Deepak Marketing, Faridabad

Kennametal India (a subsidiary of Kennametal Inc. USA), a global leader in

cutting tools, was happy for having chosen Deepak Marketing Pvt. Ltd. as
their distributor in Faridabad area, where the Die & Mold segment was
growing at break-neck speed. A machine tool (i.e., a complex machine
generally deployed for metal cutting and metal forming) a day was getting
added into this market segment, which were deployed for making dies &
molds, where Kennametal had been traditionally weak. Historically,
Kennametal was focused on segments such as Auto, Defense, General
Engineering and Aero-space. Due to lack of focus on Dies & Molds, the
company could not make products to match the needs of customers in this
segment.
However realizing the emerging huge potential for its products in the die &
mold segment, Kennametal decided to intensely focus on this segment. It
launched many products that were especially suited to this segment, thus
helping the company to break the formidable entry barriers erected by
competitors. The companys existing distributors did not have the knowledge
and competencies to make a strong foray into this segment. However due to
pressure from the company, some of the distributors erratically sold a few
SKUs at a discount and often also gave away the companys products as
freebies. These distributors also came back with excuses on how impossible
it was to sell to this segment. Kennametal then realized that it was important
to appoint new distributors for the Die & Mold segment. Deepak Marketing
was the result of such a search.
From the companys product portfolio perspective, the Die & Mold segment
needed both indexable and solid carbide end-mills. Kennametal could
broadly meet the requirements of its customers for indexable end-mills,
whereas the company could not fit its solid carbide end-mill SKUs to match
its customers price and performance expectations. Kennametal had the
technology for making these products, which were however best suited for
very high quality applications such as those found in aerospace. In contrast,
the die & mold customers wanted reasonable quality at very competitive
pricing. Consequently, Kennametal decided to take one step at a time, and
hence focused only on the indexable end-mills to begin with.
Deepak Mahana, the MD of Deepak Marketing was a highly competent
person. He knew his customers well. He was very professional, had all
systems in place (including those that leveraged the power of the Internet),

with highly motivated and well-paid engineers working for him. He had been
supplying various other industrial products to the Die & Mold and Auto
segments.
After taking distributorship of Kennametal end-mills, he was very successful
in pushing the sales indexable end-mills but could not succeed in selling solid
carbide end-mills due to the price barrier. Given his deep knowledge and
relationships with customers in this segment, Kennametal knew that with the
right pricing, it could successfully enter this segment. Despite the strengths
of Deepak Marketing, the company found its success in this segment was not
something that it could celebrate. Deepak was of the view that all of the
needs of the customers had to be satisfied to win their hearts. He also
argued that the customer would expect a total solution from a single
distributor, rather than buying indexable end-mills from one distributor and
solid carbide end-mills from the other. Hence he decided that if Kennametal
was unable to meet the needs of customers with regard to solid carbide endmills, then he would procure the same from China, so as to meet both price
and quality requirements of the customers.
Initially this decision of Deepak Marketing did not affect Kennametal in any
way. Consequent to this decision by Deepak Marketing, it was growing at a
phenomenal rate. Kennametal too did not make much out of this decision of
Deepak Marketing, as the Chinese sources were not perceived to be a major
threat to Kennametal, given that it perceived its competitors to be like-forlike competitors such as Sandvik, Iscar, etc., which were also similar MNC
players operating in India. However, in reality, what Deepak Marketing did
fell in the grey area of dos and donts of Kennametals policies with regard to
its guidelines for its distributors: Most of the industrial selling in India is done
by dedicated distributors of a brand who are not allowed to represent any
competitor brand. This is an unwritten understanding between supplier firms
and distributors, since the Indian regulation in this regard does not permit
the supplier to explicitly put this clause in its contract with its distributors. In
the case at hand, Deepak was not representing any of the major competitor
of Kennametal, viz., Sandvik, Taegutec, Iscar, Walter, Mitsubhishi. etc.
Representing a Chinese brand that too for filling a product gap was
knowingly ignored by Kennametal in view of contribution of Deepak
Marketing to its sales in the Die & Mold segment. It was only a matter of time
before other distributors in the NCR region started to complain about how
Deepak Marketing was spoiling the market by dumping Chinese products.
They admonished Kennametal that Deepak Marketing should be told to stop
selling Chinese products before more damage was done.

A couple of years passed. Kennametal realized that they needed to urgently

fill the solid carbide end-mill gap in order to succeed in the Die & Mold
market: existing Kennametal solid carbide end-mills were not capable of
catering to the market requirements of this high potential segment.
Similar problems were being faced by various Kennametal outfits in different
geographies. Consequently, Kennametal Inc., USA felt that the best way out
was to acquire a hardcore solid carbide end-mill manufacturing company.
Based on this logic, Kennametal Inc., USA acquired Hanita, an Israel-based
cutting tools manufacturing company that was reputed for solid carbide
products. Hanitas prices were very competitive compared with many
branded products, but were higher than those of the Chinese brand which
Deepak Marketing was representing in India.
Post-acquisition of Hanita, tremendous pressure to sell Hanita products in
India came on Kennametal India and its distributors. As per the parent
company (Kennametal Inc., USA), now the gap in Die & Mold segment had
been filled and the market had to be conquered at any cost.
In these two years, Deepak had laid a solid foundation of Chinese brand not
only in its assigned territory of Faridabad, but in the entire NCR region, even
beyond Faridabad. Kennametal started to put pressure on Deepak Marketing
to jettison the Chinese brand, or alternately, give up Kennametal
distributorship.