Negotiation Stories: Lessons Learned
Negotiation is the framework upon which business and politics are able to function effectively (Tohm, 2001). There are three primary facets of negotiation which exist in the context of factors such as scale, culture, and relative significance of the market. Those facets, interests, priorities, and strategy are constant irrespective of the specific negotiation underway. When negotiations function effectively governments and corporations are able to merge and affect change smoothly without undue disruption to business or the lives of those people directly affected by such changes. When negotiations fail though, it is to the inevitable detriment of all parties involved.
There are four primary types of negotiation that is in the context of the end goal of the strategy (Tohm, 2001). Deal making negotiations are those negotiations related strictly to buying and selling, included therein are mergers such as Pfizer and Warner- Lambert or even a customer haggling over price with a vendor. Decision making negotiations occur when there are multiple potential choices with varied outcomes and multiple interested parties. These types of negotiations are most commonly seen in political negotiations or those involving projects backed by multiple stake holders at times including governments such as the Camisea Gas Project. Value — claiming negotiations are used in reaching an agreement regarding the proposed distribution of valuable assets. These negotiations can become difficult when production of the asset or the product by which the revenue was acquired are many and having of very diverse conceptions of entitlement. Value- Creating negations are generally more amicable than value claiming negotiations. Value creating negations are a collaborative effort between parties to generate more revenue or assets to be shared. Such was the case in the creation of the now defunct NUMMI by GM and Toyota. Though there are countless interfaces between these very general types of negotiation, the overall purposes of negotiation are generally consistent, the successful achievement of goals either through collaboration, acquisition, or takeover.
Case Study 1: $80B Exxon & Mobil Merger
In December of 1998 two of the largest oil production corporations in the world announced an intended merger. This merger initially slated at $80bn USD would be the largest merger in United States history (“Exxon, Mobil in $80B deal”). The result of this merger is the equivalent of a U.S. based small oil rich country rivaling oil production of OPEC countries and coming closely behind Saudi- Arabia and Iran in terms of daily oil and gas production as well as access to reserves. The Exxon- Mobil Corp. As it is now called retains both brand names and uses existing members of each corporation’s senior executives to develop a new board of directors.
The motivation for such a merger was the extreme instability of oil price as well as the relative increase in operating costs exacerbated by the 1973 Arab oil embargo and the decision of Saudi- Arabia not to serve as the regulator of the production goals of OPEC. Between 1994 and 2000 there was a great deal of corporate restructuring occurring in the global oil market, ultimately resulting in the formation of several small oil empires which rivaled the member countries of OPEC in production of oil and gasses. Exxon Mobil, following the merger had access to roughly 21 billion barrels of oil and gas reserves. That amount in reserve, for perspective, is enough oil and gas to meet global needs for more than one year (“Exxon, Mobil in $80B deal”).
The merger of Exxon and Mobil was not the result of a desperate financial situation for either corporation; rather the two corporations complemented each other’s assets throughout the world advantageously. In light of global industry pressures, Exxon and Mobil following intensive corporate analyses of their assets as well as perspective profits the two corporate giants each valued at the time in excess of $50bn USD decided to merge.
Exxon paid $76.4bn USD for Mobil, more than a 25% market premium, buying all 780 million outstanding shares. The repercussion in the independent stocks of each company showed a slight loss of confidence in Exxon as indicated by a 70% drop, where as there was increased confidence in Mobil as reflected in their 30% stock increase. Ultimately though as predicted by J.P. Morgan Chase, financial manager of Exxon Corporation, stock interest equalized and the newly merged corporation was on track to achieve profit neutrality in its first year and a substantial profit the following year (“Exxon, Mobil in $80B deal”)
Case Study 1: Discussion
Exxon and Mobil came together in the face of industry wide pressure to create a unified front both capable of protecting and expanding its interests while maintaining a steady supply of product to their customers at a reasonable rate. The merger was conducted amicably, genuinely integrating both highly brand recognizable into one large multifaceted corporation.
Each company realistically evaluated their assets as well as those assets which could be had as a result of merging and it was deemed not only financially responsible but advantageous to do so. Combined the Exxon Mobil corp. has enough reserve to supply the global needs for over one year, while maintaining research into alternate fuel sources and pockets throughout the world.
The results of this negotiation also had global consequences on the price of oil. The union of these two incredibly powerful companies played an important role in stabilizing the price of oil in the United States in the wake of the turbulent price fluctuations resulting from the nearly unilateral control of OPEC. The companies joined together responsibly and amicably to further the interests of each other equally and bring stability to a crucial yet highly volatile market.
Case Study 2: Kraft takes over Cadbury
From a study several decades old yet highly relevant because of the unusually amicable nature of so large and financially high risk a merger we move to the Kraft / Cadbury merger which came to fruition in January of 2010. Unlike the Exxon- Mobil merger, this business transaction was the hostile assimilation of an iconic British confectionary brand by an American confectionary and food production conglomerate. Kraft foods purchased Cadbury for $19.5bn, ultimately resulting in Kraft foods owning over 40 confectionary brands each of which produce annual sales of over $100million USD every year (Beaudin, 2010). Though the actual fruits of this negotiation are still yet to be seen, much ground work must be laid before any real estimation of success or failure can be accurately gauged, in the aftermath of so hostile a corporate acquisition it is important to reflect upon the different strategies employed and the places perhaps where better more amicable decisions could have benefitted both companies (Wiggins, 2010).
Cadbury Schweppes had been performing poorly in sales and growth since 2000(Beaudin, 2010). A succession of senior executives and board members tried tirelessly to rejuvenate a somewhat tarnished financial image through bold corporate growth strategies. However, the effects of the American credit crunch which left the company vulnerable after it demerged from its soft drinks arm as well as the overshadowing of its new Dr. Pepper Snapple Co. stock sales by the Mars Wrigley merger. Cadbury was after these two consecutive blows to its plans for independence and growth of its confectionary brand a small manageable independent company which was in prime position to be taken over by another larger corporation (Wiggins, 2010). Irene Rosenfeld of Kraft saw an opportunity to become a behemoth multinational food production giant producing everything from cheese singles to instant coffee and now Cadbury chocolates.
Ultimately the decision to sell to Kraft was not made by senior executives. Rather, share holders weighed in and decided in a significant majority that the decision to sell to Kraft at a price of 850p per share was the most recommendable decision (Wiggins, 2010). A factor weighing strongly in the decision to sell as opposed to waiting for a better offer or resolutely maintaining independence was the fact that the shareholder register was composed primarily of hedge funds, many of which were American. Cadbury officials felt that Hedge funds were not interested per se in seeing Cadbury succeed as they were in seeing a significant return on their investment (Beaudin,2010). Allowing Cadbury to remain independent and risk losing not just the Kraft offer which was a premium on the existing share price. Kraft then revised its position after their offer was made formal and public affecting the share price of Cadbury, and the threat of a prominent Kraft share holder indicating that unless the offer was altered to reflect a greater cash to stock ratio he would not vote to support the acquisition (the original offer was 40% cash and 60% stock) (Beaudin, 2010).
What makes this acquisition interesting though is Cadbury’s status as a British national treasure, and its cultural significance to the UK. The manner in which Kraft under direction of Rosenfeld handled this acquisition was hostile, public, and extremely aggressive. The highly public takeover has if anything made the risk involved in this acquisition even greater. RHR International found that 70% of acquisitions such as this one fail to perform to standard, or even expectation (Wiggins, 2010). While Cadbury was initially vulnerable resulting in this take over, Kraft had to borrow heavily to afford the final price of 850p per share. In the coming months and years, Kraft will have to balance against recovering the money put into this acquisition (Wiggins, 2010). A risk, many British politicians and citizens alike fear will mean the end of their signature chocolate in an effort by Kraft to increase their profit margin quickly.
Case Study 2: Discussion
The Kraft acquisition of Cadbury is a corporate negotiation making headlines across the world both for the magnitude of the deal and the incredible hostility which marked the negotiations prior to the final signing of the agreement. Cadbury wound up in a financially vulnerable position after several strategically bold maneuvers ultimately resulted in a poor stock showing for the newly de- merged Dr. Pepper Snapple drinks company, and the reliance of Cadbury on financing from institutions which were ultimately crippled by the credit crunch. It had become inevitable that Cadbury would either have to sell or merge to stay afloat given its poor performance in the recent past.
Irene Rosenfeld of Kraft employed a highly adversarial and aggressive negotiation strategy by taking her initial purchase offer which had been rejected to the press. She knew that the fiercely ethnocentric brand would be unlikely to sell to the food conglomerate, so rather than risk losing to a competitor such as Hershey, Rosenfeld upped the stakes and let the stakeholders decide.
In retrospect, Cadbury blames its large number of what they term “short-term” investors for ultimately having to agree to less than favorable terms with Kraft. However, Cadbury despite its status as a British national treasure was historically of little interest to more long-term investors. The company stock had an impressively poor showing in British investment.
Though Rosenfeld managed to acquire a lucrative already branded company, the way in which she acquired it may ultimately result in a negative corporate outcome for Kraft. The company had to borrow heavily to afford the 850p per share, and ultimately might not even be revenue neutral for the first year or so of integrated production. She has also been warned by both political stake holders and corporate alike that if the quality of Cadbury suffers as a result of the Kraft acquisition, there will be stiff consequences not just for Rosenfeld but also for Kraft.
Though her negotiation tactics were less negotiating and more strong-arming, the results ultimately turned in favor of the direct and persistent approach. However, the extremely unpleasant nature of the acquisition will make the transition into Kraft even more difficult. It is important even in the most highly charged of negotiations to remember that even if an individual or even an entire company is an adversary presently they will likely be a colleague tomorrow.
Case Study 3: Vodafone takes over Mannesmann
Mannesmann and Vodafone are both telecommunications giants. Though independent the two corporations have worked together in Europe for years, partnering successfully to bring service to millions of customers across Europe. The two companies jointly owned Germany’s largest mobile phone service provider as well as Italy’s second most popular firm. The trigger for Europe’s largest corporate buyout (£112bn) was Mannesmann’s acquisition of Orange which is the third largest UK service provider for (£36bn) (“Mannesmann seals deal”). Though the two giants had worked together successfully for several years, this corporate takeover was still hostile in nature. Mannesmann was not looking to sell, however the purchase of Orange left the giant somewhat vulnerable at which point Chris Gent of Vodafone presented his initial offer of a merger.
Officially now the corporations are merging, however more than half of the company will be owned by Vodafone while 49.5% of the new enlarged company will belong to Mannesmann (Watkins, 1999). However, the less than 50/50 split held up negotiations for several months. Initially Vodafone presented an offer which meant that Mannesmann shareholders would get only 47% of the merged company, Esser (chairman of Mannesmann) initially wanted to hold out for his shareholders to have 58.5% of the merged company (Watkins, 1999). Vodafone however being the acquiring agent was definitely not going to cede controlling share of the merged corporation to the asset they were acquiring. During the tense and at times hostile negotiations, the share price for Mannesmann spiked 119%, unfortunately though as the end of the 60 negotiation period drew to a close it was evident that Esser would have to negotiate the best terms of an acquisition which was inevitable (“Mannesmann seals deal”)
. There was strong evidence that had the vote gone to the share holders they would have taken the deal even for a lower percent share in the new merged corporation.
Though the bid to acquire Mannesmann was initially a “friendly” offer, when Mannesmann turned the offer down immediately, Chris Gent of Vodafone began a campaign to acquire the German Telecom giant. Gent and Esser began campaigning throughout Europe and even the United States attempting to win the votes of shareholders either for or against the merger (“Mannesmann seals deal”)
. This tet a tet which lasted three months ultimately has lead to a telecom multinational behemoth which boasts 31 million customers in Europe and 42 million customers in total. Though ultimately Esser acquiesced to the Vodafone bid, he will be staying on as a non-executive deputy chair of the new merged corporation. Chris Gent, for successfully acquiring the reluctant and eventually combatant Mannesmann and ultimately reducing cost by £500m reportedly without having to cut any jobs, will be the chairman of the new merged company heading the 41 million customer strong conglomerate (“Mannesmann seals deal”)
Case Study 3: Discussion
This case study is an interesting example of the use of lobbying in a corporate negotiation context. This negotiation also undertaken for the purposes of value creation, was ultimately quite hostile. Both Vodafone and Mannesmann colluded on two highly successful companies and, were successful in their own right. This takeover was quite predatory in that Gent of Vodafone waited until Esser made Mannesmann slightly vulnerable by purchasing Orange, a UK-based telecoms company.
The impetus for this hostile takeover was the decision of Mannesmann to purchase a UK-based telecom giant such as Orange (3rd largest Uk network). Though the two companies had worked together in Germany as well as Italy, there was an unspoken agreement that Vodafone had dominance in the UK and Mannesmann had dominance in Europe, though both sought expansion to the American market.
Gent, skilled in corporate strategy and negotiation, initially presented the offer as an amicable merger. When Esser refused outright though, it became clear that refusal was not an option that Gent was willing to live with. Though there was a break down in direct negotiations at that point, not to resume until days before the bid would be put to a stakeholder vote, both chairmen began a rigorous campaign to entice stakeholders on both sides of the negotiation to vote either for the acquisition or against it. Effectively each chairman sought to shape the decision of the stakeholders by using their accumulated potential votes as bargaining chips in the ongoing negotiation.
Eventually though, despite huge spikes in both company’s stock price per share (Mannesmann increasing 119% during the last days of negotiation) Esser knew that if put to a vote the stakeholders would take the existing fairly undesirable offer. Esser immediately reinitiated negotiations in the hopes of getting as close to equal share in the new enlarged company as possible. He succeeded with the deadline less than 72 hours away in securing 49.5% market share for his stockholders. A feat which Gent publicly praised.
This case study is an example of extremely creative negotiating tactics. Generally, in situations such as the one above, the politics of internal structure become the primary focus of the debate. However, both men realized that the ultimate decision would likely come down to a vote and as such needed as many votes as they could possibly secure. This innovative strategy ultimately resulted in an effective and profitable solution for both companies.
Case Study 4: J.P. Morgan Buys Bank One
The J.P. Morgan Chase Bank One merger is simply the strategic alliance of two similar banking entities. Both extremely strong in terms of assets, and market presence their merging is one which has been handled equitably and efficiently. The combination of the two banks each representing a large market share and diverse range of financial products will ultimately return greater profits for shareholders as well as reducing the relative cost of operation as well as the cost of their products.
An increase in per share dividends of up to $.45 per share is possible as a result of this merger. So too though is the loss of 10,000 jobs throughout the companies more than 2,000 branches world wide (“$58B bank deal set..”)
. J.P. Morgan Chase was already the second largest banking and financial institution in the United States before the merger, their stocks as many similar company’s stocks has been performing well in the market. However, it was the extensive range of products offered and strong presence in diverse markets which maintained such strong stock prices.
Headquartered in New York, J.P. Morgan chase had a strong presence internationally as well as throughout all the states. However, in the mid and south west that presence was based largely on investment banking and trading. The Chicago-based Bank One however had a strong retail and credit card history which would enhance the J.P. Morgan Chase portfolio. Further, J.P. Morgan Chase acquired through this deal the world’s leading issuer of Visa cards according to 2004 estimates (“$58B bank deal set..”)
The running of this new financial corporation would be a fairly egalitarian process. A sixteen member board would be composed of seven executive board members from each company. Each of whom represents a specific area of the corporations business ranging from securities to technology. The final two members of the board are the two Chairmen who drove this mutually beneficial deal. The Chairman and CEO would be William Harrison existing Chairman and CEO of J.P. Morgan Chase while Jamie Dimon would act as the President and COO of this joint venture. This arrangement would see the company through its first two years as a combined entity before Harrison steps down as CEO succeeded by Dimon. Harrison would remain the Chairman of the new J.P. Morgan Chase until retirement . (“$58B bank deal set..”)
According to the terms of the deal, J.P. Morgan Chase would trade 1.32 shares of its stock for 1 share of Bank One stock. This ultimately would result in a price tag of $58bn USD for all 1.12 bn outstanding shares of stock. The merger is also supposed to save approximately $2.2 bn USD while costing an estimated $3bn USD. While initially an expense, the combination of the two companies will have a great deal of capitol which is expected to be used to generate increased cash flow from the start with profit increase expected within the year (“$58B bank deal set..”)
Case Study 4: Discussion
This case is an example of an amicable and highly profitable value creating negotiation strategy. Each party had complimentary interests and was of generally equivalent size and value. Though there tend to be a great deal of difficulty associated with mergers among equals, the extremely lucrative and beneficial nature of the proposition made the transition much smoother than say the acquisition of Cadbury by Kraft.
Both chairmen of the two companies sought this arrangement mutually. Where J.P. Morgan Chase could provide access to a larger world market, Bank One was the leading distributer of Visa Cards worldwide, which in light of the financial crisis was an invaluable investment for J.P. Morgan Chase. Though Bank One was ultimately merged with J.P. Morgan Chase, the integration of the two financial institutions was quite seamless. Key positions in J.P. Morgan Chase were given to Bank One executives and though the merged company was run initially by the Chairmen and CEO of J.P. Morgan Chase, within two years he was to step down succeeded by the former chairmen of Bank One.
The most significant lesson to be learned from this negotiation is that amicable high level corporate negotiation is possible. Opportunities for value- creation should be carefully assessed and in instances where both companies would profit equally they should be taken. It is only because each company was so internally aware and efficiently organized that this merger was able to move so smoothly and swiftly.
Case Study 5: $90B Pfizer & Warner — Lambert Merger
This merger resulted in one of the fastest growing and most successful pharmaceutical company in the world (“Pfizer and Warner- Lambert agree to $90 Billion merger creating the world’s fastest growing major pharmaceutical company.”)
. This merger resulted from the extremely successful joint venture of both companies on Lippitor products. This merger resulted in the total absorption of Warner- Lambert by Pfizer, however eight senior executives from Warner- Lambert would be invited to join the Pfizer board. This merger formally was completed by Pfizer trading 2.75 shares of its stock for each outstanding share of Warner- Lambert stock. This merger though is of particular interest due to the fact that Warner- Lambert was already involved in merger negotiations with American Home Products (Koo, 2000).
Pfizer initially made a bid for Warner- Lambert for 2.5 shares which was rejected in 1998. However, the 1999 offer of 2.75 shares was far greater than the American Home Products offer of 1.49 (Koo, 2000). Because talks had already begun, and cross options were actively in negotiation for the AHP merger, a fee of $1.8bn is being offered the company who was outbid by Pfizer (Koo, 2000). Though they will receive the one time severance fee, none of the additional cross options are even being considered. Negotiations between the two firms were becoming tense and the Chairman and CEO of American Home Products made no attempt to prevent the completion of a new merger with Pfizer (“Pfizer and Warner- Lambert agree to $90 Billion merger creating the world’s fastest growing major pharmaceutical company.”)
Though the merger of these two companies made a great deal of strategic sense, it is because Pfizer would be assuming operational control of Warner- Lambert that analysts were so positive. Another reason analysts are so heavily in favor of this merger is that it is not considered a merger between equals (Koo, 2000). In instances where two companies come together on equal footing, it is seemingly inevitable that the resolution of in house politics take the majority of time and effort in the first months of joint operations. It is clear however that this deal is one in which Pfizer is absorbing the slightly smaller Warner- Lambert. Mr. de Vink, CEO of Warner- Lambert has also chosen not to continue on in the board or in a leadership position of the new company (Koo, 2000).
Though both companies were well positioned in the market, and each had a significant projected growth (above 20% for both companies) this merger will represent an incredible amount of both cost saving as well as net income increase. Analysts predicted that there would be $1.6bn USD in cost saving and efficiency as well as a growth of as much as 25% in annual earnings (“Pfizer and Warner- Lambert agree to $90 Billion merger creating the world’s fastest growing major pharmaceutical company.”)
. Pfizer would have control of Lippitor as well which was slated to debut in Japan in the spring of 2000. The already $5bn USD per year from that drug alone would represent a significant increase in Pfizer income.
This influx of capitol from both efficient costs saving as well as the increased range of diverse products presented a number of promising potential changes in Pfizer. This increase in cash flow makes possible the expansion of key departments making potential income and contribution to life saving pharmaceuticals an integral part of Pfizer’s plan going forward. There are plans to expand research and development in areas such as Central Nervous System disorders, Infectious Diseases, and Women’s health. These changes are ultimately expected to return an average of 20% compounded growth per year for at least the first two years following this transaction (“Pfizer and Warner- Lambert agree to $90 Billion merger creating the world’s fastest growing major pharmaceutical company.”)
Case Study 5: Discussion
Calling the acquisition of Warner- Lambert by Pfizer a merger is slightly misleading. Though the negotiations were amicable, the two companies did not merge as equals. Warner- Lambert was absorbed, made effectively an integrated part of the Pfizer family. Little of the smaller company’s internal structure remained intact after the deal was signed and Mr. de Vink stepped down as CEO and president of the organization.
Effectively, this acquisition was the result of a value claiming negotiation. The two companies collaborated on the extremely successful Lippitor product. However, as supported by the analyses of financial experts, the internal corporate structure of Warner- Lambert was not ideal for capitalizing and growing such a product or indeed such a partnership. Though they were in talks with American Home Products at the time, Pfizer outbid the smaller firm effectively doubling their offer. $1.8bn USD was lost as a result of walking away from that deal, however Pfizer stood to increase net profit by a margin of 25% as a result of the “merger.”
Pfizer began showing interest in acquiring Warner- Lambert a full year before the deal was actually signed. However, the impetus of a secondary bid as well as the impending release of Lippitor in Japan motivated Pfizer executives to make a hard bid for the company. Though they paid a market premium for Warner- Lambert’s stock the excess capitol generated from the move would be enough to ensure no losses were felt by Pfizer stake holders and that there would be increased money for highly lucrative areas of research and development.
The strategy used by Pfizer with great success in this situation was one of evaluating the relative strengths and weaknesses of their partner, and using that information to bargain effectively with the executive board and shareholders of the desired company. Pfizer could offer increased profit immediately as well as huge potential profits from increased research. It also offered a market premium. Ultimately the careful analysis of Warner- Lambert financially and structurally allowed Pfizer to step in, in the immediacy of a hugely important product launch and present Warner- Lambert with an offer it could not refuse.
Case Study 6: GM & Toyota
Though this case is slightly older it is significant in that two world leaders in the automotive industry were able to join forces in the mutually beneficial response to unstable oil prices in the late 1970’s and early 1980’s. This instability in oil was severely negatively impacting GM’s sales as American customers simply could not afford to fill the tanks of the typically larger production cars. Toyota however produced smaller more compact and light weight cars which were performing comparatively well. Though initially setting out to “beat Toyota,” executives at GM ultimately decided that it would be more profitable to “join Toyota” (Kwoka, 1991). What is particularly unique about this merger is that as per anti- trust legislation, and the interests of each independent company the merger was only ever intended to last 12 years. Though it ultimately lasted an unexpected 25 years, producing the extremely profitable Toyota Corolla, the merger was actually a carefully constructed joint venture in which Gm was able to meet earnings objectives while Toyota got on the ground access to the American automotive market as well as earning the trust and loyalty of even protectionist consumers (Kwoka, 1991).
Though Toyota did not “need” to enter into this joint venture, strategically it was an excellent decision. Of the $300m USD of capitol needed to begin this venture Toyota provided the majority of the monetary assets. GM contributed a comparatively paltry $20m USD as well as a production plant in California (Kwoka, 1991). Though many of the component parts were imported from Japan, this joint venture produced several thousand American jobs which proved invaluable to their corporate image. Further the venture produced an additional stamping facility not only providing jobs for NUMMI employees, but also for those construction workers and supply organizations contracted to build the plant.
The manner in which these two companies merged was also interesting in that they did not merge as the word is traditionally defined rather they jointly created an entirely new company to represent their combined interests in a specific market (Kwoka, 1991). The New United Motor Manufacturing Inc. (NUMMI) was a company in its own right produced by two larger companies seeking to resolve the increased pressure resulting from the fluctuating oil prices.
NUMMI actually spawned a number of additional businesses resulting from long-term operation including repair facilities among others. Many of the employees at NUMMI also unionized joining a local UAW which came to represent those workers in the bitter dissolution negotiations which occurred only after GM declared bankruptcy and pulled out of the joint venture (Kwoka, 1991). Though severance negotiations ultimately broke down and the once successful NUMMI suffered a less than dignified ending, the precedent was set for large competitors working together in the short-term to mutually beneficial ends. Toyota got access and an improved corporate image, GM’s tanking sales were rejuvenated as well as learning about more effective plant and construction designs (Kwoka, 1991).
Case Study 6: Discussion
When two world companies such as Toyota and GM come together in joint venture there are a number of highly important rules and regulations which must be adhered to. These rules to a degree define the nature of negotiation. In the instance of NUMMI, GM and Toyota were entering into a value- creating negotiation.
The two companies were both suffering as a result of erratic oil prices towards the end of the 1970’s in terms of American automotive sales. GM needed to launch a car which was not so high in fuel costs, and Japan needed to boost its corporate image in the increasingly protectionist American consumer market. The compromise the two companies reached after attempting to beat each other for several years was that working together would produce both a fuel efficient car as well as an improved image for Japanese car manufacturers.
The interests of both companies were an increase in revenue from the American consumer market. The priorities though different for each company were compatible. GM wanted to meet its sales objectives in order to keep the company financially solvent. Toyota wanted to increase its sale in the U.S. By improving its image as a job creator as opposed to job taker. The strategy though, as a result of cultural and production differences was perhaps the most difficult aspect of the negotiations. Neither company wanted to merge, nor did either of them want to acquire or be acquired by the other. Out of this seeming impasse came the result, a joint venture.
Rather than colluding on a single product shared between two companies, the decision was made to develop a third company independent yet owned by the two parent companies of Toyota and GM. NUMMI was the highly profitable result. Though initially indicated only to last 12 years, the joint venture lasted for 25 years, until GM was forced to file for bankruptcy and pulled out of the agreement. Despite ending badly the objectives of both parties were met, and 3,500 jobs were created as a result. International cooperation and cultural understanding were paramount in the success of this joint venture. Both companies were willing to work towards common goals with respect to the specific needs of each other.
Case Study 7: Small States in the EU & Strategic Policy Making (The Vodka Case)
The previous case studies have focused primarily on mergers, acquisitions, and joint ventures of big business. This study however focuses on how smaller less “vocal” members of the EU make their lighter voting power count in decisions apparently controlled by larger member countries (Panke, 2009). Though political in nature, it is important to understand the nature of this type of strategic restructuring and negotiation because it is applicable across the spectrum of applied negotiation technique.
In 2005 the European Commission proposed a redefinition of spirit drinks. (Panke, 2009) This redefinition would define the spirit-based essentially on the raw materials used to make it. The necessity to include that information on the label as well as the prohibition of selling alternatively produced products, such as the beet-based Scottish vodka or fruit-based vodka from countries such as Bulgaria and Hungary, which would ultimately have a severe negative impact on national earnings from the sale of such products. The loss of the name “vodka” would likely severely negatively impact the sale of those alternatively produced spirits thereby negatively impacting the affected country’s annual earnings from the sale of distilled spirits (Panke, 2009). Conservative or “purist” vodka producing countries such as Sweden, Finland, Poland and Denmark however argued that Vodka could only be made from potatoes or cereals, thereby severely narrowing the definition.
In the context of the European Union member countries such as the UK which is a world leader in “vodka” production behind Russia have more voting and negotiating power due to the weight of their potential vote. Denmark for example would not be able to successfully bargain with larger members simply because they do not have sufficient leverage able commodities to make the loss in potential income that the failure of such a proposition would make inevitable worthwhile (Panke, 2009). However, if the generally accepted definition of the product such as in this instance vodka is generally accepted as a distilled spirit produced from potatoes or cereals, then their ability to argue successfully is of ultimate salience to the success or failure of such a position and not the size of the member arguing (Panke, 2009).
Case Study 7: Discussion
Where business negotiations are comparatively less complex than political negotiations involving multiple countries, the issue in this particular instance was not related to internal political structure. Rather, it approaches the prospect of these member nations effectively as businesses, the product of which is vodka. Each country whether on the purist side or on the more liberal side of the debate had a significant financial stake in the decision. If the proposal went through and vodka was defined as distilled spirit resulting from agriculturally produced raw products, then the market could conceivably be flooded with distilled spirits of dubious origin called vodka because their raw ingredients were grown. This could potentially severely impact the sale of necessarily more expensive “real vodka” in smaller member countries such as Finland. Similarly, the opening of a definition for “vodka” could produce a boon in the sale of distilled spirits in countries cultivating alternative means for the production of vodka such as from beets or wine grapes.
In the context of a political governing body the rules of engagement for negotiations are slightly different. Rather than convincing shareholders who have a clear and tangible motive to ensure the success or failure of a proposed merger or acquisition, in the E.U. member countries particularly smaller ones must convince other countries to vote with them. Not unlike the campaign undertaken by Esser and Gent in the Vodafone acquisition of Mannesmann. Likeminded, neutral, and even marginally oppositional countries must be persuaded to vote one way or the other. This is accomplished through a number of strategic maneuvers dependent on the relative size and bargaining power of the country attempting to shape the outcome. Not unlike an executive board or shareholders in a large company, the countries must be presented with arguments which resonate with their existing beliefs and self-interest or with a sufficiently motivating threat or incentive.
This convincing in the context of a political governing body can occur in two primary ways, either countries are able to bargain with other countries in order to secure a vote, or they are able to convince those other countries that their side is “right” through argument. In cases which are significantly important there is also the option of coalition building or even lobbying the presidency and members of European parliament of neutral countries. Lobbying is tantamount to convincing board members to agree to a merger or acquisition. Approaching members of the European Parliament or even the President of the EU however is much more difficult.
In the case of redefining vodka as a product solely of the distillation of potatoes and cereals the smaller “purist” countries were ultimately successful. Through intensive argument and coalition-based negotiation strategy a compromise was reached in 2007 which indicated that all “vodkas” made from non-potato or cereal ingredients were to be labeled as “vodka made from.” Yet, they would still be called vodka mitigating the potential harmful effect of more strictly defining the spirit.
Case Study 8: Battle of Seattle — WTO
The previous case studies examined strategic negotiation between two relatively equivalent parties. Though in several instances one party or one group of parties was significantly larger than the other, they were categorically the same. In the Toyota GM case for example both parties were globally recognized and profitable automotive manufacturers. In this case study however, a movement of more than 2000 youths and opposition organizers were able to prevent the World Trade Organization from conducting business for four days in 1999 (Clark, 2000). Though four days may seem relatively insignificant, it is not the length of time that is of issue in this instance but rather that the astute strategizing of independent individuals was able to completely disrupt the functioning of arguably the most powerful and influential economic governing body in the world with representatives and interests in virtually every country on the planet.
From November 29 to December 3, 1999 the WTO in Seattle was effectively the hostage of dozens of squads of citizens, NGO’s, Labor Unions, Human Rights groups, Social interest parties, and anti- globalization adjutants exercising their right to free speech and peaceful protest (Clark, 2000). Also of note in this case are the fairly unorthodox desires and approaches to negotiation of these individuals in their interaction with the WTO. The reason for the protesting was simple, large groups of NGO’s, Unions, Social and Environmental awareness groups as well as independent groups of educators and anarchists opposed the globalization which the WTO brought more efficiently to the rest of the world. The conferences held in Seattle were attended by a number of corporations whose dubious production policies in undeveloped countries lead to large scale animosity (Clark, 2000).
Seattle had in recent history developed a reputation for being a hot bed of radical political action. The Multilateral Agreement of Investment talks in 1998 for example were met with such huge political backlash that Seattle actually declared itself an MAI- free zone, sparking similar movements across the country (Clark, 2000). Not only was the meeting itself targeted by these concerned citizens, the individual corporations taking part in the meetings where were intended to further the goals of capitalism in the undeveloped world were individually targeted as well.
Case Study 8: Discussion
The individuals who affected this brief yet hostile takeover were definitively adversarial. They were not interested in compromise or collaboration rather they wanted the complete disruption of the WTO and all those companies who were a partied to their actions. Though there was no negotiation whatsoever between the WTO and the protesters there was much collaboration, compromise, and negotiation among the groups. There was also extensive negotiation between the groups and the law enforcement officials of Seattle.
The overall objectives of the adjutants in this case were doomed to fail. One city full of protestors would never effectively end the W.T.O. However, the concentrated and strategic effort of those relatively few individuals would have larger shaping effects on the overall opinion and actions of individuals, states, and even agencies nationwide, possibly even globally. The actions of those bodies made aware of the high level of public displeasure with the exploitive actions of the organization could potentially affect the changes the individual citizens who participated in the battle for Seattle wanted to see.
Shaping is a negotiation strategy by which smaller less powerful parties are able to reasonably affect change in the context of a larger and more powerful group. Likened to a radicalized grass roots version of the actions taken by the “vodka purists” in the European Union case study, the rallying and protesting actions themselves were not directly expected to affect change, rather they were designed to garner support and backing from larger more powerful organizations. Parties with the political and financial fortitude to effectively bargain with an organization like the W.T.O. While the actions taken by smaller countries in the EU are similar, they are vastly different in practice.
Perhaps the most important lesson learned from this experience is that even the most unlikely opponents have the ability through negotiation to gain a degree of leverage over even the most formidable opponents. In a startling yet effective move one year earlier Seattle declared that it would not host the W.T.O.’s ministerial meeting regarding the Multilateral Agreement on Investment. This politically potent albeit legally weak move sparked similar movements across the country and throughout Canada. Effectively 2,000 Seattle residents as well as impassioned citizens from across the country were able through shaping strategies, radical though they were, to have the W.T.O. held to account and put under increased scrutiny as a result of the actions of a few highly motivated individual people.
Case Study 9: The Camisea Gas Project
The Camisea Gas Project is a natural gas iniative in Peru which has been ongoing for the last 36 years. Originally, Shell oil discovered two natural gas reserves in Latin America in the 1980’s. Now regarded as the two most important gas reserves in Latin America, the San Martin and Cashiriari fields are located in the lush Amazon Rainforest in the Ucayali basin (Vences, 2006). It was not until more than ten years had passed from the initial discovery that formal plans for exploiting the rich natural fields were proposed. The plan was divided into two sections one regarding the exploitation of the natural gas and the other for the transportation. Production started officially in 2004 (Vences, 2006).
Since the 2004 commencement of operations though, the project has been rocked by disaster (five explosions to date, and numerous pipeline failures) and scandal resulting in huge production delays as well as a great deal of friction between the five primary investor groups (Vences, 2006). The project is estimated to have between 50 and 500 individual stake holders, that is, between 50 and 500 individual entities with significant financial obligations to and from the project itself (Vences, 2006). These share holders include governments, I/NGO’s, financial entities, development companies, and communities.
Though there are two primary phases to the project, the project has been subdivided into four smaller and more manageable operations. Each of these smaller projects is based on individual production processes ranging from refinement to distribution. These smaller operations all have resulted in the awarding of multi-decade contracts worth in excess of $1.72bn USD (Vences, 2006). However, with each additional set back and renegotiation of terms, the total cost of the project is increased and ultimate profit margin for the shareholders decreases.
Among the shareholders is a diversity not only of size and designation (ie: community, government, etc.) but also of spending power and experience in the exploitation, refinement, and distribution natural gases. There is also a great deal of diversity in terms of national background and motivation for involvement in the project. While some shareholders such as Shell and Mobil are interested in the increased revenue associated with exploitation of so rich a deposit, others such as Amazon Watch are interested in making sure that as much of the Amazon Jungle is kept pristine as possible, an effort intrinsically connected to the relative quality of building materials and their ability to prevent large explosions and gas leaks the likes of which destroy 35 acres of forest as the March 4th 2006 explosion did (Vences, 2006). It also resulted in the leakage of 750 cubic meters of liquefied gas a contaminant the consequences of which will be felt for generations to come for communities living in the forests through which this pipeline is attempting to pass (Vences, 2006).
Though each stakeholder ostensibly is working towards the timely and environmentally sound completion of the pipeline to facilitate the exploitation of the natural gas reserves, each stake holder had specific mission statements and primary objectives as set out by each stake holder. Many of these documents imply conflicting goals and parameters for the project which results in wide spread organizational chaos (Vences, 2006). Throughout the course of the project to date negotiations and renegotiations of contracts and project goals have resulted from these discrepancies.
Case Study 9: Discussion
The production of a pipeline through dense tropical rainforest and with the interest and backing of several governments and independent agencies is a situation which could easily become dangerous not only financially but politically for those involved. There are also a great many legal protocols which must be adhered to not only in the exploitation and distribution of fuel products, but also in terms of the protected environment in which all of this occurs and the interaction with diverse groups of indigenous peoples who must be cooperative in the project if it is to succeed.
The pitfalls and relative disasters of the project have exacerbated already tense stakeholder relations. Finger pointing as a result of five explosions, the loss of primary financial backers, disastrous community relations with the indigenous community, and the pollution associated with gas leaks inherent in the explosions which shake the pipeline with disturbing regularity have threatened the project even before the initial stages reached completion. The one saving grace of this entire project though is that Shell employed a team devoted solely to managing the at times conflicting interests of Stakeholders. This team was responsible not only for keeping abreast of the changing objectives and needs of the multitude of stakeholders, but also of potentially negative interactions between them.
This strategy called stake holder mapping was complimented by an associated team concerned solely with key relationship development. Cooperation between the five primary stakeholder groups is integral for the successful timely completion of project objectives. The key relationships development group was responsible for assessing any impending political troubles as well as ensuring that financial backers not only stayed interested but in the event that one was lost, others were available to pick up the slack. It is also the responsibility of this group to ensure that the backers with somewhat dubious reputations do not negatively impact the overall project while ensuring that their support is not lost.
One challenge perhaps none of the concerned parties were ready for was the event of internal competition and attack among the stakeholders. One of the NGO’s involved in the project began an intensive and highly public campaign against one of the primary financial backers of the project. Rainforest Action Network launched a campaign claiming that Citibank was the most destructive bank in the world. These highly publicized comments ultimately resulted in the withdrawal of Citibank’s financial support of the project.
Ultimately what can be learned from this project is that strategic fore-planning is essential to the successful running of so large a project which is reliant on the cooperation of a large number of diverse stakeholders. Shell put the framework for successful negotiation in place and ensured that individual needs were not only attended to but that the overall cohesion of the myriad stakeholders was actively worked toward internally as well as externally.
Case Study 10: Boeing, Machinist Union, & 787 Dreamliner
One of the primary issues facing manufacturers in the United States is the extremely high pressure exerted upon wages, pensions, and health care by unionized labor (Foust & Bachman, 2009). Boeing has faced precisely such problems with increasing regularity and severity in the last two decades. With union demands increasing, and their willingness to strike and engage in other highly harmful tactics, Boeing has been forced to consider drastic means of countering such situations which include moving production for their 787 Dreamliner to a proposed brand new production line in South Carolina (Foust & Bachman, 2009). Though Boeing is based in Washington State and has never built a plant or production line outside of Washington and the Executive push to do so for the purposes of meeting supply commitments for the dreamliner has cause a great deal of unrest among the union and the unionized Washington-based Boeing employees. The precedent for moving production out of state and away from the local unions is based largely in the highly antagonistic and negative behaviors they have engaged in. In one strike in 2008 which lasted 57 days and cost Boeing $2bn USd as well as the business of several customers who cancelled their orders opting for the more stable Airbus, Boeing’s main competitor (Foust & Bachman, 2009).
Boeing is currently concerned about its $140bn USD order for 787 Dreamliners, production of which has been delayed for two years as a result of work place disputes. On the precipice of launching its most successful plane yet, Boeing must seriously consider whether it is finically wise to remain in Washington where their work is so dependent upon the cooperation of extremely demanding employees (Foust & Bachman, 2009). Boeing currently has one of the highest hourly wages in the industry as well as one of the best pension and health care plans for its employees. So severe are these strikes that after the 2008 strike Boeing began negotiations for an 8-year no strike contract with the local unions. However, the demands of the union were so extreme that in order to meet them Boeing would ultimately had to have defaulted on orders as well as cut several hundred jobs, possibly more (Foust & Bachman, 2009).
The choice facing Boeing in terms of monetary consideration is a simple one. South Carolina is vehemently non-union labor. Cost for production would decrease as much as 40% (Foust & Bachman, 2009). However, moving just part of production to Washington could ultimately be much more expensive for Boeing because Washington workers would have the ability to stall completion by rejecting sourced parts. Conversely the construction of a completely new production line as well as the time required to successfully start the line would negatively impact shareholders and profit margins. As such, Boeing has reached an impasse, entering a lose-lose situation (Foust & Bachman, 2009). Having reached an impasse with the unions, yet facing a potential decline in the quality of product the best case scenario for Boeing at this point is the opening of a plant in S.C. with the huge $400m in incentives promised by the state as well as the relocation of some skilled workers and the creation of an intensive training program (Foust & Bachman, 2009). Though the total unit price of each plane would with these factors added for consideration be raised $12m USD, Boeing would still save more than $30bn USD by leaving Washington State (Foust & Bachman, 2009).
Case Study 10: Discussion
Boeing has historically employed a policy of working with unions to achieve a quality product as well as a happy healthy appreciated workforce. In recent history though, that win- win approach to business has faltered at the increasingly expensive demands of the unions and the drastic action they are willing to take to see their demands met. It became clear to Boeing that their previous positions of accommodation and compromise were no longer going to be effective in the successful running of an aerospace manufacturing firm, responsible to its share holders.
Presented in this case is a decision making negotiation. The different parties involved are Boeing, Labour Unions in Washington, Governor of South Carolina. The competing interests are the money and time saving needs of Boeing with the employee demands of the unionized workforce, with the potential influx of jobs and revenue to the state of South Carolina. Several strategies have been employed by Boeing in regards to the labor unions of Washington State. Similarly strategies have been implemented by the State of South Carolina to entice Boeing away from the problematic union culture of Washington to the staunchly anti- union workforce of S.C.
Initially Boeing bargained with the unions. It’s position as the employer and one of the largest revenue sources in the state accorded the company a position of dominance in negotiation. Increasingly though as a result of competition from other manufacturers as well as increasing power of employees over success of production objectives wore down that position to the point of the union and Boeing being nearly equivalent in relative authority. At times, it appears that the union may in fact have more bargaining power than Boeing in terms of meeting project deadlines and shareholder financial expectations.
As the relationship began to change, the bargaining and collaborating initially employed by Boeing eventually gave way to compromise. Boeing was conceding points or contention, as well as the union. These compromises though not ideal allowed for a smooth continuation of productivity despite the ongoing negotiation. Eventually though, even the strategy of compromise began to give way. Boeing facing staunch competition from manufacturers such as Airbus was forced to push for tighter deadlines and decreased production costs.
Finally the once profitable relationship between Boeing and the labor unions has soured almost completely. Formerly amicable negotiations have been reduced to threats and hostile actions, culminating in multibillion dollar strikes by union workers and a final decision to move production across the country. What was once a win- win relationship which was roughly equivalent in importance to the issue of production, has become anathema to the ultimate goals and objectives of Boeing Aerospace.
This outcome represents a total breakdown in the process of negotiation. Rather than reevaluating positions both parties continued to escalate raising the metaphorical stakes until there was no solution but to either sacrifice the majority of profit to a workforce essentially holding the product hostage, or to move at great expense the production of their product to a more amicable location. It is this escalation which also lead the Governor of S.C. To proffer a more attractive offer, thus securing a contract which would never have been in dispute had a degree of consideration gone into the union’s demands and Boeing’s considered responses to those demands. This case specifically highlights that negotiations should avoid escalation as much as is possible, referring the matter to legal arbitration if necessary.
Conclusion
Though the cases discussed above are extremely diverse, each represents an example of two or more parties coming together for the purposes of decision making. An extreme simplification yet, the most accurate and succinct explanation of what negotiation actually is. The primary lessons learned from cases such as the ones above are the same lessons learned from everyday human interaction; respect for other and other cultures is paramount, attempting to circumvent the rules will be met with punitive actions, and perhaps most significantly, hostility will always be less effective in the long-term than congeniality. The art of negotiation is essential to the continued success of global business and politics. Though not always amicable or neatly resolved, negotiation strategy and technique provides a form in which all parties irrespective of their size or wealth are able to challenge individuals, organizations, even countries.
References
1. “Exxon, Mobil in $80B deal.” CNN Money official site. CNN, 1 Dec. 1998.
2. Beaudin, Guy. “Kraft- Cadbury: Making Acquisitions Work.” BusinessWeek. 9 Feb. 2010.
3. “Mannesmann seals deal.” CNN Money official site. CNN, 3 Feb. 2000.
4. “$58B bank deal set: J.P. Morgan agrees to buy Bank One in a deal that would combine two of the nation’s biggest banks.” CNN Money.com. 15 Jan 2004.
5. Koo, Carolyn. “Pfizer, Warer- Lambert Ink Merger Deal.” NYTimes.com official site. 7 Feb. 2000.
6. Watkins, Simon. “Vodaphone outlines plans for Mannesmann merger.” The Independent: Business official site. 16 November, 1999.
7. Wiggins, Jenny. “The inside story of the Cadbury takeover.” FinantialTimes.com official site. 12 Mar. 2010.
8. “Pfizer and Warner- Lambert agree to $90 Billion merger creating the world’s fastest growing major pharmaceutical company.” Pfizer official press release. 7 Feb. 2000.
9. Kwoka, John Jr. “International Joint Venture: General Motors and Toyota (1983).” Federal Trade Comission official site. 1991.
10. Clark, Tony. “Taking on the W.T.O.: Lessons form the Beattle of Seattle.” Studies in Political Economy 62, 2000, 7-16.
11. Vences, Valeria. “The Camisea Gas Project A Multi- Stakeholder Perspective on Conflicts & Negotiation.” Collaboratory for Research on Global Projects, Stanford, June, 2006.
12. Panke, Diana, “Being small in a big union: Structural disadvantages, counter- balancing strategies, and the varying success of small states in European Policy making.” University College Dublin, Doctoral Thesis, 2009.
13. Foust, Dean & Bachman, Justin. “Boeing’s flight from union labor.” BusinessWeek official site, 6 Nov. 2009.
14. Tohm, Fernando “Negotiation and Defeasible Decision Making.” Universidad del Sur doctoral thesis, 12 Oct. 2001.
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