Six per cent marketshare?'' Jasbir Singh almost jumped from his seat, not believing the piece of paper that his colleague Niranjan Dey had just handed him. ''Why, didn't Bubbles get into kids soap less than two years ago?''

''Eighteen months to be precise,'' replied Dey. ''It was a gamble, but it worked for them.''

''No, I don't think it was a gamble,'' said Singh. ''It was a calculated move, and obviously they knew the market better than us.''

Ordinarily, this director of marketing at Shine Star Chemicals wouldn't have admitted to being outwitted by a competitor. For good reason, too. In his 20 years at Shine Star, Singh had to no mean extent been responsible for the soaps and detergent company's growth from Rs 150 crore to Rs 5,000 crore today. What tickled Singh even more was the fact that Bubbles was not really a competitor-at least not until recently. Bubbles was a company that contract manufactured soaps for Shine Star. More than a third of the company's children's soap, Softy, and almost half of the luxury soap, Lush, was supplied by Bubbles. It was a 15-year relationship, but the supplier's recent move had caught Singh totally off guard.

''Don't tell me that Bubbles is going to enter the premium soaps segment too,'' Singh said.

''No, they are not going to enter; they already did, six months ago,'' Dey said, averting his eyes from Singh's gaze. ''They have limited the launch to parts of South India, such as Chennai, Bangalore, and Hyderabad. Even Kerala is excluded for the time being.''

''In that case, we have to move to prevent an erosion in our marketshare,'' Singh noted. ''I am glad that our quarterly review meeting is coming up next week. I need to take this issue up.''

''Yet another quarter of flat sales,'' moaned Narayan Krishnaswamy, CEO of Shine Star. ''Get a voodoo doctor, get a tantrik, or get an oracle, but somebody tell me when our sales are going to pick up and what it's going to take. I am tired of walking into shareholder meetings and getting my clothes ripped apart. Jasbir, you tell me.''

The director of marketing squirmed in his seat for a few seconds, looked at the faces around him, and cleared his throat to speak. ''You want an honest answer? I don't know. This is the eighth consecutive quarter when our sales have remained flat. Last year, we were hoping that good monsoon would boost demand in rural markets, where we see the most potential for growth. But I am increasingly beginning to think that the issue in those markets is not so much affordability as a lack of need.''

''So how come our supplier-turned-competitors are growing faster than us?'' Krishnaswamy persisted.

''That's not happening in rural markets,'' Singh clarified. ''It's essentially an urban phenomenon.''

''That's worse,'' quipped the 48-year-old CEO. ''If the overall urban market for soaps is not growing, and still Bubbles has racked up 6 per cent share in just two years, then somebody is losing marketshare. Is Shine Star one of them?''

''Our marketshare is down only 1 percentage point,'' said Singh. ''Some of our competitors have taken a bigger hit.''

''But how did Bubbles achieve 6 per cent marketshare in such a short time?'' the CEO asked.

Prateek Chauhan, Shine Star's General Manager (Sourcing), answered. ''It's simple. It merely changed the wrapper on soaps it made for us. We had given it a rich pool of knowledge, with the result that its soaps are no different from what it makes for us. But in terms of price, it just beats us hollow. Take Softy, for example. We price it at Rs 26, whereas the cost of manufacturing is only about Rs 11. Bubbles has priced its brand at Rs 15, which is substantially lower than our price, but high enough to give it a big mark-up on our contract price.''

Madhusudan Pande, Shine Star's Chief Financial Officer, seemed irritated by something, and unable to contain himself, spoke up. ''Didn't we have some kind of a non-compete agreement with them? It's a no-brainer thing isn't it?''

''Of course, we had a non-compete agreement,'' said Chauhan, stung by Pande's comment. ''But it expired two-and-a-half years ago.''

Pande asked the obvious question. ''So why didn't we renew it?''

Chauhan gave Pande a look that meant he didn't believe such a question was being asked. ''Simply because they didn't agree to it. For 12 years we had them as a captive supplier, besides which we were only part sourcing from them. Bubbles had made it clear that it wanted to get into branded soaps on its own. A new supplier would never have managed to give us the prices that Bubbles did.''

''Can we call D'Souza over for a meeting?'' Krishnaswamy asked Chauhan. ''Tell him that I want to meet him.'' Alvin D'Souza was the second-generation owner-manager of Bubbles. Although both Krishnaswamy and D'Souza were from IIM-A, the latter was several years his junior.

''I am sure that can be arranged. Shall I ask him to come over this Friday? D'Souza prefers coming to Mumbai over a weekend, since he has his in-laws in the city.''

''2:00 pm, Friday," said the CEO. ''Gentlemen, this is an issue that needs our immediate attention, and our Friday meeting with D'Souza will be crucial. May I suggest that all of us do our homework thoroughly before that.''

For somebody pushing 40, D'Souza was remarkably trim. He was wearing a loose-fitting Polo chambray over khakis, but one could make out his broad, muscular shoulders and flat abdomen.

''You still hit the gym every day?'' Krishnaswamy asked, shaking hands with his B-school junior. D'Souza merely smiled and complimented Krishnaswamy on looking trim too.

''How's life?'' the CEO asked.

''Surviving,'' quipped D'Souza.

''That must be the understatement of the year,'' Krishnaswamy laughed. ''You launch a soap, go to 6 per cent marketshare in less than two years... I wish a lot of my men could do that.''

''I guess we were just lucky.''

''I am not going to beat around the bush, Alvin. We'd like to buy your children's soap brand, Baby Care.''

D'Souza probably was prepared for it, because he didn't seem surprised. In a calm voice he told Krishnaswamy that such an idea hadn't crossed his mind.

''Baby Care is just two years old, and we'd very much like to build on it,'' D'Souza declared. ''It's some kind of a personal challenge to me. I want to see how far we can take this brand. It's about Rs 100 crore today. I am sure I can double the revenue in another year.''

Krishnaswamy wasn't to be deterred, though. ''Look at it this way, Alvin,'' he said, ''once your organisation expands to keep pace with growth in revenues and new markets, you'll stop being cost-competitive. Like Shine Star, your overheads and wage bills will go up. Then, Baby Care may not deliver the kind of growth you expect. You know what that means, don't you.''

"Yeah, that if I wanted to sell Baby Care at that time, it may fetch less than what you might offer now,'' offered D'Souza. ''Just to satisfy my curiosity, how much money are we talking about here?''

''I don't have a ready figure to quote,'' said Krishnaswamy. ''But if you agree in principle, then we could get a due diligence done and then come up with a figure. In any case, it will be a figure worth your while, I can assure you that.''

''That's kind of you, but I really don't think selling Baby Care is an option today.''

Krishnaswamy decided to get a little aggressive with his vendor. ''But I hope you do realise that if Baby Care starts eating into the marketshare of our brand Softy, then our relationship is bound to get strained. I would like to avoid a situation like that.''

''I don't think it's fair to blame us for your problems,'' said D'Souza. ''I think you over-priced Softy right from day one, making it easier for competitors with products of comparable quality to take consumers away from you. You know that there's absolutely no difference in quality, still Softy is priced at Rs 26, and Baby Care Rs 15.''

''That's a function of brand premium,'' defended Singh, who had been on the sidelines all this while. ''We invest so much in building the brand, besides backing it up with proprietary R&D and customer service. People who launch knock-offs, of course, don't have to worry about those expenses.''

Krishnaswamy turned the screw further. ''I hate to do this, Alvin, but we may have to take legal action for, to put it bluntly, stealing our formulation. We may also have to discontinue sourcing from you.''

There was momentary silence in the boardroom. Then, D'Souza spoke. ''That will be unfortunate considering that Bubbles has been your supplier for 15 years. But if you have made up your mind, there's little I can do. We'll take things as they come.''

The meeting ended without any sign of reconciliation.

As far as Shine Star was concerned, there was a growing feeling that supplier competition was something the company would have to learn to live with. When the A-team of the company reconvened the next day to take stock of the previous day's meeting, Krishnaswamy gave voice to that feeling.

''As you all must have noticed, Alvin didn't seem worried about us not buying from his company anymore,'' the CEO said.

''He's counting on the fact that our competitors also buy from him and that any spare capacity would be eagerly lapped up by them,'' said Chauhan.

''Well, Bubbles is one of the best vendors we have in our network,'' said Singh. ''What I am worried about is the fact that it is now getting into luxury soaps, where we make most of our money.''

''How quickly can Bubbles ramp up distribution?'' asked Krishnaswamy.

''In as little as three months,'' said Dey. ''It already has the Baby Care channel, plus there are independent sales and distribution companies that can help Bubbles penetrate market without expanding its own salesforce.''

''But you would still need an advertising budget, right?'' Krishnaswamy said.

''Sure, but given Bubbles' margins, coughing up Rs 10-20 crore for niche advertising won't really be a problem.''

''So, should we stop buying from Bubbles?'' Krishnaswamy asked.

''I don't think that will be a good idea,'' said Chauhan. "There are quality problems with our other vendors, and if we push them to ramp up volumes to make up for Bubbles' absence, quality will suffer further.''

''And that would be disastrous for the brand,'' said Singh. ''We are the market leader, and children's and luxury soap consumers are very quality sensitive. I don't think we can afford a risk like that.''

What should Shine Star do?

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