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DOI: 10.1177/1046878106292234
2006 37: 398 Simulation Gaming
Stephen R. Jenner
Ready-to-use simulations: TELEMATICS: A negotiation exercise

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398
SIMULATION & GAMING, Vol. 37 No. 3, September 2006 398-405
DOI: 10.1177/1046878106292234
2006 Sage Publications
TELEMATICS: A negotiation exercise
Stephen R. Jenner
California State University, Dominguez Hills
In this realistic situation, a small engineering design and manufacturing company seeks investment and pro-
duction orders from a larger telecom firm in another country. There is no need to referee the game, as par-
ticipants quickly engage in the exercise. No special materials are required, and the debriefing is quite
straightforward. A separate facilitators guide suggests directions for further study and reveals what actually
happened.
KEYWORDS: cross-licensing; international business; joint venture; negotiation; telematics
Basic data
Instructional (learning) objectives: To practice preparing and conducting a business nego-
tiation based on an actual game; to design an international joint venture using a coop-
erative international business strategy.
Simulation/game objectives: To correctly analyze the interests and expected positions of
both sides; to create a win-win deal that will make both sides very satisfied; to avoid a
failure to negotiate an agreement and losing the business to another design firm, result-
ing in delays for the customer.
Debriefing format:
1. Each group of negotiators from the two sides should together write down the terms of
their negotiated agreement.
2. Class discussion follows based on a comparison of reports of agreement terms from
each group. You could also discuss how cultural differences affect the negotiation. The
Introduction below includes the address of a Web site that describes differences in
national cultures and negotiating styles.
3. All participants should write a minute paper (What was the most important and use-
ful thing you learned from this exercise, and what questions remain?).
4. Additional readings can be assigned on negotiation, international joint ventures, tech-
nology cross-licensing, telematics technology, and negotiating across cultures.
Target audience: This exercise is intended for use in undergraduate and MBA business
courses such as principles of management, organizational behavior, international/
comparative management, and strategic management. These participants tend to lack edu-
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Jenner / TELEMATICS 399
cation, training, and experience in negotiating, and most have a low level of competency
in negotiation skills. Participants range in age from 20 to 50 with a variety of specializa-
tions (majors, industry experience), interests, and prerequisites (depending on the course).
The exercise can also be used with other target audiences. The vocabulary used will be
appropriate for other readers of S&Gwho are not necessarily in an academic environment.
Playing time: Total time requiredminimum of 60 minutes without breaks. (However,
negotiators may separate for caucusing, or the exercise can be continued in a second
session.)
Debriefing time: Minimum of 15 minutes based on format above.
Number of players: Minimum group size of 4 (2 dyads, one for each side, are ideal in terms
of effective teamwork and eliminating free riders) with 1 to 10 groups per facilitator.
Materials included: Participants need a copy of one of the two participants guides, which
they should study before class. Care should be taken to avoid allowing participants to
see the guide for the other side. (Please note that participants should only receive one
of the two guides, either for PDS or CanTel, but not both.)
Computer/Internet: None required, although exercise could be posted to a Web site for par-
ticipants to download and print before class.
Other materials/equipment required: None.
Introduction
In this realistic situation, a small engineering design and manufacturing company,
Pacific Design Services (PDS), seeks investment and production orders from a larger
telecom firm in another country, CanTel. This game is based on negotiations
between two real companies whose names have been disguised to protect their con-
fidentiality. To prepare for the exercise, participants should read the information pro-
vided below and identify the specific interests of each side: What do they want, and
what are their priorities? How much do they value the long-term relationship? What
is each partys reservation point (the least they will accept), and how much will they
be willing to compromise on each issue? Is there a way to make the pie bigger so
that both sides win a great deal? What is each partys Best Alternative to a
Negotiated Agreement (BATNA)?
If you are having difficulties due to a lack of vital information, list your assumptions
and continue your analysis. This negotiating game functions well after all participants
carefully read the scenarios and prepare their positions with their teammates.
Participants can apply business theories and techniques to analyze the deal and
then act out their roles. Most participants are able to reach a final agreement in the
short time allowed. They are forced to make decisions with internal feedback from
their teammates and the other side. Teammates on the same side may confer away
from the other side (a caucus). There is a clear end goal, which is to reach a mutu-
ally acceptable agreement signed by both parties.
It is interesting that the study of negotiation is such a small part of most business
school curricula given that it is such a fundamentally important business skill. This
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400 SIMULATION & GAMING / September 2006
experiential exercise gives participants a rare opportunity to practice negotiation and
learn by doing.
National culture also affects negotiating behavior
Negotiation has a strong cultural aspect: North Americans and Chinese do not nego-
tiate in the same way. There are also important differences between countries in eco-
nomic, legal, and political systems. When using the exercise with international groups,
the game allows different approaches that are appropriate in other countries. For
example, are personal relationships and trust more important than contracts? Is it
important to be formal and recognize players rank and status? Are long periods of
silence acceptable? Given the need for a flexible negotiating style, the basic principles
of successful negotiations can always be applied.
For example, players could review What you should know before negotiating
with Australians and What you should know before negotiating with Canadians
(CanTel Anglo-Canadians as opposed to Qubcois Canadians) on the Web site
executiveplanet.com.
Facilitators guide
After dividing the participants into two groups, each side should only receive one
of the two participants guides (either PDS or CanTel). Do not allow them to see the
other sides guide until after the exercise during the debriefing.
There is no need to referee the game, as participants quickly engage in the exercise.
There is no need to clarify the ambiguities because participants are invited to make any
assumptions necessary. Dealing with overly inventive participants is not a problem
because a successful outcome is defined as an agreement both sides can live with.
Participants win by getting a deal that they perceive to be good for their interests as
they are defined in the participants guide. In rare cases, the two sides are unable to
reach an agreement, but most of the learning about negotiation takes place anyway.
The facilitator only needs to assign participants to both sides and the participants
do the negotiation without further prompting or guidance.
What actually happened: Outline of the terms of the final agreement
Product development and intellectual property
1. Design intellectual property (IP) rights for the designs, hardware, and software will
belong to CanTel.
2. CanTel can sell the design in North America (United States, Canada, and Mexico),
whereas PDS has a license to sell in all other countries. PDS will pay CanTel a licens-
ing royalty fee of 30% of the gross profit margin for all sales.
3. If PDS continues to develop the technology independently, CanTel will have an unre-
stricted license to use the designs.
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Jenner / TELEMATICS 401
4. PDS will terminate its relationship with the middleman, Design Solutions.
5. CanTel will negotiate its own agreement with its patent attorney.
Manufacturing
6. PDS will design and manufacture 2,000 units at a cost to CanTel of US$500 each and
CanTel will pay PDS US$1 million in two increments of $500,000.
7. If the first 2,000 units go well, CanTel will order another 10,000 units at US$500 each.
How to reward the CanTel reps
PDS hosted the CanTel reps for a 4-day working holiday in Tahiti.
Relevant theory: strategic management, international business, joint ventures,
negotiation processes, game theory (specifically Prisoners Dilemma), and transac-
tion costs (make or buy decisions).
TELEMATICS: A negotiation exercise
Participants guide for Pacific Design Services
Scenario
You are the top managers of Pacific Design Services (PDS), a firm that sells its
expertise in design and engineering to client companies for both hourly wages and
financial investments. PDS is a very small firm with only 20 full-time employees and a
headquarters in Australia. With a core of six engineers, you have design centers in four
regions around the world. PDS is focused on the emerging market niche of sales/tech
mobile support automation, using technology for wireless mobile computing.
You are negotiating with your first big potential customer, CanTel, a Canadian
telephone company. CanTel has a fleet of 16,000 service vehicles that it operates
across the huge continental expanse of Canada.
PDS was recreated from a division spun off from an electronic components distri-
butor into an independent design house. Your strengths are innovation and speed, but
your weaknesses include your small size and limited resources. According to the CEO,
Our core business is designing, licensing and manufacturing electronic modules such
as mobile processors using broadband connections. We also act as a business accelerator
investment fund and organizational support system for start-up electronics companies
which can build on our designs. Ultimately, we plan to sell these companies after they suc-
ceed in delivering significant returns to investors. We bring together three elements: good
products, money and people, which are like the fuel, oxygen, and heat to make a fire.
Your designs use modules that can be combined at relatively low cost. PDS
claims that you can compete with low-cost designers in India and be much more
creative. Your products are mostly exported to world markets, so you are used to
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intense price competition. It is unfortunate that you are operating in a tough world
market. To be cost competitive, you rely on component supplier alliances and low
overhead. Because youve been buying from your component suppliers for 15 years,
you get the best discounts in spite of your relatively small purchases.
The PDS business strategy is to differentiate by creating innovative designs.
However, instead of designing for a fee, PDS offers low-cost designs in return for
financial equity investments in the manufacturing company created to produce the
design. These manufacturing companies take the form of joint venture (JV) start-up
electronics firms (see Appendix A). The client and financial investment partners pro-
vide the equity, whereas PDS contributes its technological expertise.
The CanTel challenge for the engineering and manufacturing personnel at PDS is
to design, manufacture, and deliver a fleet transport system (also called a telematic
system). Mobile computers on service vehicles would send data back to a central port
using wireless communications. Central computers and dispatchers would know the
vehicle location using a Global Positioning System (GPS), and the vehicles would
also have state-of-the-art security/antitheft features based on GPS. The central port
could send maps and voice directions at intersections for navigation. Vehicles would
be fitted with an in-dash video touch-screen, which could warn drivers when normal
routes were heavily congested but alternative roads were moving. Drivers could check
up-to-the-minute photos from traffic cameras for the best alternative routes and
receive accident notification. Customer records, tech manuals, photos, and images
relevant to the situation, breakdown assistance, and e-mail would all be available
to drivers.
Centrally controlled engine management systems would lower maintenance costs
by preventing vehicle breakdowns.
Central dispatchers could also facilitate problem-solving teamwork with other
technicians in different vehicles. Central dispatch could also send out updated job
requirements, leading to higher productivity.
One key problem for you, the top managers of PDS, is how to grow the JV rapidly
to take advantage of your innovative designs while using very few PDS resources.
Another key issue is how to get the initial investment and the manufacturing con-
tract. Even more important, you want to maintain your designs as IP in the form of
rights for cross-licensing. Cross-licensing allows you to use your designs in other
products without having to pay an up-front fee. This will guarantee PDS a revenue
stream after the design phase and the ramp-up of manufacturing capacity. Appendix
B offers a real-life example of technology cross-licensing.
PDS proposes to charge CanTel at $100/hour for engineering design work. PDS
also proposes to manufacture 2,000 units at $500 each ($1 million paid in two
$500,000 increments). If the first 2,000 units go well, PDS expects CanTel to order
another 10,000 units. PDS proposes to pay CanTel a licensing royalty of 30% of the
gross margin for all sales. You are concerned with making a deal and also develop-
ing warm relationships with key people in CanTel. You can reward the CanTel nego-
tiators if they made a good deal.
402 SIMULATION & GAMING / September 2006
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Participants guide for CanTel
Scenario
You are the top managers of a Canadian telephone company, CanTel, and you are
negotiating with an engineering firm, Pacific Design Services (PDS). Part of your
strategic capability as a telephone company is a fleet of 16,000 service vehicles.
Delivering timely and effective customer technical support is critical to CanTels com-
petitive success. Canada is a huge country, and providing excellent service is very chal-
lenging due to the expansive geography. You are looking for ways to improve the
performance of your fleet using the latest broadband technology. You are also inter-
ested in the possibility of selling fleet innovations to other firms and government agen-
cies. In the future, you plan to target other organizations with large fleets in Canada,
as well as the United States and Mexico, the other North American Free Trade
Agreement (NAFTA) countries with low tariff barriers.
The challenge for the engineering and manufacturing personnel at PDS is to design,
manufacture, and deliver a fleet transport system (also called a telematic system).
Mobile computers on service vehicles would send data back to a central port using
wireless communications. Central computers and dispatchers would know the vehicle
location using a Global Positioning System (GPS), and the vehicles would also have
state-of-the-art security/antitheft features based on GPS. The central port could send
maps and voice directions at intersections for navigation. Vehicles would be fitted with
an in-dash video touch-screen, which could warn drivers when normal routes were
heavily congested but alternative roads were moving. Drivers could check up-to-the-
minute photos from traffic cameras for the best alternative routes and receive accident
notification. Customer records, tech manuals, photos, and images relevant to the situ-
ation, breakdown assistance, and e-mail would all be available to drivers.
Centrally controlled engine management systems would lower maintenance costs
by preventing vehicle breakdowns.
Central dispatchers could also facilitate problem-solving teamwork with other
technicians in different vehicles. Central dispatch could also send out updated job
requirements, leading to higher productivity.
The key issue for CanTel is to buy the intellectual property (IP) created by PDS
and to defend and profit from the anticipated patent. Together, CanTel and PDS have
to figure out how to commercialize the product. If you choose to proceed without
PDS, you would need an extra 6 months to find another designer, perhaps in India,
and deliver a product. Other communication uses for wireless broadband technology
include commercial fleets and government emergency vehicles. How can PDS and
CanTel share the IP?
There are also two service providers to consider. CanTel had a contract with an
electronics design broker, Design Solutions, who in turn contacted PDS. Both PDS
and CanTel have to decide how to deal with Design Solutions: Should you continue
to operate through a broker who was paid a commission of 6%? There is another
middleman problemin the past, CanTels IP lawyer was paid based on a share of
patent license revenue. Should this continue?
Jenner / TELEMATICS 403
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404 SIMULATION & GAMING / September 2006
To take into account cost reductions due to the learning curve, CanTel proposes
to reduce the hourly engineering rate by $5/man-month (168 hours) to $50/hr, $45/hr
for nontechnical testing and assembly.
APPENDIX A
Joint Venture Checklist
1. Understanding your capabilities and needs.
Do you really need a partner? For how long?
Is a joint venture (JV) the best option?
2. Choosing an appropriate partner.
Does the partner share your objectives for the JV?
Does the partner have the necessary skills and resources?
Will you be compatible?
Can you arrange an engagement period?
3. Designing the JV.
Define the JVs scope of activity and its strategic freedom vis--vis its parents.
Lay out each parents duties and payoffs to create a win-win situation.
Establish the managerial role of each partner.
4. Doing the deal.
Trust versus legal considerations?
Agree on an end game.
SOURCE: Beamish (1990, p. 130).
APPENDIX B
Examples of Cross-Licensing Agreements
Electronics maker Toshiba Corp. and U.S. software giant Microsoft Corp. have signed a com-
prehensive cross-licensing agreement for mutual use of patents in the computer and audiovisual
equipment sectors, it was learned Friday. . . . The deal will allow the two companies to save time
and costs related to the development of digital consumer electronics, as it eliminates the need
to negotiate and conclude a license contract for each patent, according to sources. Toshiba and
Microsoft plan to use the pact to accelerate the development of flat-screen televisions, DVD
recorders and players, personal computers and other digital consumer electronics, they said.
Sony and South Koreas Samsung Electronics Co. clinched a cross-licensing agreement for dig-
ital consumer electronics last December. Matsushita Electric and South Koreas LG Electronics
Inc. also forged an agreement last month on mutual use of their plasma display panel and DVD-
related patents. Other electronics companies are expected to follow suit in order to cope with
fierce competition as digital consumer electronics, including flat-screen TVs, are likely to dif-
fuse worldwide, the sources said. Cross-licensing agreements are also expected to help forestall
patent disputes that could delay the development of new products, they said.
SOURCE: Microsoft and Toshiba Sign Licensing Agreement (2005).
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References
Beamish, P. (1990). International management (2nd ed.). New York: McGraw-Hill.
Microsoft and Toshiba sign licensing agreement. (2005, May 14). The Japan Times. Available from
www.japantimes.co.jp
Stephen R. Jenner strongly believes in experiential learning and the importance of negotiation skills. He
has published several international business case studies based on his research and consulting, as well
as articles on the use of computer simulations in courses on strategic management. His current research
interests include the evolution of national business cultures and international trade agreements.
ADDRESS: SRJ: Department of Management/Marketing, College of Business Administration & Public
Policy, California State University, Dominguez Hills, 1000 East Victoria Street, Carson, CA
90747, USA; telephone: +1 310-243-3330; fax: +1 310-217-6964; e-mail: sjenner@csudh.edu.
Jenner / TELEMATICS 405
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