, a personal friend of Mr. Celik and Turkish by birth, was named representative for Miami.

With the product now approved and eager to start seeing some results, Iluminum again exhibited at the NAHB.

After the fair, a meeting was held with the five representatives (Chicago, Florida, Texas, West Coast and New York). The aim of this meeting was for everyone to meet each other, to establish general operating policies, to decide on prices and discounts and to ratify the minimum order of US$ 100,000 for starting stock that each representative must make. Discussions were prolonged but finally an agreement was reached.

The rules we established for doing business were: 1) irrevocable letter of credit from them and 2) we would commit ourselves to shipping within 45 days after receiving the letter of credit.

Operations during 2011

When they got back to Istanbul, production was planned for both the domestic and the USA markets. The first irrevocable letter of credit for US$ 100,000 arrived from the Florida distributor in February, 2011.

In the following months, up until May 2011, , stock was building up in the factory's warehouse. Mr. Celik had the following to say:

"We had a different problem with each one. The Canadian we had appointed in California was always telling us that we would soon start to receive orders from him, that he was getting himself organized. With the New York distributors, we saw that they had set up a huge showroom with our products and at that time they asked that we give them the whole East Coast. They said that they had already registered "Iluminum Inc." in the United States and that they wanted their products to carry their trademark".

"In the case of the Florida representative, after the initial order for US$ 100,000, expected sales did not come.

In Istanbul, production was still progressing at a fast pace to supply the "avalanche of orders" that was expected. Financing these huge stocks forced the suspension of payments. As Mr. Celik said:

"We reached almost 6 million dollars in finished products stocks in May and it wasn't until September that we finished sorting out the mess with lawyers, banks, etc. For me, they were four terrible, virtually sleepless months.. By September, things were returning to normal".

In June 2011, the controller of the Texan company had come to Turkey on vacation. He visited Iluminum when he was in Istanbul. He spoke with Mr. Celik and explained how his company saw its relationship with Iluminum:

To be quite frank, just to be representatives for Texas does not interest us very much. It would mean annual sales of 2-3 million dollars. If you were to make us sole distributors for the whole country it would mean selling 10 million dollars annually with 2 or 3 million dollars profit."

The alternatives

In June 2011, a letter arrived at Iluminum sent by a chain of stores in the U.S. asking for price lists and catalogs. This letter was signed by Mrs. Wilson, Purchasing Manager. Mrs. Wilson proved to be an expert on the market as she had been a buyer for many years.

In one of her meetings with Mr. Celik, she had said to him:

"In the U.S., you must start selling little by little, as you did in Turkey at the beginning, with a controlling warehouse in some place which gradually builds up a sales network. This head office could set all the policies and guidelines to be followed by the representatives. You've got to give a lot of backup to the distributors and attend fairs at least 4 or 5 times a year. All this would be a lot cheaper and more efficient if you had someone permanent in the U.S."

Mr. Omer was enthusiastic about this idea as he could run the head office. Mrs. Wilson would be willing to work with him part-time.

The decision

Mr. Celik commented,

"After two years trying, we're starting to find out how things have to be done to succeed. Many factors are different in the U.S. in comparison with Turkey".

"We saw distributors only as people who buy and pay instead of as channels for selling our products to the consumer. Our sales effort should not be limited to selling to the distributor but to try to do everything possible to reach the final customer. This is what we do in Turkey but obviously we haven't done it in USA".

In December, 2011, flying towards New York, Mr. Celik reviewed all that had happened and wondered what future options he had in the U.S. market.

In order to make an initial analysis, he took out three sheets of blank paper.

On the first sheet he wrote:

"OPTION 1: Forget about the U.S. market. Stop all sales efforts there and direct all our resources to the Turkish market. At most, try to open up the European market.

On the second sheet he wrote:

"OPTION 2: Continue with the present strategy, i.e., granting territories within the U. S. market to different distributors. Seek new distributors for areas not yet covered. Replace the weak distributors."

Finally, on the third sheet he wrote:

"OPTION 3: Cancel all contracts and grant exclusive import rights for Iluminum products for the whole U.S. market to Mr. Omer or to the Texan company".

He then drew a vertical line down each sheet, dividing it into two halves. On top of each half, he wrote "pros" and "cons".

While he looked at the three sheets of paper, he wondered if he had any other options, apart from those he had written.

He was fully aware that not only should he be clear about what he had to do but that, whatever the option chosen, he should outline a clear plan to put into action the very moment he stepped out of the plane, once again, onto American soil.