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Bakra Beverage

Confidential Instructions for Bakra Beverage’s Sales Director

You have recently joined the staff as sales director at Bakra Beverage, a soft drink
(flavored soda) distributor in the Middle Eastern country of Kumar. You are about to
negotiate your first distribution agreement with a major beverage producer, and are
eager to do a good job to impress your boss, Bakra’s president. During your discussions
with her yesterday, you gathered the following information:

Bakra is one of only three beverage distributors operating in Kumar, a Middle Eastern
country that used to be a thriving and prosperous country, with an educated middle
class and a booming tourist industry. About four years ago the country came under the
power of an oppressive fundamentalist regime, and its economy took a turn for the
worse. The new government of Kumar expelled all Western companies doing business
there, which almost sent Bakra into bankruptcy, since most of its distribution contracts
were with major American and British beverage manufacturers. Bakra has continued to
function despite its financial problems, but its prospects of reorganizing and becoming
profitable once again looked bleak until a surprising development last month, when
former government ministers and their allies in the Kumari military led an uprising and
ousted the fundamentalist government virtually overnight. Since then, Kumar appears
to be on the road to economic recovery, and Bakra is optimistic that it will once again be
a profitable company.

Bakra’s main competitor, Kabir Cola, is the largest of the three Kumari beverage
distributors. Kabir has been able to diversify its operations during the past few years,
and has remained profitable by expanding its distribution activities to neighboring
countries that continue to purchase Western products. The other Kumari distribution
company, Jayyid Juices, has also remained afloat by distributing in other countries, but
Bakra has never seen Jayyid as a major competitor because Jayyid distributes juice
products and specialty drinks, not soft drinks.

This case was written by Dan Vogel under the supervision of Robert C. Bordone, Thaddeus R. Beal Lecturer on Law at Harvard Law
School and Deputy Director of the Harvard Negotiation Research Project and Gillien Todd, Lecturer on Law at Harvard Law School,
and is based on the Program on Negotiation role simulation entitled "Sally Soprano I." Copies are available from the Teaching
Negotiation Resource Center, online at www.pon.org, by email: tnrc@law.harvard.edu, or by telephone at 800-258-4406. This case
may not be reproduced, revised or translated in whole or in part by any means without the written permission of the Teaching
Negotiation Resource Center Coordinator, Program on Negotiation at Harvard Law School, 501 Pound Hall, Cambridge, MA
02138. Please help to preserve the usefulness of this case by keeping it confidential. Copyright © 2004, 2005, 2010, 2018 by the
President and Fellows of Harvard College. All rights reserved. (Rev. 8/18.)



 Bakra Beverage: Confidential Instructions for Bakra Beverage’s Sales Director

Two weeks ago BebsiCo, one of the world’s two largest beverage producers, announced
it would begin a major distribution campaign in Kumar. BebsiCo is a multi-billion dollar
company with a number of food and merchandise subsidiaries. You were disappointed
but not surprised to learn that Kabir Cola would be handling the distribution, since Kabir
is a much more successful and reliable distributor these days. Late last week, however,
rumors began circulating in the industry that Kabir might not be involved in the
distribution as planned. Bakra, which has successfully distributed BebsiCo products in
the past, and still has good business contacts throughout Kumar, got in touch with
BebsiCo to ask if they would be willing to consider distributing through Bakra. Yesterday,
BebsiCo informed Bakra that they might be interested in working out a distribution
arrangement. A meeting has been scheduled for today between you, as Bakra’s agent,
and BebsiCo’s director of Middle East operations to discuss the situation.

It is difficult to overestimate the importance of the potential BebsiCo contract to Bakra.
It would put the company back on the map as a reliable distributor of major brands in
Kumar, and would likely end its financial difficulties because the prestige of distributing
for BebsiCo would certainly attract additional clients. Additionally, Jayyid Juices, which
has been failing for the past few years, has offered itself up for sale to Bakra. Bakra is
well positioned to expand its distribution in Kumar to include juice and specialty drink
products, and would like to purchase Jayyid, but has been nervous to expand its
operations beyond soft drinks given its uncertain future. Moreover, Bakra’s bank has
agreed to help finance the Jayyid purchase only if Bakra lands a substantial distribution
contract or series of contracts. A contract with BebsiCo (and the additional contracts
that would likely follow) would provide Bakra the financial security to go through with
the Jayyid purchase.

Needless to say, Bakra was thrilled with BebsiCo’s possible interest in a distribution
arrangement and desperately wants this contract. During your discussions with your
boss, she told you that getting this contract is what really counts, and that making
money on the deal is really secondary. She told you that, frankly, she would be willing
to distribute for BebsiCo in Kumar for free, except for reasons of professional pride,
reputation, and the potential impact on future engagements, the higher the fee for this
arrangement, the better.

In its yearly contracts with soft drink producers over the last few years, Bakra’s fee has
ranged from $1.5 million to $2.7 million. Five years ago, when Bakra was a leading
distributor in the Middle East, the company received $3.3 million per year for
distributing BebsiCo soft drinks in Kumar. Since then, due to inflation and the increased
costs of distribution (due to rising production costs throughout the Middle East), the
amount paid to soft drink distributors in the region has nearly doubled. Bakra realizes,
however, that it cannot necessarily promise the reliability and success it could five years
ago.

Copyright © 2004, 2005, 2010, 2018 by the President and Fellows of Harvard College. All rights reserved. (Rev. 8/18.)
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 Bakra Beverage: Confidential Instructions for Bakra Beverage’s Sales Director

Last year in Yoman, which has exactly the same population as Kumar and is identical to
Kumar in almost every way for distribution purposes, BebsiCo was said to have paid over
$3.6 million to another company for distribution of its soft drinks. The last time Bakra
did distribution for BebsiCo was two years ago, when it received a special dispensation
from the government to distribute BebsiCo’s products in the small, very highly
populated Kumari province of Melhand. Bakra received $1.87 million for the one-year
Melhand contract and met its distribution goals. Although exact figures are difficult to
come by, distributors appear to have been paid roughly half their normal Kumari
distribution fee for distributing in the Melhand province alone.

Bakra’s president believes the company’s experience and connections in Kumar make it
a particularly appropriate distributor for BebsiCo products there. One of Bakra’s board
members also used to be on the board of the largest chain-restaurant in Kumar, and
would certainly be able to help counsel BebsiCo in arranging distribution for those
restaurants. Even though Bakra’s business has been failing over the past few years of
political turmoil in Kumar, it has been faithful to its employees, all of whom it has kept
on at the firm, and is well positioned to take advantage of the economic recovery in
Kumar.

One of BebsiCo’s major concerns is the ability of its distributors to reach a sufficient
percentage of the target market for its products. BebsiCo wants to be sure that its
beverages are distributed in as many retail outlets as possible within its target markets.
Distributors, especially in the Middle East, often fall short of successfully distributing to
every single outlet, due to such factors as inclement weather, security concerns, and
bureaucratic delays. In most Middle Eastern countries, BebsiCo is said to reach around
75% of its target market in any given year, but in good years it succeeds in reaching 95%
of the market or more. If one of BebsiCo’s distributors only reached 50% or 60% of the
target market, it would certainly be their last distribution contract. In Bakra’s case,
anything less than 60% would probably put an end to its chances of avoiding
bankruptcy. Bakra is confident, however, that hitting only 50% or 60% of the target
audience would be extremely unlikely to occur because of a lack of effort on its part.

Prepare for your meeting with BebsiCo’s Director of Middle East Operations.

Copyright © 2004, 2005, 2010, 2018 by the President and Fellows of Harvard College. All rights reserved. (Rev. 8/18.)
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