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International Negotiation


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International Negotiation

  1. 1. 3/8/2012GROUPASSIGNMENT DECISION MODELS IN NEGOTIATION Submitted By | LEE Yijung, LEPOUTRE Gaetan, PRASAD Naveen, REDON Annesolene IÉSEG School of Management
  2. 2. Example 1:‘Whether Walmart should be allowed to enter India or not?’ has recently been a topic of hugediscussion and debate in India and hence after attending the lectures on ‘Decision Models inNegotiation’, specially Game Theory, I was inspired to write a case on how Walmart canuse Game Theory to negotiate about its entry in India with the Indian government.IntroductionWalmart is an America based Multinational Corporation that runs chains of large discountdepartment stores and warehouse stores. With revenues of close to USD 422 billion (as per2011 data), it is the world’s largest retailer. Out of this, Walmart’s International (OutsideUSA) sales are expected to be around USD 130 billion. The company eyes a growth of 25%year on year basis for its international ventures. To achieve this, they have been trying toenter India which has a huge market and great potential for growth. However, the governmentof India, fearing fierce competition for the local retailers, have restricted Walmart’s lavishentry to India.Walmart may choose to negotiate with the Indian government officials or choose to stay outof India.Analysis from the perspective of Game theory Indian Government W a Harsh Medium Soft l Harsh -1.-5 4,2 X m a Medium 1,4 2,2 X r t Soft 0,5 1,3 XIf Walmart is very soft in approach and the Indian government is very tough, Walmartwill have to accept all the terms and conditions of the government, which might includecompensating the local retailers, picking up stock from the Indian landscape only (noimports), no expatriates from America, etc.This would increase Walmart’s liability to great extent and it is not sure if they will be able tobreak even the heavy investment they need to make to enter India. On the other hand, it will
  3. 3. help the Indian government boast of its competency and garner accolades from the people ofIndia.Therefore, I give a score of (0, 5) in favour of Indian government in this situation.If Walmart takes a medium approach to the negotiation and the Indian government actstough, Walmart will still have to accept majority of the terms and conditions laid down bythe Indian government.This would reduce Walmart’s profit margin and restrict Walmart International’s growth. Onthe other hand, it will help to increase the economy of India, increase employment andenhance the government’s rapport among the citizens, which can eventually help them inelections.Therefore, I give a score of (1, 4) in favour of Indian government in this situation.If both take a harsh approach to situation, it is impossible to strike a deal. If both of themare adamant, the Indian government will not allow Walmart to come to India. In such asituation it is a loss for both the parties. Walmart will lose an opportunity to explore thegrowing Indian market and expand its international ventures. On the other hand, Indiangovernment will lose the opportunity of the world’s largest retailer coming to their country.Alternatively, they may have to look for other big retailers, which is a tough task.Therefore, I give a score of (-1, -5), which is a loss for both the parties.In case the Indian government takes a Medium approach and Walmart takes eitherMedium or Soft approach, it may be allowed to enter India via a Joint Venture with any ofthe Indian retailers. Walmart will have to share profits in such scenario and also work in co-operation with the other firm.Therefore, I give a score of (2, 2) and (1, 3) for these situations.Considering the tough nature and egoistic behaviour of the Indian government officials, it isalmost impossible that they will take a soft approach to such negotiations. I, therefore, puta cross throughout this section.What I proposeIn case the Indian government takes a Medium approach, Walmart should act harsh.Walmart should say “Look, if I do not come to India, you lose on opportunities to enhance
  4. 4. your economy growth, employment, imports/exports”. Moreover, a failure to woo Walmart tocome to India will be taken as an incompetency of the Indian government which willadversely affect them in the next general elections. Also, Walmart should threaten to enter orenhance their investments in the markets which pose great competition to India, like: China,Brazil, Russia and other developing countries. This would hamper India’s growth incomparison to its competitor countries.I feel the stakes are high for the Indian government in this situation and if negotiatedproperly, the Indian government will bow to the proposal of Walmart.I give a score of (4, 2) in favour of Walmart.Example 2:Trust in negotiationIn this part of the assignment we will focus on the impact of Trust while negotiating that is tosay the relationship that a negotiator fosters with the counterpart. After a short theoreticalbackground of the notion of trust, we will illustrate the concept through an historicalexample. It is easy to think that in a negotiation context we are dealing with abstractrepresentatives instead of human beings. As R. Fischer and W. Ury said in their book Gettingto Yes, “negotiators are people first”. They follow this statement by an analysis showing thepros and cons of this. Indeed, through the building of a respectful, friendly, based on trustrelationship, the following negotiations will be smoother and the reach of a fair agreementwill be easier. However, a negotiator has to deal with the complexity of human emotions:ego, perceptions, misunderstandings… “Failing to deal with others sensitively as humanbeings prone to human reactions can be disastrous for a negotiation.” One of the mainimportant things to keep in mind in negotiation situation is that: “Every negotiators has twokinds of interests: in the substance (the agreement that satisfies his substantive interest) and inthe relationship”. In most cases the relationship fostered with the counterparts goes beyondthe outcome reach in a specific negotiation. According to Yan Ki Bonnie Cheng, trust in a Negotiation has three differentdimensions: Trust is a precondition, an objective and a strategy.
  5. 5. In the Chinese culture, trust in a relationship is so important that they are ready toallocate large amount of money, time and energy to preserve their Guanxi that is to say theirnetwork. However the definition and importance of trust depend largely on the culturalcontext. Then, in extreme cases it is possible to find negotiations that are not build in anyrelationship and doesn’t search for trust even if it will be easier in order to communicate. It isthe case for example in the hostage-takers negotiations. An historical example: The Reagan-Gorbachev Relationship Reagan and Gorbachev in 1985 in the Geneva Summit This relationship links the two most powerful men in the 80’s. The world is split intwo blocks: the USA in one hand, the USSR in the other hand. It’s the cold war, the clashbetween capitalism and communism: the two main economic models of that time. At the headof those two great powers: Ronald Reagan: president of USA and Gorbachev at the head ofthe communist party in Moscow. In 1985, it has been 40 years that those two countriesconfront each other through intermediary countries. The succession of president of eachpower didn’t give any improvement in the relationship. The world has to wait for the second term of the president Reagan to see a warmingup in the relationship of the blocks. Reagan recognizes the improvement of the USSR politicwith Gorbachev at the head of the Kremlin. This is the reason why he organized a summit inGeneva in 1985 with Gorbachev. One year earlier, he asked for ”negotiation and dialogue,rather than confrontation, and a common interest in avoiding war and reducing the level ofarms.” We see here that Reagan changes his tone; he is ready to listen to what the other partsneed to tell him. His perception has changed: he doesn’t see the Soviet Union as only a threatanymore. But the most important that make this summit a real success is the perception thatboth man has on each other. They both come to this meeting without negative preconceivedidea. They “come to like and respect each other”. Then they were able to create the basis of aworking relationship based on common respect. They were seeing each other as person with
  6. 6. constraints like themselves, as fellow politicians. During this summit, they have humanizedthe counterpart and recognize that they both have convictions. People who were present onthis summit talked about a “personal chemistry” between the two men. What happen in ahuman dimension on this Geneva summit is fundamental in a negotiation context. They haveseparated the problem from the people and understand the benefit that could come from atrust-based relationship. It is obvious that they will understand better in the followingmeetings and then take in consideration what they will listen from the counterpart. However,trust wasn’t built in one meeting. It takes times to create this type of relations. Trust is hard tobuild, easy to destroy and almost impossible to restore. Then it is important to take thenecessary time to build a strong relationship. In the case of the Reagan-Gorbachev relation,they have met four times in four years. We can be quite sure that this relationship haschanged the face of the world as it has changed the Reagan’s perception of the Soviet threat.“The commitment to principle that both man had, may have contributed to Reagans ability toappreciate changes in the Soviet Union in the sense that he perceived and responded to asimilar quality in Gorbachev. According to Alexander Bessmertnykh, Reagan and Gorbachev"each had their own ideals which they tried to follow all through their lives. Their ideals werenot similar, but the dedication to those ideals was similar. They both believed in something....This is what they sensed in each other and this is why they made good partners."”Example 3:Decision theory: the purchase by Bonduelle of a part of the American group Allens.Explanation of the case Through his subsidiary of North America based in Montreal, Bonduelle acquired threefactories of transformation and a packaging center of frozen vegetables to the Americanfamily group Allens. No amount was specified. These sites employ 400 people. Theacquisition includes besides the brands Chill Ripe and Garden Classic as well as a right ofusing the brands Allens and Veg-All for duration of 18 months. Bonduelle indicated that last year, the sales of deep-frozen vegetables of Allensrepresented a volume of about 150.000 tons in the United States, according to the followingdistribution: 40 % with the general public, 25 % in food service (towards professionals of therestoration) and 35 % in the industry.
  7. 7. Bonduelle Amérique du Nord, who cultivates more than 335.000 tons of vegetables inQuebec and in Ontario, exported until then 30 % of its production towards the United States,mainly in frozen food in the networks of the distribution “food service”. This operation willallow to boost the growth of its sales and will be virtuous from the point of view of foreignexchange risks (better balance of the productions and the sales in USD) and of thedistribution of its climatic risks ". Claiming the place of world number 1 of the prepared vegetable, Bonduelle remindsthat he runs 42 sites and uses employs 7.250 people. With this operation, Bonduelle groupbecomes one of the main actors of the vegetable prepared in North America and so pursuesits growth outside the European Union.In my example, I imagine that Bonduelle has used the rational decision-making process tomake its decision of partly buying Allens, as we know that Decision theory is a tool to makegood decisionsII Rational decision-making process Define the problem The first step which is carried out by top management to take a decision is definingthe problem. People tend to think that the problem identification is obvious; however, this israrely the case. If the problem is not well defined, people will have a different definition of it,and all the steps to reach a good decision will be miscarried out. In our case, the problem isthat Bonduelle has strong competitors in north America, has difficulty to reach new marketshares outside Europe, has climatic and exchange rate risks. Identify the objectives After having clearly defined the problem, you must accurately identify objectives.Several objectives should be identified to make the management aware of the effects of theirdecisions, and mainly lead the decision in a good way, which mean a decision which respondto accurate objectives. These objectives will be dependant to the initial problem. In our case,the objectives of Bondelle might have been to struggle against competitors, to reach newmarket and to lower risks.Generate alternatives
  8. 8. Bonduelle management has then generated possible alternatives that could havehelped in the Rational decision-making process to reach a good decision. The aim of this stepis not to appraise these alternatives, but only to list them. The numbers of alternatives youelect depend on for instance experience, knowledge, and skills. So we can imagine thatBonduelle has thought of doing more marketing in order to win market share, to buy othercompetitors, or even to lower price in order to sell more and so to win market share. Evaluate the consequences This step aims to evaluate the consequences of all the different alternativesindependently. The evaluation of the consequences of the different alternatives is the finalstep before making the decision. This step is rather difficult because consequences aredifficult to predict. Bondulle might have predict that lowering the selling price could have asconsequences of decreasing the quality of products in order to be cheaper to product them, orof decreasing the margin per item. It might also have predicted that increasing marketingcould have been costly without enough return on investment. Compute the optimal decision A way to struggle against competitors, to reach new market and to lower risks withthe best expected consequences might have been according to Bonduelle to buy a part of theAmerican group Allens.Example 4:Example of routine in terms of business Siemens is a global company operating in almost 190 countries in the world with morethan 405 000 employees. It has been producing the highest quality products in energy,industry and health sectors for 160 years. According to his vision Siemens can see himself asa pioneer in the fields of energy efficiency, high productivity and also clever money savingsolutions in logistics and other infrastructure features of the business. With regard onorientation on the innovation and sustainable development Siemens has introduced a system
  9. 9. called 3i. The core of the system is based on creating a friendly work environment where theemployees are supported to suggest some original ideas how to reduce costs or increaseproductivity. Can using of this system be seen as a routine from the view of employee? With regarding to the soaring IT tactics, both advantage and disadvantage occurred in thedecision making process, especially Knowledge industry. Routi nedecision-making model, The decision execution cycle,( Firestone & McElroy, 2007).Analysis of 3i system “When an act is repeated, a person can usually remember both his initial solution andhis reasons for taking that particular action, at the same time, distinguish the initialsolution whether is effective or not. (Peter Kesting and Remigiusz Smolinski, 2007)” Thefirst idea of this system was introduced almost 100 years ago. In 1913 in Siemens, Germanywere only 21 suggestions turned to the action. In 1963 it was 10 000 and other 50 years later100 000 suggestions per year celebrated the success. Submissions were used to use papers fordescribing theirs ideas and they needed to be patient to get decision of considering theimportance and viability of the idea. With rising number of written suggestions the system ofconsideration became no more sustainable. “Tight boundaries enable focused action, suchas in high performance organisations (Weick and Roberts, 1993)” The selection of thebest ideas was extending, the process disturbed involved people in their principal work, eventhough some employees had a good innovation they were not willing to share it with thecompany because they could feel like be robbed of their intellectual property. “Mentalboundaries are limits in themselves, but also lay the basis for new knowledge andorganisational change. (Kogut and Zander, 1996)” Siemens was searching for the mostappropriate option how to deal with managing of the ideas. The routine of storage of papers
  10. 10. was destroyed and the software company offered the system with many useful features howto map the process of consideration of the idea online. “With a budget, the routine cannotonly appear as a physical boundary, but also a mental boundary in addition to being anorm for appropriate behaviour, for example: a social boundary.(Hernes, 2003)”The adaptive phenomena Employees are now provided by software platform where they can place their impulses forimproving their work conditions. When a new idea comes up to their mind for first time theyhave to follow guidelines how to put all required details about new idea to software program,how the idea works, which sector would benefit from the accepting of the idea, how muchmoney it would approximately save, name of the inventor, the department where he/sheworks. “Routines contain co-ordination, cognitive and motivational dimensions (Nelsonand Winter, 1982).” All information gathered in central system and there is a committee of knowledgeablepeople who decide whether the idea will be put into practise or not. Everything is runningonline. It enables speeding up the process of consideration. Reviewers create their reviews ofthe ideas and determine the value of these ideas. If the idea is accepted the submitter isrewarded by money, if not than he receives a little present for keeping his motivation to thinkabout alternatives how to optimize processes. The successful template which was used can besaved and an employee can use it for another time, he will save time instead of filling all theboxes about their personality etc. Employees also feel more comfortable with the software sothey go ahead faster. Their efficiency is higher and higher, they do not need to spend as muchtime by planning how to use the software as before and their self-confidence of not making amistake is increasing. The topic (substance) is always new for them but a partner (thecompany) remains the same. That allows a development of their creative potential and usinganalytical skills to calculate a risk or estimate the uncertainty which would be taken byimplementation of their ideas.The routine mechanism On one hand 3i enables to gather the information about new ideas in few seconds, on theother hand employees can tend to underestimate potential risks or overestimate the chance ofthe idea to succeed with a number of repetitions. “Although the term is sometimes used ina merely classificatory sense (U.S. Bureau of Labor Statistics, 2003)” The system can bethen full of immature impulses. Some of good ones may be then overseen if you have toevaluate a lot of suggestions in short time and there are significant similarities among them.After receiving the results there is a space for negotiation for some particular ideas about
  11. 11. implementing only a part of the whole concept or changing some attributes to meet bettercompany goals. The own experience with this system was however strange. In subsidiary situated in Brno,every department was forced to come up with at least three 3i proposals every month.Conflicts are hidden in routines, because they have to be. “The embedded conflicts wastaken as a threat as a behavior routine (Nelson and Winter, 1982).” This conditioninduced a nervous atmosphere at the end of every month among members of the departmentand the leader of the department who was responsible for fulfilment. The employees feltbored and annoyed by this every month routine.