HANDOUTS: Negotiating and Influencing for Results

Activity 3: Case Study: HP and A.F. Tecnologie

Part 1: Diagnose a Negotiation

Background
HP US is in negotiations with a company called A.F. Tecnologie to launch a next generation
smart device. Product launch will be handled by HP India, who manage vendors for world-wide
roll-outs. A.F. Tecnologie ($10 million gross last year) have been an electronic manufacturer for
HP for about 4 years.

The story so far…

Last year Arianne Forrester, the founder of A.F. Tecnologie, was contacted by the HP Printers and
Personal Systems Group Director, Hans Geiger, and asked to supply a limited number of these
devices for test marketing in the U.S.
Hans assured Arianne that, if the trial period was successful, A.F. Tecnologie would be offered a
sole-source contract and guaranteed a profit margin of 15% (on all units produced) for the full
roll out.
During the subsequent negotiations, HP indicated that they wanted to have 50,000 units
produced for distribution in 11 U.S. markets.
Market research indicated that, due to the global economy, the market was soft and there was
price sensitivity. Additionally, IT Global (an HP competitor) was expected to enter the market
with a similar product manufactured by their vendor Techtia.
Given the competition, soft market, and price sensitivity, HP insisted on a very low per unit price
to the end customer.
However, A.F. Tecnologie had recently seen their raw material costs rise, along with their
transportation costs (affecting both receiving and shipping). These - combined with the set up
and production costs - made it impossible for them to make any profit given the low volume and
price that HP was insisting upon.

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HANDOUTS: Negotiating and Influencing for Results

Outcome of the deal

HP was unwilling to increase the volume and price.
Nevertheless, Arianne decided that the relationship with HP was critical for her over the long term
and decided to accept the risk that A.F. Tecnologie would not make much money from the trial
period.
AFT is a $10M in Revenue firm - so this initial order of 50,000 units at $100 ($5M total) was a
very significant opportunity for them.
She felt this was reasonable given HP’s promise of 15% profit going forward. So, Arianne agreed
to produce the units. To do this, she was forced to take out a loan to cover raw material, set up,
and production costs.
The units were produced and the trials run. The market trial was a limited success. HP ordered
and sold only 9k units in the test markets. HP is now planning for a full U.S. rollout, and is
anticipating a follow-up world-wide rollout.
However, Arianne calculated that A.F. Tecnologie lost $50,000 USD in providing HP with the
units.

The Companies

Company Details

A.F. Tecnologie A small personal electronics company in Italy.

They have the capability to produce the smart device for US and,
eventually, international distribution. Since they are still quite small
($10 million USD gross last year) they do not have the means to
market and distribute globally.
However, they are doing pretty well for a small Italian manufacturing
and design company!

IT Global Competitor of HP’s. They had plans to develop a similar next

generation smart device. Unlike HP, they decide the product is worth
the risk, finalize development and go to market.

Techtia Small personal electronics company in Italy. They are a direct

competitor of A.F. Tecnologie and a smart device manufacturer.

HP India HP India manages vendors for world-wide roll-outs, and has marketing
responsibility for Europe and Asia
To reduce risk and to benefit from competition, HP India has followed a
policy of multiple sourcing.

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HANDOUTS: Negotiating and Influencing for Results

The Characters

Company Details

HP U.S. Hans Greige Hans has been an executive in

HP’s US Printers and Personal
Executive in HP’s US Printers and
Systems Group for the past year.
Personal Systems Group.
HP’s Printers and Personal
Systems Group includes consumer
and commercial printer products,
business and consumer PCs,
mobile computing devices and
workstations.
The market is very eager for
innovative smart devices – this is
new territory for HP but potentially
a big opportunity if they can get it
right.

HP U.S. Shelia Miller N/A

HP US Account Representatives

HP India Kavita Gupta N/A

Executive in HP India’s PPSG
Vendor Group Management – India
Division

HP India Rabi Sharma Rabi has marketing responsibility

for Europe and Asia and wants to
Marketing Manager for HP India.
use innovative suppliers that
provide cutting edge products.

A.F. Tecnologie Arianna Forrester N/A

CEO and founder

A.F. Tecnologie Isabel Paparella N/A

CFO

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