Revealing the Reason for A Rival’s Cost Advantage
Problem: A large restaurant chain used two international sources for its global promotional campaigns. One of the sources was losing its competitive position in bidding for this regular and reoccurring business because its rival was offering a lower price. While the price differential was only a few percentage points, the restaurant chain’s volume was in the millions, and failure would mean a substantial loss of business.
Action: Fairfax was asked to determine why the competitor had a bidding advantage.
Both competitors were using production facilities in China for all or most of their products; therefore, the cost basis should have been similar. But Fairfax discovered that a substantial number of the competitor’s products were being marked as made outside China, thereby evading import taxes and restrictions that applied to our client’s products.
When Fairfax visited the competitor’s supplier in China, the supplier offered to manufacture similar products marked as being produced elsewhere and detailed how to further conceal the country of origin. Indeed, the plant manager supplied samples of such fraudulently marked products.
Result: The restaurant chain rewarded Fairfax’s client with not only a level playing field on future bids, but some sole-source contracts as a thank you. Although the competitor and the chain were exposed to substantial import taxes in Europe and around the world, these were quickly negotiated to a more reasonable level as a result of the voluntary disclosure of the problem.