Cases 1

Negotiation Style and Frameworks

by Steven Roberts (Negotiation Style - concessions and frameworks | Negotiation Experts)
A case study that shows how important it is to consider whether or not to accept concessions
by taking a reasonable perspective and framework.
On a scorching summer day in August, 1990, the citizens of Kuwait stared in puzzlement at
the encroaching, dusty streams of what appeared to be a pending desert sandstorm, creeping
ominously towards them from across the forbidding dessert. To their dismay and horror filled
eyes, the quaking citizenry had become helpless witnesses to the advancing units of Saddam
Husseins Iraqi army, relentlessly engaged in the illegal invasion of their homeland. There
had been no warning of this pending disaster. Kuwaiti resistance was swept aside much like
one casually brushes away a crumb from ones lapel.
After six days, Hussein declared that he had annexed Kuwait. The world was stunned by
Husseins audacity, and the Middle East became very anxious about what the future may hold
for this unsettled region. By August 30, the Arab League, called by President Mubarak of
Egypt, attempted to defuse this potentially explosive crisis through applying negotiation
skills.
The Arab League proposed to Hussein that if he would withdraw his troops, they were
prepared to offer him several concessions. Through several negotiations, the Arab League
eventually framed a very generous negotiation proposal that they attempted to present to
Hussein in a packaged offer.
The three major negotiation concessions offered to Iraq were as follows;
1) Iraq would take control of the Ramallah oilfields, which Hussein claimed had been stolen
from Iraq in their ongoing border dispute with Kuwait.
2) Iraqis would take possession of Bubiyan Island, which was an island located in the Persian
Gulf, and which abutted closely to the Iraqi shoreline.
3) The third concession entailed the wiping out or renegotiating of a $14 billion war debt that
Iraq held with Kuwait since the Iran-Iraq war. This last concession was still open to
considerable negotiation, allowing plenty of latitude for pending discussions.
Hussein had two ways to view how he could frame the Arab Leagues proposal. He could
look at it from the viewpoint of what he would win if he did withdraw his troops, or he could
consider what he might stand to lose if he withdrew his troops two very different
perspective frameworks of the same situation. In the end, he chose unwisely.
Hussein chose to take the perspective of what he would lose. The princely concessions
presented by the Arab League were disdainfully refused by the arrogant Hussein with little
consideration. He decided that since he already occupied all of Kuwait, anything else would

be seen as a loss to him as he was now in possession of all of Kuwait and its incumbent
resources anyway.
He could have viewed it from the alternative position of all that he would have won for just a
few weeks work, and would have received as concessions from the Arab Leagues proposal.
The Iraqi leader might have been thinking about his decision as a powerful coalition of allied
forces dogged his beleaguered and battered army which was retreating deep into the heartland
of Husseins native Iraq, leaving its charred carnage in its wake. It was costly lesson to learn.
Is the glass half or is it half full? How you view it can mean everything.
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Case 2
CASE STUDY 2 (The Negotiation Problem - issues and solutions | Negotiation Experts)
this case study shows how two parties can find a successful negotiation resolution by tackling
the issues in a creative and mutually beneficial manner.
One of the biggest stumbling blocks encountered by a negotiator is to clearly understand the
real issues as the root cause and basis for the negotiation in the first place. All too many
times, negotiators take insufficient time to clearly identify and frame the problem or issues to
be resolved and negotiated. This is the crucial first step to any negotiation. If this first phase
of the negotiation process is not addressed properly, than it is quite likely that the rest the
whole negotiation process will unravel because the core issues were not properly understood
at the outset.
Lets look at an example case study which emphasizes the need to define and identify the
problem. In this example, a substantial electronics firm face considerable difficulties in one of
their subassemblies. The root core of the problem revolved around certain types of fittings
and pins that were becoming bent and distorted by the operation of the machinery. Units
which were being produced were damaged and had to be rejected because of imperfections.
These rejected components were put aside and then re-worked later on in the month.
This duplication of effort resulted in increased costs as workers had to work overtime to meet
their quotas. These extra costs for the extra work performed had not been considered in the
manufacturing budget. The manager of this subassembly line did not want be charged with
these overhead expenses because he felt it was not their responsibility. Likewise, the manager
who was the overseer of the final assembly department also refused to accept the increased
costs to his budget. He argued that the extra costs were a direct result of the poor work of the
personnel in the subassembly department as this was where the problem originated.
The subassembly department manager countered this argument by claiming that the parts
were in good condition before they left his department and that the damage must have
occurred in the final assembly managers department instead. Both parties had reached an
impasse.
Some time passed before a resolution to the matter was worked out that was agreeable to both
parties. What both parties were really seeking was to find a long term solution to this
dilemma. It was only when they truly understood the nature of the problem they were able to
negotiate a reasonable solution that was acceptable to both of them.
It was ascertained that the subassembly workers had some slack time available during every
working month. The damaged parts were returned in small batches form the final assembly
plant so that the subassembly personnel could work on them during these slack periods. Also,
when they examined the problem in more minute detail, the managers learned that some of

the personnel in the final assembly plant may not have been adequately trained and may have
also been partially responsible for the damaged incurred. These personnel were identified and
were sent to the subassembly plant to further their training and to learn more about what
transpired in that department.
The resulting solution addressed the increased cost concerns of both departments on the one
hand. On the other hand, overtime was reduced by allocating the personnel where and when
they most needed and finally, because of the enhanced training, the number of damaged parts
was considerably reduced.
The lesson to be drawn here is that the two managers were only able to address the problem
when they were able to understand the real issues that lay beneath the problem as the cause
for their cost overruns.
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Case 3
Nepal-India Water Negotiations (Power Asymmetry)
Negotiations between India and Nepal on water resource projects are a good illustration of
negotiation power asymmetry. India is 40 times larger in land area than Nepal and India was
hungry to meet its increasing electrical power needs. Nepal is one of the poorest nations in
the world and is economically linked to India because of its geographic situation. However,
Nepals water wealth is enormous. Several studies revealed that 89sites within Nepal are
potentially capable of producing 30 giga watts of hydroelectric power to energy starved India.
The multibillion capital investment required to develop these projects is well beyond Nepals
capacity, and to a lesser extent, Indias as well. Previous negotiations on completed projects
between the two countries in the mid 1960shave resulted in India retaining control over the
headwaters located in Nepal. Due to this imbalance of control, Nepal has deliberately
forestalled the development of further major projects. Since then, four independent foreign
studies of medium and large term hydroelectric projects were identified. At issue was the
Karnali project which could produce a potential output of 10.8 GW. The initial feasibility
studies on the Karnali project failed to take into account the impact of this product on
financial feasibility and its sociological impact on Nepal. Another issue of contention for
Nepal was that during their negotiations, India denied or gave lip service to issues
surrounding irrigation and flood control. Additionally, India demanded that they would only
be prepared to pay for the cost of the energy and not for the cost of peaking power which
meant most of the cost would be transferred to Nepal. Nepal demanded it wanted to link the
cost of electricity to the cost of alternative thermal energy to enhance its profit
Nepal politicians came under strong pressure to develop these water resources. Nepals stall
tactics also came under the gun. In 1991, a newly elected government in Nepal proclaimed it
had come to an understanding with India on a number of water resource issues. This
understanding caused a great furore amongst the opposition parties and the general public.
This resulted to a change In Nepals government which changed their absolute monarchy into
a combined constitutional monarchy and parliamentary democracy. The new government
amended their constitution. The government passed a new order, Article 126(2) which stated
that any sharing of water resources would require an approval of a2/3s majority in
parliament. On water resource projects, Nepal did hold one other major negotiation card in
that Nepal had the right to veto a proposed hydroelectric water project. India was now placed
in a weaker negotiating position because any proposals would now have to please not only
the incumbent government but also the opposition parties, or a majority segment of the
population. This forced India to restructure its negotiating framework. Negotiations were
ongoing throughout the early 1990s. In February of 1996, the prime ministers signed a major
treaty that addressed several sub projects. In Nepal, parliament voted on ratifying the treaty.
The opposition party was split due to a number of unresolved negotiation issues. It was not
until the fall of 1996when the opposition party was able to iron out their differences that a
two thirds majority was attained and the Mahakali Treaty was ratified on September 20, 1996.
Case 4

Contract Renegotiation with the Chilean Government

Although starting a contract renegotiation at a disadvantage, with a weak BATNA, US
company Kennecott managed to enhance and turn things around with an offer the Chilean
government couldnt refuse. In the 1960s Kennecott, a U.S. company, was about to enter into
renegotiation over its contract with the government of Chile concerning its El Teniente
copper mine. At the time, Chiles BATNA appeared overwhelmingly strong as the
government was possessed of a strong pro sovereignty stance towards foreign management of
its natural resources. Can we take some lessons for our mortgage renegotiations? The
government of Chile was politically positioned to establish their own tough financial terms or
had the option of declining to renegotiate by simply ejecting Kennecott from their
involvement altogether by expropriating the mine. Chile had its own experts who could
manage and operate the mine, perform the processing, and could readily market this very
useful natural resource. Simply put, Kennecott found itself in the position of either acceding
to the contract renegotiation terms dictated by the Chilean government or have the mine
snatched out from under them. Realising that their own BATNA was weak, Kennecott
executives came up with a very creative solution which ultimately weakened Chiles position
while leveraging their own BATNA more favourably by creating value for both sides. The
proposal made by Kennecott entailed the following six point strategy thereby changing the
rules of the game:
1. The deal consisted of Kennecott offering to sel l a majority equity interest
in the mining operation to the Chilean government.
2. Realising that Chile would not particularly care to di vest the funds of the
sale into U.S. banks, Kennecott offered to use the funds, combined within outside
loan, to finance the mines expansion. This allowed Chile to preserve its nationalistic
interests and have greater financial gain from future profits. They were able to
renegotiate and establish a partnership which was mutually acceptable to both parties.
3. Next, Kennecott then persuaded the Chilean government to guarantee the
loan and have this guarantee subject to the law of the state of New York.
4. Then, as many of the company's mining assets as possible were insured
with U.S. backed guarantees, against the potential expropriation threat.
5. Kennecott then negotiated that the copper output derived from the
expansion would be sold exclusively to clients in Europe and North America
6. Lastly, the rights to collect from these new contracts would be sold to a
consortium of financial institutions based in Japan, the United States and Europe
7.

This allowed for a greater diversity in the customer base and additional partners. In future
contract renegotiations, this would result in a much larger multi party negotiation then just
Kennecott having to renegotiate on its own. Many of these outside interests would also be
engaged in other unrelated negotiations with the Chilean government, thereby reducing
Chiles leverage in any future contract renegotiations. Mortgage re-negotiators won't have as
much flexibility to change the negotiation game when they renegotiate their contracts. Lastly,
because of the insurance guarantees obtained by Kennecott, even if there negotiations
collapsed, Kennecott had succeeded in protecting a good portion of its interests should Chile

opt to go ahead and appropriate the copper mine. Additionally, the company could also call in
its other partners to act as allies. In the end, some years later, the mine was eventually
expropriated by Chile, but Kennecott was in a far much better position than it had initially
been before it initially started to renegotiate the contract. Kennecott enhanced its BATNA by
making an offer the Chileans couldnt refuse, while taking steps to protect their interests
should negotiations collapse
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Case 5

Bargaining Price with the Chinese

By Dr Bob March Chinese haggling tactics and bargaining can result in foreigners making
costly concessions.
Overview
K. G. Marwin Inc. developed a particular technology in the 1980s, called the Trilliamp
Process that the Chinese government sought to integrate into an ethylene facility in Lanzhou,
the capital of Gansu province. It signed a contract with Marwin, which in 1985 invited
inquiries from U.S. and Japanese manufacturers for production of the machinery. Marwin
recommended the Japanese company Auger-Aiso as most capable of producing the turbines,
while the Chinese invited two U.S. companiesFederal Electric and Pressure Inc., which
manufactured through the large Japanese trading company Mitsuboto compete for the
multi-million-dollar contract. The Scene to undertake the negotiations with the three
prospective suppliers, six Chinese officials and three representatives from the Bank of China
were selected. The Auger-Aiso chief negotiator was Todman Glazer, the companys Japan
branch manager from the United States who resided in Tokyo and was assisted by his
Japanese colleagues. Glazer remembered the tight deadlines he had faced on previous trips to
China; now positions had been reversed, with the Chinese facing the pressures and deadlines.
He realized the value of thinking like ones opponentseeing things as they do. This was the
first potential deal with China in the ethylene market, and Auger-Aiso faced stiff competition
from Mitsubo, which had already cornered the Chinese oil-processing market.
At the first negotiation meeting in Beijing, the Chinese insisted that custom required the
visitorGlazerto make the first presentation. This he did, even though he was accustomed
to allowing his opponents to speak first. Glazer began by addressing the excellence of AugerAiso technology, explaining that the manufacturing would all be done in Japan to ensure
product excellence. When the Chinese offered no indication of their position or price, Glazer
felt obliged to quote an upper-range price that would allow flexibility. The Chinese still made
no comment.
In the afternoon, the Chinese heard offers from the combined Mitsubo-Pressure team, then
Federal Electric. By the end of the day, Federal Electric had dropped out of the race,
accepting that it could not compete. Revolving Doors, Changing Moods During the first week
of negotiations, a pattern emerged. The Chinese would meet with Glazer and his colleagues
in the morning and ask for a price, saying that their competitors had already bid such-andsuch a price, which was invariably lower than the last Auger-Aiso bid. They would meet with
Mitsubo-Pressure in the afternoon and use the same approach, causing the latter to drop its
price. Moreover, each meeting would end with the Chinese saying, We will call you
tomorrow. But, because they never called, both prospective vendors became panicky and
visited the Chinese office without notice to present an even lower bid. As the Chinese kept
the vendors guessing and in the dark, Glazer understood how the Chinese had earned a
reputation as master negotiators. At the second meeting, tactics changed and there were
different people representing the Chinese side. An antagonist would suddenly burst out in

loud Chinese and harangue the Auger-Aiso side for some fifteen minutes, complaining about
the quality of the machines they were offering. A protagonist would then intervene and,
apologizing for his colleague, would say he had been upset about the current situation. Glazer
regarded these outbursts as no more than arranged role playing, designed to make the
protagonist (the good guy) appear more trustworthy to the foreigners. But, Glazer realized, all
the participants were play-acting.
Then there was yet another change. The Chinese located the Auger-Aiso and MitsuboPressure teams near the meeting room, in adjacent rooms. Mitsubo-Pressure would be called
in and asked for its best price. After the team had returned to its room, Auger-Aiso would be
called in, told the latest price, and asked if it could beat this. When the prospective vendors
could drop their price no lower, they would add something to the package. Auger,
for example, added oil gauges for its turbines, effectively a three-percent add-on. Even so, the
Chinese still would not commit to placing an order. When the Price Is Right Glazer could
hardly believe that he had lowered his price twenty per-cent that week; to do so would have
been out of the question in the United States. On the final day, Auger-Aiso made another offer
and, for the first time, the Chinese made a counter offer. Auger-Aiso accepted, and
agreement was reached. A few hours later, Mitsubo-Pressure came back with an even lower
price, but the deal had already been struck. Glazer spoke later about how difficult it was to
compete with Japanese trading companies, explaining that U.S. companies had so many
factors to bear in mind, including insurance and a variety of liabilities. Meanwhile, Japanese
trading companies, which had vastly different legal parameters [within which] to operate
within, could more easily focus on getting contracts and closing deals. He believed that
Auger-Aiso had been awarded the contract because it had been the preferred supplier right
from the start.

Case 6
How Giving Face Can Brew Success

By Dr Bob March Shows how understanding cultural differences and learning to work within
them is the key to successful negotiations. Find out how knowing the importance of giving
face in China gained trust and landed a series of important contracts. Overview Peter
Benjamin, the owner of an Australian chemical engineering consultancy, has a warning for
those wanting to do business in China: Many Chinese see it as their patriotic duty to shoot
down foreigners, so you can be like a clay pigeon at target practice. Despite this, Benjamin
has been successful in China and irresponsible for the design of many of the countrys
modern breweries. He was invited to submit a proposal for a huge Guangdong brewery by Dr
Pasteur Lai, the son of a former Chinese minister of health and now an Australian citizen.
Laihad many connections deep within the Chinese government, had done his homework on
Benjamin, and was able to report to the Chinese that Benjamin was the premier brewery
designer and builder in Australia. The Scene Benjamin was initially cynical. We get a lot of
tire kickers in this businesspeople who arent serious about a project but just want to test
the waters, he explained. Benjamin sent the Chinese a questionnaire, asking for information
about specifications, resources, brewery capacity, products they planned to produce, budget,
and business plans. The response he received convinced him to head to China to discuss a
potential deal to build Guangdong provinces largest brewerya $20 million project. But,
having heard from others about their China experiences, he decided to pitch only for the
business in which his company had special technology to offer. One of the first things you
need to understand about China is that you cant compete against cheap, local rivals, he
advises. The Chinese only want foreigners involved if we can offer special technology they
cant get at home. We knew if the Chinese could have got locally what we offered, they
would not have approached us. Preparing to Negotiate In the lead up to the negotiations,
Benjamin knew his business could provide strengths the Chinese business lacked. He had
access to technology that could increase the capacity of the planned brewery while also
reducing waste. He specialized in understanding and predicting market trends and had access
to sophisticated, international market data the Chinese company lacked
The Chinese party had no experience in designing breweries whereas, since1983, Benjamin
had built or redesigned all Australias major breweries and most of its boutique breweries.
Before starting negotiations, he did extensive research on the Chinese market, including its
beer industry and the Guangzhou company. He found that, despite the companys listing on
the Shanghai Stock Exchange, it had direct links to the Chinese government. If youre
working with a brewery in China, youre working with the government, because the industry
is so tightly regulated. I also found that the government department in charge of the alcohol
industry is run by exRed Guards, so I knew I was dealing with people who had to report
back to important government figures. I thought that, if I could find ways to make them look
good in the eyes of their bosses, it would help in developing a beneficial business
relationship, he said. When Benjamin arrived in China, he discovered that the Chinese were
also talking to German, French, and Belgian companies, and that the Chinese companys
plans for the brewery were not as well defined as had initially appeared. I decided my job
was to be the expert, and I knew I should tell them what they needed, rather than let them tell
me. It was clear they knew nothing about designing breweries. Benjamin also understood

the sensitivities in pointing out the shortcomings of the Chinese plans. He had spoken with
Chinese Australians (including two on his staff who had become the key members of his team
in China) and read widely on Chinese culture, so he recognized the risk of causing the
Chinese to lose face. To avoid doing so, he offered to work with the Chinese on developing
the competitive brief using the latest technology. This would allow him to begin building
relationships with the Chinese before the tendering process had begun. It would also give the
Chinese lead negotiator face with his bosses (and the Chinese government officials), as he
would be able to develop a better business brief using foreign technology. It also gave
Benjamins business a head start in the tender competition. Uncommon Tactics Before
tendering began, we were working with the client to develop the brief while the other
companies were sitting around, he said. The Chinese arranged the accommodation for the
tendering companies. Each foreign teamthe French, Germans, Belgians, and Australians
was lodged by the Guangdong government at the same hotel. We would go and have a
meeting with the Chinese. When we got back to the hotel, the other businesses would always
be waiting in the lobby to be picked up for their meetings. It was made pretty clear that we
were competing against each other, Benjamin said. Working in such specialized field
brewery designmeant that the foreign negotiating teams knew each other, and they used
this to their advantage. We knew the Chinese were trying to pit us against each other, so we
turned their tactic around. We met every afternoon in the hotel bar and compared notes. We
could then work out together whether this negotiation was about price, technology,
reputation, or some other driver. Of course it was about price and technologyit always is,
he said. The negotiations took place over several weeks, during which each of the foreign
companies met with the Chinese team almost daily. We talked about the price and
technology constantly. We were always discussing the scope of the project, to fit it in with a
budget with which they were happy, but which still delivered excellent technology. There
were perhaps thirty Chinese, and every time we met, there would be different people talking.
Youd think you had an agreement, and then one of the Chinese would suddenly pull you
aside and tell you the complete opposite. It was very confusing. Shoring Up Advantage To
ensure he was not misunderstanding the negotiations, which were being conducted through
an interpreter with the Chinese team, Benjamin had brought from Australia two of his Chinaborn staffa chemical engineer and an accountant. I decided I needed to use my two
Chinese team members as my interpreters, because the Chinese language is often not explicit:
The meaning of what they were saying was often only implied. It was the best decision I
made, because I got the chance to log onto real feedback. Benjamin also began to see the
language barrier as an advantage. Not knowing the language gave me carte blanche to
completely change my mind on things I already had said, because I could use the excuse that
I had not properly understood. They kept changing the negotiations on me, so it gave me the
chance to do the same back and get away with it. Benjamin had great respect for his
competitors. They were professional managers, corporate people. But they also had superior
attitudes toward the Chinese, and indeed also toward Benjamin and Australia. They refused to
believe that a world-class brewery designer could be found in Australia. After several weeks,
the French and Belgian businesses pulled out, frustrated at the drawn-out negotiating process.
They had offered their best price when first challenged and had left themselves no room to
manoeuvre. Between them, the French and Belgian negotiators had two other problems. First,

they were both professional managers involved in a number of projects, so it was easy for
them to give up and go home to take up other projects waiting on their desks. Second, no one
on the French team liked Chinese cuisine, so returning home looked very attractive to them.
Benjamin, however, was a specialist chemical engineer who owned his own business, had
already invested $350,000 in preparation, and was not inclined to walk away.
Patience Pays
I went in suspecting we were going to spend ninety percent of the time arguing price,
particularly since the Chinese started negotiating by crying poor. They kept saying they had a
limited budget, so I started high and kept shaving off the smallest amount, but never near my
limit. I knew from my initial questionnaire and research they could afford to pay what the
technology and I were worth. Even though this represented a great opportunity to enter the
Chinese market, I also needed to get properly rewarded, he explained. When I first got to
China I was told of a Chinese sayingChina has 5,000 years of history, so whats an extra
hundred years? This basically means that they are patient and will wait for the right deal. We
had invested a lot of money to go to China, and we were not about to turn around and come
home just because it was taking longer than we wanted. The Chinese team tried to use
Benjamins planned return date as leverage, in abide to pressure him into agreeing to their
price terms on the basis that he was leaving the country. But he recognized the ploy. I
realized they were dragging negotiations out until my departure, so I told them my date was
flexible and Id just stay until we finished. I acted as though I no longer had a deadline, and
politely pointed out they were the ones who had to build a brewery within ascertain time
frame. Benjamin spent every evening with his Chinese negotiating team, analysing each day
and trying to figure out the Chinese strategy. They would probe and explain to him Chinese
cultural perceptions, which Benjamin found invaluable for understanding the Chinese tactics.
Being Tested There was one meeting in which one of the Chinese team became very angry
and distressed. That night one of my interpreters told me that the individual had probably
been testing my reaction. He explained that Chinese dont do business with people they dont
know, and that sometimes they will use different emotions to see how the other party reacts
under pressure. Chinese culture is so different that you need that local Chinese input. You
can never have intuitive understanding of everything that influences and drives themthat
would take fifty lifetimes. The next best thing is to have local contacts to guide you.
Benjamin found other confusing elements about the negotiating process. We would have
in-principle agreement on issues, and then they would just change their mind. We have since
learned this is standard. Even if you have something in writing, it is only ever a discussion
document. The Chinese expect you to be like bamboo and bend with the wind. With the
negotiations down to just two companies, Benjamin tried a new tactic. He pitched the
environmental benefits of his brewery design, explaining how his technology could make the
Chinese brewery a world leader in waste management. His technological solution would
diminish environmental waste while ensuring maximum capacity and building up the Chinese
companys reputation as a world leader. Meanwhile, the Chinese team had also done its
homework and was secretly favouring Benjamins company based on its reputation for
delivering on time and to specifications. In the end, the specialist technology Benjamin could
offer ostensibly won him the contract. But Benjamin believes it was more about relationships

and face. I put effort into helping them look good. I designed the brief with them using the
latest technology. I helped solve other problems they had not considered, such as
environment management that would save them money. I suggested my solutions would
make their business a world leader. It was about giving them an opportunity to shine.
The Last Round of Negotiations
Before agreement was reached, and after the last of three proposals had been delivered and
considered, nine separate negotiations were held to discuss:
* Payment terms and advance payments
* Currency decisions
* Inspections policy
* Warranties
* Delivery of overseas and local components
* Commissioning and training of the Guangzhou Companys personnel Penalties
* Performance requirements
* Capacity to deliver
By this time, the Chinese team was reduced to twelve people. While Benjamin and his team
were in China on the last occasion, the Chinese team split in half and each went abroadto
Europe and Australiato evaluate Benjamins suppliers (and through them, him) of pump
valves, electronic equipment, stainless steel, and laser welding. His suppliers all appear to
have given him a pass mark, but one subjective problem remained. While Benjamins team
was well ahead of the other teams on all criteria, some members of the Chinese team
remained opposed to the Australian teambecause it was Australiansaying they wanted,
on the basis of image and reputation, a brewery designer and builder from Europe. The vice
governor of Guangdong province finally stepped in, we understand, and made the decision
inflator of Benjamins company. Within forty-five minutes of his decision, the negotiation
leader was on the phone to Benjamin at his hotel. We want you to sign the contract, he said
out of the blue and with no preamble. Come to the office now. Also bring $2,000 to pay for
the celebration banquet at lunchtime. Benjamin and his team went directly to the provincial
office. Before he signed the contract, he said to the team leader, Thank you very much for
your agreement to commission us to build your brewery. In consideration of that, we wish to
present you with a five percent discount. The step was artful. Bringing the project in five
percent under budget gave facet everyone on the Chinese team, including the vice governor.
They would not forget this.

Case 7
Unequal Foreign Negotiation

This case study shows how a weaker negotiating party can negotiate successfully with a
stronger negotiating party in an international agreement. When two parties enter into an
unequal negotiation, in terms of the power they bring to the table, the interests or goals of
either party can have a dramatic influence on the positions they adopt in the negotiations.
Sometimes this can have the effect of giving the weaker negotiating power the opportunity to
gain advantages, and similarly, this unequal status can also be influenced by their interests to
their detriment. The negotiation case study of the U.S. Indonesian negotiations over the
Conditions of Aid is an example of both possibilities. The takeover of China by the
Communists in 1949 added a new geopolitical concern to the interests of the United States in
the Far East. Two theories of strategic concern were the Domino effect of potential
Communist takeover of countries near to Chinas mainland, and the Leapfrog theory, where it
was considered the Communists might try to gain control of a country within the protected
geographic sphere, and deemed a protectorate or ally of the Unites States. Of considerable
concern was the potential threat to Indonesia. In the Mutual Security Act of 1951, the U.S.
committed its government to providing aid to foreign countries but only in regards to that
foreign governments return commitment to U.S. long term interests. The U.S. used trade
embargoes against Communist countries, and in particular China, especially as the U.S.
became engaged in the Korean conflict. A foreign country could not expect any foreign aid if
it were to engage in any form of trade with a member of the Communist bloc. Indonesia
considered itself a neutral country. It was responsible for roughly 40%of the worlds exports
in rubber. Indonesia was very strong nationalistic country and resented foreign intrusion into
its affairs. There were many radical elements within Indonesia that sympathized with
Communist China. The Indonesian government did not want to provide the same level of
commitment required buys. Policies. Its goals consisted of the demand that the U.S. provide
assistance in the stabilization of the international price of rubber and tin. It also wanted
considerable compensation in the form of foreign aid to beef up its own internal security and
infrastructure. The interests of both countries were at cross-purposes and posed a challenge
for the negotiation that followed
U.S. Ambassador, Merle Cochran and the Foreign Minister of Indonesia, Subardjo signed an
agreement that did not have the support of the Indonesian Cabinet. As matters developed, it
became clear that if the Americans were to use the purchase of large quantities of rubber and
tin conditional on Indonesian acceptance to the American interests, this perceived obedience
to American policies and interests would meet with stiff opposition within Indonesia. In fact,
the Indonesians made it quite clear they would walk rather walk than submit tony attempt at
coercion by the U.S. Potentially, Indonesia could have traded with China instead. As a result,
Indonesia signed a very agreeable deal, known as the Cochran-Subardjo agreement that was
signed on January 5, 1952. Indonesia did not have to commit to any mutual defence treaty
with the U.S. However, when the agreement became public, a huge outcry erupted from the
Indonesian nationalists. Subardjo was removed from his office as was the pro U.S.
Indonesian cabinet. At the insistence of the new Indonesian negotiators, negotiations were
now conducted in Washington. The more militant Indonesian negotiators gave up some very
lucrative military grants to satisfy the nationalistic concerns of its people, but they did so

through their own choice. In other matters, the Indonesian gained many of their other
objectives, but the overall aid they could have procured was considerably diminished. U.S.
objectives were watered down in the ensuing agreement because in the end, Indonesia held a
stronger hand due to their indifference to the influence of foreign aid as an inducement to
comply with the U.S. position.

Case 8
Third Party Intervener

This case study shows how a third party intervener can assist two dead locked parties in a
negotiation and find a resolution. There are occasions when the negotiating parties cannot
see the forest for the trees. They are unable to see past their own goals and interests which
prevent them from arriving at a successful agreement in their negotiations. These are the
instances when a third party intervener can help both parties find a solution to the dilemma
that is plaguing their talks that have likely stalled in a stalemate with no possible resolution in
sight. The Egyptian and Israeli conflict of the mid 1970s posed that kind of dilemma. There
were also peripheral parties that also posed problems for the negotiators. Syria had grave
concerns about the Palestinian issue while Israel had no particular desire to sit down and
negotiate with the Palestinian Liberation Organization. Egypt had concerns about the growing
influence of the Soviet Union in the Middle East Region. This tangle of opposing interests
posed quite challenge to the negotiators to overcome. However, extending the olive peace
branch in hand, Anwar Sadat made his memorable and historic trip to Jerusalem to hold talks
with the Israeli Prime Minister, Menachem Begin. President Sadat said he represented all of
the Arab concerns in this matter and stated that he wanted all the Israeli occupied areas to be
returned before normal peaceful relations could be established with Israel. Begin believed
that a separate peace with Egypt would offer Israel some stability and a possible military
advantage. However the issues were extensive and extremely complicated. It began to appear
there was no resolution possible in bringing some stability to the region. However, despite the
ongoing talks, the United States and in particular, President Carter and his Secretary of State,
Cyrus Vance, saw a possible opportunity to offer their services to act as third-party intervener
and mediate a resolution. In the interim, most of Sadats Arab allies had abandoned the peace
talks leaving Israel and Egypt to pursue their own talks. However, animosity began to build
between Sadat and Begin and the whole situation began to look hopeless. President Carter
and Cyrus Vance took the initiative and invited both Sadat and Begin to come to Washington
separately where they met with both parties to discuss their respective issues, concerns and
objectives in the Middle East. As negotiations went back and forth, it became apparent they
could not resolve this on an issue by issue basis. The U.S. negotiators, acting as third party
interveners, began the process of presenting a resolution package that is often
Described as single negotiating text, a device often used in multiparty negotiations. Each
text is revised and gradually makes both parties more comfortable with each improvement
made, thus allowing the contending parties to slowly find a middle ground upon which they
both can agree. Finding neutral ground was crucial to this process, so the meetings between
Begin and Sadat took place at Camp David in the United States. Eventually, both parties
found an effective means to resolve their seemingly insolvable dispute when both Sadat and
Begin signed the Camp David Accord. This historic agreement resulted in that poignant
moment when both leaders and President Carter shook hands for the entire world to see.

Case 9
Win-Win Negotiation Badly Executed

This case study discusses some of the critical errors that can be made in a Management and
Union Labour negotiation, where Management were trying to achieve a win-win negotiation.
In trying to create win-win negotiation agreements, one of the biggest mistakes made by
negotiators is to deal with the issues on an issue by issue basis. This often results in a
breakdown in negotiations because invariably, conflicting monetary issues arise that result in
a showdown between the two parties. Negotiating on an issue by issue agenda does not
present the opportunity to make concessionary trade-offs between the different issues. For
example, in January, 1993, management and labour of Bayou Steel in Laplace, Louisiana, sat
down to negotiate a new contract. Neither side dreamed that these talks would lead to a strike.
Each side believed that they had built a solid relationship. Management went into the
negotiations thinking and believing that if they used a win-win negotiation concept, they
would increase and enhance the relationship between the shop floor and management. Even
Ron Farraro, president of United Steel Workers of America did not conceive of the possibility
that talks would collapse into a strike, and that a negotiated contract would breached with
little or no difficulty. Management of Bayou Steel enlisted the help of two facilitators from
the FMCS(Federal Mediation and Conciliation Services) to guide management through a
win-win style negotiation with its workers. The president of Bayou said that the facilitators
helped them identify each sides objectives and concerns, and led him to believe that they had
in effect, resolved 90% of the contract issues. The facilitators set up an issue by issue agenda.
They left the economic issues such as incentives, base pay, overtime, and vacation time as the
final issues tube discussed. Management believed that they had correctly addressed the
employees concerns about these pay issues. However, union members became suspicious
about managements good intentions to take a win-win approach. They began to believe
collectively that this negotiation approach by management was a disguised ploy meant to
undermine their position, especially on the economic issues. At first, negotiations went
relatively well and as predicted. Yet, as the economic issues were placed on the table for
discussion, the situation quickly turned upside down into a hard nosed bargaining negotiation.
Management attempted to stay the course with a win-win approach, but this no longer
washed with the union. Can you guess what happened? Thats right union members walked
and went out on strike. By using an agenda to address the format of the contract negotiations,
Bayou Steel failed to consider that any single issue could be so divisive. As the economic
issues rose to the foreground of the talks, Bayou Steel no longer had leeway in considering
trade-offs. They literally painted themselves into a corner because of their structured of
agenda items. We need to be able to compare and contrast all the issues collectively, and
border of relative importance. Package or multiple offers offer a greater latitude in finding
creative solutions as it gives us more to work with, as opposed to dealing with issues on a
one-on-one basis through a pre-designed agenda. Planning and using a Concession Strategy
effectively can give one side a big power advantage over the other. So be careful to plan your
agenda wisely.
Case 10
The Panama Canal Negotiations

This case study reveals how different negotiation tactics can be employed to negotiate and
conclude a better international agreement. The completion of the Panama Canal is one of the
worlds great engineering feats. The negotiations to complete and build this vital connector
between two oceans spans decades. The cost in human lives, suffering, and capital staggers
the imagination. It all began in 1847 when the United States entered in a treaty with New
Granada (later to be known as Columbia), and which allowed the U.S. a transit passage over
the Isthmus of Panama. The treaty guaranteed Panamas neutrality and recognized that
Columbia would have sovereignty over the region. Nothing really occurred with this
development and ultimately, a French company called the Companies Nouvelle du Canal de
Panama acquired the contract to build the canal in 1881. By 1889, the Companies had gone
bankrupt and had lost roughly around $287 million U.S. along with approximately 20,000
lives in the process. It is also in 1889 that the U.S. has become convinced that the canal
passage was absolutely vital to their interests. They appointed Rear Admiral John Walker to
head the Commission and to choose the most viable route. Naturally, the U.S. was interested
in the Panama route already started by the French. The French company which had been
heading for bankruptcy, and seeing the writing on the wall before their bankruptcy in 1889,
had entered into negotiations with the U.S. The French company was eager to extricate
themselves from the project. At the time, their holdings were extensive and included land, the
Panama Railroad, 2,000 buildings, and an extensive amount of equipment. They felt their
total holdings should be valued around 109 millions. but Rear Admiral Walker estimated
them to be not greater than about 40million U.S., a significant difference. As negotiations
progressed, the Americans began to hint that they were also interested in the possibility of
building an alternative canal in Nicaragua. The French countered with the ploy by claiming
that both Great Britain and Russia were looking at picking up the financing to complete the
canals construction. It was subsequently leaked to the U.S. press, much to the French
companys pique, that the Walker Commission concluded that the cost to buy out the French
company was too excessive and recommended the Nicaraguan route. A couple days later after
this news, the president of Companies Nouvelle resigned. The resulting furore caused the
stockholders to demand that the company be sold to the U.S. at any price they could get. The
Americans became aware that they could now pick up all the French holdings for 40 million
dollars. However, the Walker Commission had not just been a ploy by the Americans because
the Nicaraguan route was actually a serious proposal that had a lot of backing in the U.S.
Senate. President Roosevelt had to engage in some serious political manoeuvrings to get
everybody on board of the Panama passage. The Walker Commission changed its
recommendation to favour Panama as the canal route. But the story doesnt end there. Next,
the U.S. signed a new treaty with Columbias charge affairs which gave the U.S. a six mile
area across the Isthmus and agreed to financial remuneration that was to be paid to Columbia.
The Columbian charge affairs had signed the treaty without communicating with his
government. The treaty was rejected by Columbia. In the meantime, revolution against
Columbian authority was afoot in Panama. Since they believed they had signed a legitimate
treaty, Roosevelt sent warships to the area to negate the Columbians, and thus secured U.S.
interests, and offered aid to the Panamanians in their quest to separate from Columbia.

Panama succeeded in their revolt and became a republic. In 1914, the Panama Canal was
opened.
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Case 11

The Fixed Pie Syndrome in Union Negotiation

This case study shows how a limited fixed pie distributive negotiation style can damage
negotiations with labour unions. The mythical fixed pie syndrome is one of those bizarre
anomalies that still persistently seep stealthily into the minds of the largest corporations. It is
not unlike a virulent pestilence that paralyzes its host into a rigid mind set, blurring the hosts
vision into a fixed stare where its hapless victim can see nothing more than what sits on the
negotiation table. Many agreements fail to materialize because of this limited vision. The
resulting loss of potential trade-offs forces the opposing parties to squabble over a single
bone while dozens more lay scattered about them. They are missed opportunities. In late
1985, Frank Bormann, the former renowned astronaut, was the acting president of Eastern
airlines, based in the U.S... The airline was struggling through tough and trying economic
times. Labour costs were a critical issue that Mar. Bormann sought to address.Imperiously,
Mar. Bormann tossed an ultimatum at the three unions like a gauntlet.Either they were to
agree to give the airline hefty wage concessions or he wouldsell the airline. The union leaders
were not impressed by the threat as they all had binding contracts that were not to be
renegotiated for some time to come. They believed that the threat to sell off the airline had a
hollow ring to it and called what they perceived to be a bluff. To add weight to his edict, Mar.
Bormann began to initiate talks with Frank Lorenzo, an industry heavy weight who had
previously crushed the unions at Continental airlines. Mar. Lorenzo was known as being
ruthless. This obviously made the union become jittery. What the unions didnt know was that
Mar. Bormann was bluffing as he really didnt intend to sell the airline. Lorenzo however,
and not aware of Bormans sleight of hand tactics, submitted such a significant proposal to
the Board of Directors of Eastern Airlines, theybegan to seriously look at the offer with raised
eyebrows and considerableinterest. The unions, in the meantime, began to re think their
position. As the negotiations progressed, Mar. Bormann began to make some grudging but
significant headway with his negotiations with two of the three unions. Both the flight
attendants and pilots unions agreed to a 20% wage claw back. However, the machinists
unions, which were run by the hardnosed Charlie Bryan, would only agree to a 15% slash in
wages. Bormann didnt accept their position. They argued voraciously over the dispute 5%,
and both of them took the position that if either side were to fail to make a concession over
the disputed amount, the airline would be ruined. Like two drivers aiming head on at each
other, eyes fixated and jaws squared, they steeled themselves, waiting for who would blink
first. Neither did and they crashed headlong into each other, stubborn to the end as the
ominous deadline for Lorenzos offer arrived. The Board of Directors for Eastern Airlines
accepted Lorenzos offer. As a result, Bormann was tossed, and out of a job. In the bitter end
that followed, Lorenzo forced huge wage cuts on the hapless unions and eliminated so many
jobs that Eastern Airlines was soon to go the way of the Dodo bird just another extinct
species. It filed for bankruptcy in March of 1989.

Case 12

The Importance of Business Communications

A case study that shows how a business relationship can fall apart when communications
between the partners are not maintained. The importance of keeping the lines of
communication with ones business partner cannot be overemphasized. Both our domestic
partnerships and especially our foreign partnerships are premised extensively of the degree
and quality of the relationship that the parties have assumed. A relationship can only survive
if the parties involved maintain a line of communications. This concept becomes even more
relevant when the partnership entails an international agreement where the enhanced distance
between the partners will exacerbate the need to keep in touch. An executive can only keep
on top of things if they are in contact with their partners because otherwise, how are they
going to know whats going on? Secondly, the line of communications needs to be a two way
process and should flow back and forth. It happens that too many international negotiators do
not take the time, and dismiss the need to include some frank discussion in how the two
parties will maintain contact with each other. They assume wrongly that the communication
process will evolve all in its own sweet time. The time to discuss the line of communications
is when the venture is being negotiated. They should not consider the issue later, and after the
fact, when serious problems suddenly arise and challenge the viability and the stability of the
joint venture. The other problem occurs when the two parties neglect to keep in touch with
each and simply allow their interest in their agreement to wither on the vine, while the
agreement simply falls apart due to a genuine lack of interest. Many joint ventures have
collapsed or gradually fell apart needlessly due to a lack of communications between the
parties involved. International agreements are especially prone to dissolution when the
partners fail to maintain respectable level of contact. Take the case that occurred between one
particular U.S. Company and their Japanese partner for example. The agreement that they
signed stipulated that the Japanese company would supply the manufacturing, management,
and marketing components of the deal, while the American company would supply the
technology. The American representative, who was based in Hong Kong, met with
their Japanese counterparts only once every three months where all aspects of the operation
would be discussed.
In between these quarterly visits, the two parties exchanged communications through written
correspondence and infrequent phone calls. To the Japanese partner, this periodic though
infrequent contact signalled that the American partner was not overly committed to the
relationship. Needless to say, the Japanese commitment to the partnership began to dwindle
as well. As time progressed, the U.S. Companys strategy altered as they began to concentrate
one smaller product line. The American company never bothered to advise their Japanese
partner of the change in their strategy. Also, due to this smaller line, there was the additional
fiasco in that the Japanese company was not going tube receiving the technology it had
negotiated with the American firm. The Japanese took a dim view of what they now
perceived as an agreement that was signed in bad faith. The Japanese became bitter as the
relationship soured and ended in arbitration. What was the result the arbitration? The
partnership was dissolved. This illustrates the importance and need for communications. The
American firm should have appraised their counterpart about the change in their strategy, but

the Japanese should perhaps have communicated their displeasure earlier, rather than
allowing their disgruntlement to fester. Never dismiss the importance and impact that a good
line of communications can have on your business relationships, whether it be a domestic or a
foreign relationship.
------------

Case 13

Negotiation Style and Frameworks

By Steven Roberts A case study that shows how important it is to consider whether or not to
accept concessions by taking a reasonable perspective and framework. On a scorching
summer day in August, 1990, the citizens of Kuwait stared in puzzlement at the encroaching,
dusty streams of what appeared to be a pending desert sandstorm, creeping ominously
towards them from across the forbidding dessert. To their dismay and horror filled eyes, the
quaking citizenry had become helpless witnesses to the advancing units of Saddam Husseins
Iraqi army, relentlessly engaged in the illegal invasion of their homeland. There had been no
warning of this pending disaster. Kuwaiti resistance was swept aside much like one casually
brushes away a crumb from ones lapel. After six days, Hussein declared that he had annexed
Kuwait. The world was stunned by Husseins audacity, and the Middle East became very
anxious about what the future may hold for this unsettled region. By August 30, the Arable
ague, called by President Mubarak of Egypt, attempted to defuse this potentially explosive
crisis through deft negotiation. The Arab League proposed to Hussein that if he would
withdraw his troops, they were prepared to offer him several concessions. Through several
negotiations, the Arab League eventually framed a very generous negotiation proposal that
they attempted to present to Hussein in a packaged offer. The three major negotiation
concessions offered to Iraq were as follows;.1) Iraq would take control of the Ramallah
oilfields, which Hussein claimed had been stolen from Iraq in their ongoing border dispute
with Kuwait.2) Iraqis would take possession of Bubiyan Island, which was an island located
in the Persian Gulf, and which abutted closely to the Iraqi shoreline.3) The third concession
entailed the wiping out or renegotiating of a $14 billion war debt that Iraq held with Kuwait
since the Iran-Iraq war. This last concession was still open to considerable negotiation,
allowing plenty of latitude for pending discussions. Hussein had two ways to view how he
could frame the Arab Leagues proposal. He could look at it from the viewpoint of what he
would win if he did withdraw his troops, or he could consider what he might stand to lose if
he withdrew his troops two very different perspective frameworks of the same situation. In
the end, he chose unwisely. Hussein chose to take the perspective of what he would lose. The
princely concessions presented by the Arab League were disdainfully refused by the arrogant
Hussein with little consideration. He decided that since he already occupied all of Kuwait,
anything else would be seen as a loss to him as he was now in possession of all of Kuwait and
its incumbent resources anyway. He could have viewed it from the alternative position of all
that he would have won for just a few weeks work, and would have received as concessions
from the Arab Leagues proposal. The Iraqi leader might have been thinking about his
decision as a powerful coalition of allied forces dogged his beleaguered and battered army
which was retreating deep into the heartland of Husseins native Iraq, leaving its charred
carnage in its wake. It was costly lesson to learn. Is the glass half or is it half full? How you
view it can mean everything

Case 14

Power Negotiation
This case study shows how a weaker negotiating partner can successfully use power
negotiation to win a good agreement with a stronger negotiating partner. There are many
occasions when a smaller company will want to form partnership with a larger organization
to further their business objectives. There are two hurdles that the smaller company might
have to overcome to succeed in the negotiation process. The first problem is to get the larger
organizations attention as they may express little or no interest in the partnership. The second
problem revolves around the prickly issue of negotiating from a much weaker power base.
There exists the danger that the smaller partys business goals arent overwhelmed by the
more powerful negotiating partner during the negotiation process. Although the following
case study entails a similar problem faced by two countries, the lessons learned can be
applied to any similar business negotiation model. On October 3, 1987, The Free Trade
Agreement (FTA) was signed by representatives of Canada and the United States after two
strenuous years of intense negotiations. Canada could be described as a medium sized
economy. Its population is 1/10ththe size of the U.S. which is considered an economic
superpower in comparison. Canada is economically dependent on the United States. The
reason is mainly due to its small domestic market, scattered over a vast geographical locale.
More than 75% of its exports go to the U.S. making the U.S. Canadas prime trading partner.
By contrast, the U.S. was exporting less than 20% of its products to Canada. In the 1970s,
Canadas economic health rose and fell like the proverbial yo-yo. It was too resource based
and needed to add some meat to its manufacturing industry to stabilize the economy. A Royal
Commission concluded that Canadas only means to achieve this stability was to engage in an
open free trade partnership with the United States. The problem was that the United States
wasnt especially interested in such free trade partnership agreement. The U.S. was in
addition also becoming increasingly protectionist during this same time period. The result
was that Canada was facing a whole host of penalties and countervailing actions against
Canadian goods. Canada clearly needed a plan. The first step that Canada took was in the
form of preparation by developing succinct plan. A chief negotiator, Simon Riesman, was
appointed by the Canadian Prime Minister himself. He established an ad hoc organization
called the trade negotiations office (TNO) which reported directly to the Canadian
Government Cabinet and had access to highest levels of bureaucracy. It established in no
uncertain terms their negotiation goals and objectives which included a strong dispute
resolution mechanism that the Canadians felt were vitally important to their success. In
contrast, the United States did not consider the FTA to be especially important and let Canada
do all the initial work. The only reason why the U.S. Congress even considered the FTA
proposal was that they liked the idea of a bilateral approach to trade and were tired of the
previous mechanism that failed to settle a host of trade dispute irritants between the two
countries known as GATT. It would also allow freer access to other segments of the Canadian
economy. President Ronald Reagan decided to fast track the negotiations and appointed
Peter Murphy to represent their interests. The U.S. was also concerned about the growing
hegemony of the European economy. Strong differences in interests and approach dogged the
negotiations. The Canadians used every advantage available including the use of Summit
meetings between the leaders of both countries to emphasize their concerns at every

opportunity. Yet, the political powers in the U.S. dragged their feet to such an extent that the
Canadian negotiators walked away from the talks to express their displeasure. This put some
heat on the U.S. administrators to the extent thetas. Treasury Secretary Baker took over the
negotiations. As a consequence, the talks between the two countries were successfully
concluded. Several concessions were made by both countries. The U.S. opened up a larger
investment segment in the Canadian economy and removed some of the more time
consuming trade irritants. The Canadians achieved their main goals of getting freer access to
the U.S. economy, while implementing a strong trade dispute resolution method. The Free
Trade Agreement between the two countries created the largest bilateral trade relationship in
the world. Canada achieved its objectives because of its detailed planning and the intense
focus of its negotiating team despite the asymmetry in power between the two nations.
----------

Case 15

Negotiation Overconfidence
This case study reveals how can negatively affect the outcome. Successful business managers
need to possess a high level of confidence to succeed and meet the many challenges they face
in a fast paced and evolving business climate. There is a razor sharp line that exists between
being confident in what we do, and slipping across this fine, hazy line into being becoming
overconfident. Over confidence is a serious mental error that lurks in the background like a
banana peel lying innocently splayed on the sidewalk. Preoccupied with our own sense of
self-importance while talking animatedly on the cell phone, we dont notice this innocent
looking trap until weve fallen flat and solidly on our backside. Not only were we not paying
attention, we also miscalculated by assuming the way was clear. Making assumptions or
jumping to a false conclusion stems from overconfidence. It often leads to calamity, or a very
bad case of Oops! RJR Nabisco was having a bad year with its stock performance. The CEO
of the company, Ross Johnson thought that this was an opportune time to attempt a leveraged
buyout to increase the shareholders value of the stock. He, and his management group,
entered into negotiations with the board of directors special committee that had been
assigned with the particular task of finding ways to maximize the shareholder value. Since he
was the CEO of Nabisco, Johnson was confident, that because of his close ties to the
company; his buy out attempt would be the proverbial no-brainer. He out stepped his
confidence and found the banana peel instead. His overconfidence led him to fall into the trap
of making assumptions and jumping to an erroneous conclusion. His first mental lapse was to
assume that his company connections would automatically give him the heads-up to make
the buy-out happen. He made the second mistake of assuming that his investment bankers
would simply have to put the financing in place, and that the RJR board of directors would
also give him the power to manage the buy out. So, together with his main financial partner,
Shearson Lehman Hutton, he offered an initial buyout price of $75.00U.S./share. The initial
offering meant that his management team would only have to put up$20 million dollars or
8.5% of the total offer. If the board acceded to this offer then Johnsons management team
would receive 18% of the companys total equity. Johnson was also insisting that the 18%
would be divided equally amongst the 15,000 personnel who were employed for RJR
Nabisco. However he neglected to mention that in reality, only six names actually appeared
as the real beneficiaries of the transaction a real but intentional Oops! So stroked by his
overconfidence in closing the buyout he moved ominously close to the waiting banana peel
because he wasnt paying attention to several occurrences that were transpiring in the
meantime. First, the board never discussed or made any concessions with Johnson or his
financiers. Johnson also never even conceived there were any other players who might also
be interested in buying Nabisco. In truth, he had so alienated the board with his attitude that
they eventually awarded the buyout bid to an investment banking firm, Kohlburg, Kravis, and
Roberts (KKR) for $109 million dollars. One might think they were making the higher bid,
right? Wrong! KKRs bid was actually lower than Johnsons bid. The board was so ticked off
at Johnson that they took the loss instead because they appreciated KKRs negotiation
flexibility, and believed that KKR would have a more positive influence on the company
rather than Johnsons arrogance and overconfidence. So the moral of the story is that when

you become overconfident and full of yourself, just remember theres almost always a banana
peel lying there in wait.

Case 16

Negotiating with Wal-Mart

Analyses a series of successful deal-making strategies useful when negotiating with a
powerful partner. Wal-Mart, the world's largest retailer, sold $315 billion worth of goods in
2006.With its single-minded focus on "EDLP" (everyday low prices) and the power to make
or break; suppliers, a partnership with Wal-Mart is either the Holy Grail or the kiss of death,
depending on one's perspective. There are numerous media accounts of the corporate
monolith riding its suppliers into the ground. But what about those who manage to survive,
and thrive, while dealing with the classic hardball negotiator? In "Sarah Talley and Frey
Farms Produce: Negotiating with Wal-Mart" and "Tom Muccio: Negotiating the P&G
Relationship with Wal-Mart," HBS professor Jim Sebenius and Research Associate Ellen
Knebel show two very different organizations doing just that. The cases are part of a series
that involve hard bargaining situations. The concept of win-win bargaining is a good and
powerful message," Sebenius says, "but a lot of our students and executives face counterparts
who arent interested in playing by those rules. So what happens when you
encounter someone with a great deal of power, like Wal-Mart, who is also the ultimate nonnegotiable partner? The case details how P&G executive Tom Muccio pioneers a new
supplier-retailer partnership between P&G and Wal-Mart. Built on proximity (Muccio
relocated to Wal-Mart's turf in Arkansas) and growing trust (both sides eventually eliminated
elaborate legal contracts in favour of Letters of Intent), the new relationship focused on
establishing a joint vision and problem-solving process, information sharing, and generally
moving away from the "lowest common denominator" pricing issues that had defined their
interactions previously. From1987, when Muccio initiated the changes, to 2003, shortly
before his retirement, P&G's sales to Wal-Mart grew from $350 million to $7.8 billion.
There are obvious differences between P&G and a much smaller entity like Frey Farms,"
Sebenius notes. "Wal-Mart could clearly live without Frey Farms, but its pretty hard to live
without Tide and Pampers. Sarah meets Goliath Sarah Talley was 19 in 1997, when she first
began negotiations to supply Wal-Mart with her family farm's pumpkins and watermelons.
Like Muccio, Talley confronted some of the same hardball price challenges, and like Muccio,
she acquired a deep understanding of the Wal-Mart culture while finding "new money" in the
supply chain through innovative tactics. For example, Frey Farms used school buses ($1,500
each) instead of tractors($12,000 each) as a cheaper and faster way to transport melons to the
warehouse. Talley also was skilful at negotiating a coveted co-management
supplier agreement with Wal-Mart, showing how Frey Farms could share the responsibility of
managing inventory levels and sales and ultimately save customers money while improving
their own margins. Two sides in this sort of negotiation will always differ on price,"
Sebenius observes. "However, if that conflict is the centrepiece of their interaction, then its
bad situation. If they're trying to develop the customer, the relationship, and sales, the price
piece will be one of many points, most of which they're aligned on. Research Associate
Knebel points out that while Tom Macaos approach to Wal-Mart was pioneering for its time,
many other companies have since followed P&G's lead and enjoyed their own versions of
success with the mega-retailer. Getting a ground-level view of how two companies achieved
those positive outcomes illustrates the story-within-a-story of implementing corporate
change." Achieving that is where macro concepts, micro imperatives, and managerial skill

really come together," says Sebenius. And the payoffsas Muccio and Talley discoverare
well worth the effort.
Sarah Talley's Key Negotiation Principles
- When you have a problem, when there's something you engage in with Wal-Mart that
requires agreement so that it becomes a negotiation, the first advice is to think in
partnership terms, really focus on a common goal, of getting costs out, for example,
and ask questions. Don't make demands or statements...you know, can we do this
better and so forth. If the relationship with Wal-Mart is truly a partnership, negotiating
to resolve differences should not endanger the tenor of the partnership.
-

Don't spend time griping. Be problem solvers instead. Approach Wal-Mart by saying,
"Let's work together and drive costs down and produce it so much cheaper you don't
have to replace me, because if you work with me could do it better.

Learn from and lobby with people and their partners who have credibility, and with
people having problems in the field.
Don't ignore small issues or let things fester.
Do not let Wal-Mart become more than 20% of your company's business.
It's hard to negotiate with a company that controls yours.
Never go into a meeting without a clear agenda. Make good use of the buyers' face
time. Leave with answers. Don't make small talk. Get to the point; their time is
valuable. Bring underlying issues to the surface. Attack them head on and find
resolution face to face.
Trying to bluff Wal-Mart is never a good idea. There is always someone willing to do
it cheaper to gain the business. You have to treat the relationship as a marriage.
Communication and compromise is key.
Don't take for granted that just because the buyer is young they dont know what they
are talking about or that it will be an easy sell. Most young buyers are very ambitious
to move up within the company and can become of the toughest, most educated
buyers you will encounter. Know your product all the way from the production
standpoint to the end use. Chances are your buyer does, and will expect you to be
even more knowledgeable

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Case 17

Competitive Conflict Escalation

Discusses irrational competition and the damage caused by conflict escalation between
competing businesses. Competition is clearly a healthy means to increase sales for any
business. It is essential because it provides a stimulus for our company or organization to
prosper and grow. However, does this mean that a company should compete at all costs? The
answer is no! There comes a point when excessive competition may cause serious harm when
the losses exceed the gains. Sounds like simple common sense, doesnt it? Yet, there are
many examples of escalated competition that are unsound. Even the big players can be drawn
in this irrational escalation. We all use frequent flyer miles in our travels. We know what they
are, and the benefits that can be had from these types of programs. Back in1981,
American Airlines introduced the first frequent-flyer program. It was truly a unique
marketing plan. Anyone who flew regularly could redeem their travel miles for rewards.
Great stuff! Taking American Airlines lead, all their competitors jumped on the bandwagon
and provided a similar frequent-flyers program. To get a leg up on Americans initial
advantage, several competitors enhanced what they offered by doubling the air miles. They
also offered points for car rentals, hotel accommodations and other innovative tactics. The
airlines continued this escalating competition through the early 1980s as each airline tried to
outdo their competitors. In 1987, Delta Airlines offered triple miles to any passenger who
charged their tickets on their American Express card for all of the year of 1988. Analysts took
a hard look what this would actually mean as a cost to the airline industry. They estimated
that the airlines combined would end up owing their passengers somewhere between $1.5 and
$3 BILLION dollars in free trips. Whew! This was not small change to say the least. The
airlines industry was in quite a quandary now. How could the industry get out of this
marketing war that had spiralled so out of control? It finally occurred to them that somebody
had to step forward and draw a line, but nobody did at first. The total airline debt continued to
increase with estimates placing it as high as$12 billion dollars towards the end of the 1980s.
The airline companies couldnt stop competing and had to keep matching whichever one of
them raised the stakes. and clear. They also announced the cancellation of their rebate
programs.
The same thing had happened in the U.S. auto industry who engaged in rebate programs. The
other players quickly escalated their rebate offers to potential customers accordingly. It
actually reached a point where the major car manufacturers were selling every single car at a
loss. Finally, the CEO of Chrysler, Lee Iacocca held a press announcement. He stated that
Chrysler would not renew its rebate program when it expired at the end of the year if the
other companies followed suit. He also stated that if they didnt, he would match or exceed
their rebate programs otherwise. Iacocca drew a line in the sand and sent out a strong
message to his competitors. The other manufacturers got the message loud.