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.

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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.

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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.

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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.

----------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.
-------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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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.

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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.
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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

----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.
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