Management 14th Edition by Leslie Rue,Lloyd Byars ,Nabil Ibrahim

Exercise 32

Hudson Shoe Company
John Hudson, president of Hudson Shoe Company, and his wife spent the month of February on a long vacation in Santo Oro in Central America. After two weeks, Mr. Hudson became restless and started thinking about an idea he had considered for several years but had been too busy to pursue-entering the foreign market.
Mr. Hudson's company, located in a midwestern city, was started some 50 years earlier by his father, now deceased. It has remained a family enterprise, with his brother David in charge of production, his brother Sam the comptroller, and his brother-in-law Bill Owens taking care of product development. Bill and David share responsibility for quality control; Bill often works with Sam on administrative matters and advertising campaigns. Many competent subordinates are also employed. The company has one of the finest reputations in the shoe industry. The product integrity is to be envied and is a source of great pride to the company.
During John's stay in Santo Oro, he decided to visit some importers of shoes. He spoke to several and was most impressed with Señor Lopez of Bueno Compania. After checking Señor Lopez's bank and personal references, his impression was confirmed. Señor Lopez said he would place a small initial order if the samples proved satisfactory. John immediately phoned his office and requested the company rush samples of its best-sellers to Señor Lopez. These arrived a few days before John left for home. Shortly after arriving home, John was pleased to receive an order for 1,000 pairs of shoes from Señor Lopez.
John stayed in touch with Lopez by telephone; within two months after the initial order, Hudson Shoe received an order for 5,000 additional pairs of shoes per month. Business continued at this level for about two years until Señor Lopez visited the plant. He was impressed and increased his monthly order from 5,000 to 10,000 pairs of shoes.
This precipitated a crisis at Hudson Shoe Company, and the family held a meeting. They had to decide whether to increase their capacity with a sizable capital investment or drop some of their customers. They did not like the idea of eliminating loyal customers but did not want to make a major investment. David suggested they run a second shift, which solved the problem nicely.
A year later, Lopez again visited and left orders for 15,000 pairs per month. He also informed them that more effort and expense was now required on his part for a wide distribution of the shoes. In addition to his regular 5 percent commission, he asked John for an additional commission of $2 per pair of shoes. When John hesitated, Lopez assured him that Hudson could raise its selling price by $2 and nothing would be lost. John felt uneasy but went along because the business was easy, steady, and most profitable. A few of Hudson's smaller customers had to be dropped.
By the end of the next year, Lopez was placing orders for 20,000 pairs per month. He asked that Hudson bid on supplying boots for the entire police force of the capital city of Santo Oro. Hudson received the contract and within a year, was supplying the army and navy of Santo Oro and three other Central American countries with their needs.
Again, several old Hudson customers could not get their orders filled. Other Hudson customers were starting to complain of late deliveries. Also, Hudson seemed to be less willing to accept returns at the end of the season or to offer markdown allowances or advertising money. None of this was necessary with its export business. However, Hudson Shoe did decide to cling to its largest domestic customer-the largest mail-order chain in the United States.
In June of the following year, Lopez made a trip to Hudson Shoe. He informed John that in addition to his $2 per pair, it would be necessary to give the minister of revenue $2 per pair if he was to continue granting import licenses. Moreover, the defense ministers, who approved the army and navy orders in each country where they did business, also wanted $2 per pair. Again, selling prices could be increased accordingly. Lopez informed John that shoe manufacturers in the United States and two other countries were most eager to have this business at any terms. John asked for 10 days to discuss this with his partners. Lopez agreed and returned home to await their decision. The morning of the meeting of the board of directors of the Hudson Shoe Company, a wire was received from the domestic mail-order chain stating it would not be buying from Hudson next season. John Hudson called the meeting to order.
What would you do if you were John Hudson?