“Give me a global-pricing contract, and I’ll consolidate my worldwide purchases with you.” Increasingly, global customers are demanding such contracts from suppliers. For example, in 1998, General Motor’s Powertrain Group told suppliers of components used in GM’s engines, transmissions and subassemblies to charge GM the same for parts from one region as they did for parts from another region.1
As globalization increases, customers will rachet up pressure on suppliers to accept global-pricing contracts (GPCs). Purchasers may promise international markets, guaranteed production volumes and improved economies of scale and scope. But what if they fail to deliver or if suppliers’ global-price transparency inspires them to make unrealistic demands?2
Suppliers must make three key decisions: whether to pursue a GPC, how to negotiate the best terms and how to keep a global relationship on track. We have found that the best tool for suppliers is solid information on customers. Information can help the supplier make a sensible counterproposal to demands for the highest levels of service at the lowest price.
Ignorance is dangerous. Consider an advertising agency we’ll call Proscenium XL. In 1996, Proscenium XL agreed to a global contract to manage worldwide advertising for a U.S. Fortune 100 company. Having no significant business with the client in non–U.S. markets, Proscenium XL saw an opportunity... To read the complete article, login or sign-up using the form below.
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