Operations Research

1. Critically compare the four situations mentioned in the case and discuss how Pack Tech and its partners in each of the four case situations trust or do not trust each other?

A. The four situations discussed in the case are mentioned below:

i. The Case of Iranian Agent: The business started in 2002 with no formal agency agreement as both the parties wanted to explore their mutual potential and capabilities for a year before drafting an agreement. As the business grew in numbers with time, the relationship and a mutual trust also got developed and therefore the need for a legal agreement was not felt either by Pack Tech manager Riyaz or the Iranian agent Ali. In 2006, Ali forecasted that he would make 30% of Pack Tech business in Iranian market itself and considering his track record and progress of past 4 years Riyaz too expanded his production capacity by 50%.

The business relationship was going strong until 2007 when Ali was confronted with the problem of competing with his competitors on price. Furthermore, the Iranian government increased the import duty on aluminium foil products by 15% and instructed the banks to reduce the lending interest rate from 18% to 9% for manufacturers. Due to the country's internal problems, banks were also not willing to open letters of credit to importers. Considering all this Riyaz offered maximum support from his side by reducing prices, increasing credit facility and extending the credit period but Ali expected more since his margins became negligible.

Finally he decided to part ways by cheating on Riyaz's trust by opening his own packaging company involving Pack Tech technical manager without Riyaz's knowledge. Therefore the lack of a formal legal agreement not only led to loss of a successful market in Iran but also resulted in a production capacity redundancy of 25% for the company.

ii. The case of Sri Lankan Agent: The business between two parties started in 2001 and was running smoothly until 2008 Dhillon asked Riyaz to increase his credit facility to US$150,000 for 60 days since his business was growing and he lacked surplus money for the support of cash flow. Riyaz did not agree to increase Dhillon's credit limit. However, considering Dhillon's loyalty and honesty and the fact that he had never defaulted on his payments in the past six years, Pack Tech's sales manager and finance manager took on the personal risk of honouring his request.

In 2008, Dhillon's business grew further, reaching an average of US$100,000 per month, and there were few incidents of payment delays on Dhillon's part. As a result, the total outstanding was US$250,000, apart from orders executed against L/C.

So although the company showed trust in his ability to pay but incidents