ASSIGMENT 2

AZ Textiles versus TexItalia

The Deadlock in Negotiation

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Summary
Introduction:
This case is about of three-party negotiations through a business conflict between TexItalia,
Italy; Creative Clothing and Textiles, Pakistan; and AZ Textiles, Pakistan. Creative Clothing and
Textiles is a buying house acting as the middle man between AZ Textiles, a woven garment
stitching unit, and TexItalia, its customer.

Issue:
The issue arises from quality. Iftikhar Khurshid was the Managing Director of Creative
Clothing. Textiles, have a buying house in Lahore. He comes to know about the issue regarding
the deadlock in negotiations between his client TexItalia and his supplier AZ Textiles. One of the
orders delivered to TexItalia had quality problems and TexItalia had raised a claim for the
defects. AZ Textiles had not paid the claim and as a result TexItalia had stopped placing further
orders with AZ Textiles.

Scenario
Ifthikar khurshid is the owner of a buying house. A buying house served as a bridge between the
customer (retailer/wholesaler) in the foreign market and the supplier (manufacturer) in the
domestic market. The biggest advantage a buying house presented to customers was its physical
presence to the manufacturers. Since they were located close to the manufacturer, buying houses
could monitor production more effectively. CCT was formed in April in partnership with Mario
Maldini, an Italian. Maldini had vast experience in the textile sector and had represented various
suppliers as their agent in the Italian market. Iftikhar Khurshid and Mario Maldini was equal
partner of CCT. Maldini primarily took care of the marketing side for CCT as he approached
potential clients in Italy to generate business. Khurshid, on the other hand, worked to build a
strong relationship with Pakistani manufacturers and was responsible for monitoring production
and communicating with customers regarding progress of their orders.CCT was one of the few
buying houses which dealt with many product lines. In March 2000, CCT approach TexItalia, an
Italian retailer, to convince them to work with Pakistani suppliers. TexItalia was an Italian
retailer based in Florence. The company had a unique selling technique .The companys target
customers were primarily farmers who lived in the villages. TexItalia visits Pakistan to see the
quality manufacture of products. In addition to the modern production facilities, he found a
significant cost advantage (up to US 3$ per garment) in working with Pakistan. After his visit
CCT was appointed TexItalia official representative in Pakistan; it was agreed that the buying
house would handle all orders in Pakistan. During the initial business relationship, both CCT and
AZ Textiles had encountered significant communication problems communicating with TexItalia
quality department. The initial size charts received from Company were all in Italian. After some
initial trial orders, TexItalia placed its first major order with AZ Textiles. At starting the quality
of product was highly appreciated but the next consignment caused quality concerns at TexItalia.
The size specification was not follow by AZ textiles but it was fault of Texltalia because of
communication barriers. AZ textiles followed the provided specification size. However, things
soon got worse. The next couple of orders also had minor complaints. TexItalia, by examining
the samples, found that the pattern in the orders was flawed and the trousers had an unusually
round shape around the hip area. In the next consignment they found that the quality of the
childrens jeans order was completely unacceptable. The childrens jeans order were roughly
5,000 trousers and at US$ 5 per garment and was worth approximately US$ 25,000. Baresi was
very firm this time and asked Khurshid to get AZ Textiles to refund roughly US$ 30,000 to
compensate for the loss. When the complaint was communicated to AZ Textiles, they also
followed the same procedure and declared that the samples they had retained of the shipment
were according to customer specifications. CCT pushed for a quick resolution of the refund
issue. However, AZ Textiles was not willing to make commitments. Finally, AZ textiles
offered TexItalia a 10 per cent discount on all future orders. AZ Textiles would continue to offer
the discount until the full amount of the US$ 30,000 claim is settled. TexItalia refused it, they
want to clear all the arrears before next order. CCT instructed AZ Textiles to come up with a
better offer. In final meeting AZ textiles made offer that they are interested in working with
TexItalia and they are willing to offer a 15 per cent discount on all future orders. Andenna was
not impressed and insisted on payment of the entire claim upfront. Khurshid spoke to Saeed
once again and pressurized him to pay the claim, promising to discuss future business with
TexItalia as soon as the claim was settled. Then AZ Textiles offered that they will b giving 20
per cent discount on all future orders until the claim is settled. But Textalia were there on their
original stance that AZ Textile paying the entire claim upfront.



Analysis:

The case is between two textile companies of Pakistan and one Italian company TexItalia. The
textile industry was one of the most important sectors of the Pakistani economy, accounting for
67 per cent of exports, 38 per cent of employment and 27 per cent of value added by
manufacturing. In case problematic area was quality of consignment. Three consignments were
sending to the TexItalia having the defects in products. After analysis finding are

AZ Textiles:
AZ Textiles was a woven garment stitching unit of very high repute in Pakistan.
Almost 90 percent of its revenues came from Europe, while the remaining 10 per cent
came from the US. It was working with renowned customers such as Auchan (France),
Wal-Mart (UK), Rinascente (Italy), GAP (US), RDK (Spain) and Diesel (Italy).
TexItalia was not one of AZ Textiles largest customers.
TexItalia had transferred roughly US$ 1 million worth of business to AZ Textiles.
One-third of TexItalia total jeans requirement for the year given to TexItalia.
AZ Textiles have good opportunity to grab more order from TexItalia.
AZ Textiles had a fear that if they paid the full amount to TexItalia then there is a chance
that TexItalia will not continue business with them
Because for not accepting the discount offers shows that TexItalia is not interested to do
business in future with them
There is no chance of recovery of payment. Because if they do the full payment and
TexItalia will not continue then they cannot recover the loss
CCT issues quality certificate. As CCT is the buying house, so it is also responsible for
the defects. Because they are also responsible for quality checking.


TexItalia:
TexItalia was an Italian retailer.
The company had a unique selling technique.
The companys target customers were primarily farmers who lived in the villages.
TexItalia is doing business in Pakistan beside negative image of Pakistan after 9/11 in
world.
Quality defects were found many times in consignments send by AZ Textiles
After finding that defects AZ Textiles did not give proper response to the TexItalia.
No compensation provided to TexItalia.
According to TexItalia attitude of AZ Textiles towards handling conflict is not good.
Why TexItalia make payment if they are not certified
TexItalia is not going to trust AZ Textiles again.

Creative Clothing and Textiles:
Creative clothing and textiles is a buying house.
Buying House served as a bridge between the customer (retailer/wholesaler) in the
foreign market and the supplier (manufacturer) in the domestic market.
CCT was one of the few buying houses which dealt with many product lines
the quality defects creates negative image of CCT

Recommendations:

AZ Textiles pay full payment to TexItalia by signing a contract that they will do business
with them for next five year.
One solution is that CCT paid all payment of loss and signed a contract with TexItalia for
next five years. On the other hand CCT try to receive 20% discount from AZ Textiles.
CCT do full documentation for rules and regulation of quality concern, loss and so on.
AZ Textiles improve their management skills.
Remove language barrier and improve marketing skills
AZ Textile makes a proper complaint department for quality concern.