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COVID-19 Pandemic Market Teachings: Before And After – OpEd

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During the Covid-19 pandemic usual commercial practices all over the world have changed: the regular working medium has become the home-office, rules have changed for the asking for offers, pricing has to be made over the internet, face-to-face sales negotiation meetings have been put into the zoom environment, plane travels stopped, opening construction sites in distant countries has become difficult, supplies delayed, and force majeure items became operational in contracts.

For many years, I worked in the sales of industrial steam boilers in the thermal power plant marketing business. In thermal power plant tenders, a standard tender document comes before you, you design the power plant using special software with the expert engineering firm you work with, you determine the external purchases, you get the price one-by-one, add the financing costs, add the profit rate determined by your company and calculate the price. Prices are opened in public, bids are examined, the equivalent offers are brought to the scale, the cheapest price is revealed, and the work is given to a contractor according to generally accepted rules.

It is essential that the tender is not repeated, because if it is then other companies can learn the cheapest price and will not hesitate to go below the lowest figure. It is wrong for the firm offering the cheapest price to insist on staying at price. If the tender is to be repeated, it is better to withdraw your offer from the tender immediately, it is difficult to get rid of the damages to be made in the execution of the project by decreasing the price. Many firms in the market go bankrupt because they cannot calculate the bid price well.

The business of selling industrial steam boilers is completely different. The industrial steam boiler needs of the factories in public institutions are taken in wholesale design while the factory is established, then the need for growth comes to you in a separate package, in this case you need to be in the consortium of the main contractor.

If a private company needs a new boiler, the most inexperienced engineer will contact you for this job. This new engineer doesn’t know what to do. Tender documentation is often absent, steam boiler parameters are missing or incorrect. Fuel is uncertain. So you have to teach and educate the buyer.
You prepare an offer with limited information. They ask you for your offer within 1-week, optimistically within 1-month at most, then they themselves evaluate for 3-months, sometimes 6-months.

Let’s say you have designed an industrial boiler to international standards, you have given the price, the best in the market, and the price is quite expensive for this quality. They call you, they show you other inferior offers, get them examined, then they want your price to be reduced to the lowest offer. In the United States or in many Western European countries, it is a crime to disclose other offers to competitors, thus putting pressure on prices, there are serious sanctions and penalties. However, in our geography and in the Middle East, this behavior is extremely natural. The buyer says “review other offers, give the best price, the cheapest price”. This results in the bid being the cheapest, but often not the best.

A company that produces cleaning agents soap detergent in Istanbul decided to close its old factory in Istanbul and move to a more modern place outside the city, asked us for a new industrial boiler for its new factory, we prepared it, delivered it. The company owner called us and we attended a meeting in the center of Istanbul. We agreed on the terms of payment, price, delivery, then the owner of the company made a final request from us. In the heat insulation of the boiler, we put a stainless aluminum sheet coating on the rock wool, the company owner requested that this closure be stainless steel and the price does not change. This change in the meeting room created for us a big problem during the project execution period, the welding of the thin stainless steel plate was very difficult, some places had to be riveted, and the material was very expensive.

The owner of an important company that produces bathroom accessories in Central Anatolia, welcomed us with a foot under the sofa in his office, looked at our offer with the tip of his finger, then said, “Cut your price in half and let me give you the job”.

The owner of a large synthetic fiber factories in the center of Istanbul said, “if you can do the external piping with this boiler, you get the job”, in a very short time, we got the job with the additional price we gave after the phone call with our design office, but the external piping price we gave was not enough to cover cost.

We gave a combined cycle power plant waste heat boilers offer the ex-factory delivery basis in Pakistan, the main contractor company, said, “if you can also cover the on-site installation you get the job”. We provided the price based on the conditions in Turkey, which were very comfortable with a good price, but it did not meet the site installation costs in Pakistan’s conditions.

A cardboard producer company asked for a coal-fired industrial boiler, we calculated the price very precisely, the price came out a little over $3 million dollars, and we reported the price to the buyer to keep in mind, “it would not be such a ridiculous price.” This was a negative comment they declared.

All of this suggests a few things to remember: Resist last minute changes in business life, if they want change, ask for time, do very precise calculations, do not go to new geographies that you do not know for big projects, learn the environment well, and if you are going to new environment, then keep the scope of your risk very small.

The profit margin is not important for employees when bidding, profit benefits the owner or shareholders. As such, even winning unprofitable jobs is always good for employees, if you have a job, you pay salaries, people do business to make money, it is important for employees to get work, and get paid.

There is no mercy in bargaining in the markets, the system works with its power, conditions are even more difficult in international markets, there is no win-win, every negotiation is “I have to win, you have to lose”, it works with the understanding, so do not lose.

So far I have explained the old ways of business. Now, another world awaits us all ushered in by Covid-19.  Orders have ended up in Turkey’s domestic market nowadays, but other demands continue in the near geography. Georgia, Turkmenistan, Pakistan, Bangladesh, Nigeria, Tanzania have opened up new opportunities. Chinese contractors during Covid-19 to some extant have imprisoned in their own country and they do not have access to this process.  

Additionally, there are similar difficulties for us as well, it is possible to reach the bid request documents over the internet, but if you get the job, it is not clear how will you carry out the work, how will the personnel, equipment, and devices go to job site, how will the work be managed remotely?

You may have experienced something similar to what I write here. Let’s learn about the bidding process, negotiations, contract studies, force majeure conditions, and new events during the covid-19 process.  My email address is halukdireskeneli at yahoo dot com

Haluk Direskeneli

Haluk Direskeneli

Haluk Direskeneli, is a graduate of METU Mechanical Engineering department (1973). He worked in public, private enterprises, USA Turkish JV companies (B&W, CSWI, AEP, Entergy), in fabrication, basic and detail design, marketing, sales and project management of thermal power plants. He is currently working as freelance consultant/ energy analyst with thermal power plants basic/ detail design software expertise for private engineering companies, investors, universities and research institutions. He is a member of Chamber of Turkish Mechanical Engineers Energy Working Group.

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