Negotiation Methods Case

Alpha Gearing Systems Shanghai

Debrief

1. Looking at it from Alpha Gearing Systems Shanghai & Nelson’s points of view, fill in the “7 Elements” using the framework provided in Exhibit #1.

Communication:

Complex, with many different parties in the JVs:

• AGS JV (AGS/Kai Machine) negotiating
• with San Yu Moped, another JV (San Yu/Excel Motors, US) an important customer, about a contract

• 4 parties involved: 2 directly Alpha Shanghai & San Yu,
• but the 2 JV partners are indirectly present (stakeholders), AGS & Excel Motors

For AGS, 2 offices: Shanghai (manufacturing) & Beijing (sales)

Deterioration of communication & relationship over time internally within AGS & with the client: Aug 97 to Sept 98

Started in Aug 97; in AGS Shanghai offices; all senior mgt present

Traditional luncheon in private room, but at AGS Shanghai on-site lunch facility

Process: regular negotiation meetings, alternatively for 3 days, monthly, with representatives from both sides. Preference from San Yu to meet in Shanghai

Regular written reports sent to San Yu & internally & JV partner

Nelson had empowered her team p10

Involved only when she felt this was needed: concern from Liu, & impact on San Yu…

Liu worked with Yang

Hot potatoes:

• First, price for parts
• Second, how to recover the AGS investment (equipment & development costs): number of years or minimum number of parts

Internal issue within AGS on negotiation with San Yu: after signature of LOI, AGS Shanghai was left with responsibility to manage the negotiation; Cheng Xie, Manager Beijing office turned account management to AGS Shanghai

AGS:

• Price assumptions (fixed) not discussed
• Yang got involved in the negotiation & got frustrated & stopped p9
• Cheng Xie in the nego at the early stage
• Different views on how to deal with San Yu: price, volume changes, payment between Cheng Xie & Nelson p16

Nelson:

• Involved in the negotiations, but not leading directly & continuously: Liu + 3 sales people from Kai Machine led the nego p9
• Role unclear; made some statements p8, p9
• More involved in liaison with Excel senior mgt
• Kept Excel North America, Europe & China informed in writing or phone
• Communication issues with Cheng Xie
• Harsh reaction to San Yu lack of response to payment issue: no more shipments
• Sent direct message on production equipment: “move to another part of the plant”
• Communication face to face (Chinese negotiating team) & thru letters on status reports

San Yu:

• Minimum & short-term engagements
• New elements over time (at the end of the 6 months period)

 Excel:

• Encouraging: p11
• Primarily thru Nelson p11

Relationship:

4 parties to be considered

AGS:

• Continued to tool their production line in preparation & agreed to sign a 6 months contract p8
• AGS & San Yu engineers working together at the plant p9
• AGS assigned full-time engineering team p9

Nelson:

• Concerned with trust with San Yu p8
• In a difficult position p8
• Desire to keep Excel satisfied

• Misunderstanding with Cheng Xie on sales volume & price + escalation to Alan Green AGS country manager p15
• Language issue for her; need interpreter
• Trust issue with San Yu p16

San Yu:

• Demanding client
• Short term focus
• Getting tense: shipments received; no payments… p15

Excel:

• Smooth with AGS
• Led by Nelson, keeping them informed
• More open

Negotiation process not properly managed: 

• AGS focused on production & delivery of parts; no focus on contract details
• No discussion on prices…
• AGS acted in good faith expecting that San Yu would
• 2 * 6 months contract + 3 months
• Roles & responsibilities not clear within AGS: too many people & changes
• Nelson in the background

Time: pressure from San Yu to get parts; not enough time to ramp up tooling for production in Shanghai ➔ parts shipped from Europe

Interests:

AGS:

• Increase market share in Asia p3
• Concern about customer satisfaction from design onwards p2
• Avoid confusion with shipments & transfer price issues p8
• To be a lead supplier for San Yu p8

Nelson:

• Need to recover AGS investment p1, p8
• Avoid shipping more parts from Europe w/o price agreement p8
• Keep quality level & reputation p8
• No change in price w/o changes to the product p8
• Keep Excel satisfied p11

• Protect relationship with Excel p11
• Needs long-term contract p15

Overruled by her management on shipping w/o price p8

San Yu:

• Get parts ASAP p7
• Test AGS flexibility
• Lower price p8
• Sign development contract p8
• Pay a lump sum for development p8
• AGS not a lead supplier p8
• Put AGS in competition with local supplier p16

Options:

Not much information; no opportunity to discus as interests were not really addressed first!

Legitimacy:

Hard to say. The only reference point is the way business is done in China…

Alternatives:

• AGS: find another client
• San Yu: look for another supplier, local & perhaps cheaper

Commitment:

• AGS: had held on its commitment in terms of delivering the parts
• San Yu: not clear if that had commitment on volume & price…

1. Identify the key stakeholders in this negotiation. Are they important? Why of why not?

Key stakeholders are the JV partners:

• AGS organizations:

• HQ USA
• Europe: manufacturing providing the parts
• China subsidiary: sales + manufacturing + manager
• AGS Shanghai looked as benchmark for JV
• AGS Shanghai very successful (sales growth, number of employees, world-class quality…)
• Looks like quite balanced between the JV partners & importance placed by AGS to develop local management (except GM)

Go back to the interests:

AGS is looking for a large client in Asia, needs to increase sales, looking for long-term, invest in local production facilities, develop local employees…

• For San Yu 

• Excel is looking for a good, reliable supplier. Previous JVs failed; need to succeed
• But Excel is a minority shareholder with only 20%

1. Analyze the negotiation process. What are, according to you, the main drivers of this negotiation? Why have the negotiations so far failed? Explain.

Negotiation process looks like chaotic, & not properly planned & managed.

Views provided primarily by Nelson ➔ her perception, biased with her American cultural lenses

• Good start in Aug 97; enthusiasm. Deterioration overtime…
• Traditional Chinese luncheon held in AGS lunch facilities… Not proper by Chinese standards; need more prestigious venue: high-class restaurant
• AGS could have proposed all meeting in Shanghai: more pleasant for San Yu negotiators… (build relationship)
• No clear preparation
• Interests of both sides not really identified
• Looks like done in a rush by both sides. San Yu appears perhaps more pressed by time than AGS
• No agenda
• Key principles not defined: time frame, what when, how…
• AGS assumptions not validated
• San Yu got what they wanted: parts allowing them to sell their mopeds, some benchmark vs. competitors
• AGS struggled to satisfy San Yu, but was not satisfied: no forecast on volume, no price, no revenue, invested people & money for no clear future

Drivers & results:

• Agreement from both sides to start the JV - Yes
• Plan & objectives - Not clear
• Local manufacturing - investment done by AGS w/o commitment from San Yu on volume, price, ROI
• Sales: limited results from San Yu; much lower volumes
• AGS not satisfied; strained relationship within AGS
• AGS vs. San Yu relation getting worse
• JV partners not really ready to intervene

Reasons for failure

• Lack of preparation
• Interests not addressed & shared at top & lower levels
• Lack of stakeholders’ involvement & direction at critical times
• Roles & responsibilities not properly defined within AGS
• Nelson’s approach messy
• Nelson misinterpretation in her communication with her team & the JV partners
• Cultural differences not properly addressed
• Error in perception of critical elements in JV relationship:

• Excel/San Yu JV wrongly perceived as an equal partnership. San Yu held the power in the JV
• Too much focus on Excel; Nelson nurtured her relationship with Excel at the peril of her relationship with San Yu
• Nelson not wanting to have a relationship with San Yu

• Nelson’s leadership style: strong minded, aggressive, impatient. She imposed her style; did not really adapt to the Asian business approach
• Nelson’ stronger affinity with Excel: similar culture & business models. She had previously established & nurtured a relationship with Excel key managers
• During the negotiation process, as a leader, Nelson did no show much respect for San Yu. Rarely contacted the senior leaders of San Yu; used her team … language issue? Did not arrange meetings, dinners; Wining & dining in Shanghai could have been useful.
• Different interests: price vs. quality hard to reconcile.
• Importance & bias of assumptions: Nelson indicated that from the beginning, she felt that San Yu had never considered dealing with AGS from a long-term perspective & intended to sue another local supplier.

1. What are the cultural elements that, you feel, had a significant impact on the negotiation process and its outcome? Explain why or why not and provide at least 3 examples. Use and refer to the 2 documents provided in Exhibit #2 & #3.

Nelson’s impatience

Direct vs. Indirect:

Nelson & Liu: Liu “feeling more comfortable being more direct”. Liu perhaps reticent; ability to endorse manger’s opinion