Negotiation case study

Read the case study below and Answer ALL the following questions:
1. List which players had BATNAs and explain how determining this was in the negotiation.
2. What does this case study teach us about entrapment?
3. What advice would you give to someone who needs to negotiate with the Chinese?
4. “Before tendering began, we were working with the client to develop the brief while the other companies were sitting around” Evaluate the way
Benjamin did his due diligence.
5. “We (the competing bidders) met every afternoon in the hotel bar and compared notes” Evaluate the ethics of this approach and in general of
the case.
6. List at least three key lessons you have learned from this case
7. “Benjamin understood the concept of ‘face’. Use the case to prove or disprove this assertion.
8. “Many Chinese see it as their patriotic duty to shoot down foreigners, so you can be like a clay pigeon at target practice.” Use the case to describe what this means

Formalities:

 Cover, Table of Contents, References and Appendix are excluded from the total word count.
 Font: Arial 10 pts.
 Text alignment: Justified.
 The in-text References and the Bibliography have to be in Harvard’s citation style.

CASE STUDY: HOW GIVING FACE CAN BREW SUCCESS

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 is
responsible for the design of many of the country’s 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. Lai had 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 business—people who aren’t 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 province’s largest brewery—
a $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 can’t compete against cheap, local rivals,” he advises. “The Chinese
only want foreigners involved if we can offer special technology they can’t 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, since 1983, Benjamin
had built or redesigned all Australia’s 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 company’s listing on the Shanghai Stock Exchange, it had direct links
to the Chinese government. “If you’re working with a brewery in China, you’re 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 ex–Red 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 company’s 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 Benjamin’s 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 team—the 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 a specialized field—
brewery design—meant 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 technology—it 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. You’d 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 China-born staff—a 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 worldclass 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 maneuver. 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 saying—‘China has 5,000 years of history, so what’s 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 Benjamin’s planned return date as leverage, in
a bid 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 I’d 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 a certain time frame.” Benjamin spent every evening with his Chinese negotiating team,
analyzing 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 don’t do business with people they don’t 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 them—that 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 company’s reputation as a world leader. Meanwhile, the Chinese team had also done its homework and was
secretly favoring Benjamin’s 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 company’s 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 abroad—to Europe and Australia—to evaluate Benjamin’s 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 Benjamin’s team was well ahead of the other
teams on all criteria, some members of the Chinese team remained opposed to the Australian team—because it was Australian—saying 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 in favor of Benjamin’s 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 face to everyone on the Chinese team, including the vice governor. They would not forget this.
Commentary
After winning the job to design the Guangdong brewery, Benjamin was exclusively commissioned to design a $5 million winery in Xinjiang province. This
demonstrated how trusted he had become in China.