Ambiguity in a negotiation the case of Conney a toolmanufacturing company

Amjad Hadjikhani

Department of Business Studies, Uppsala University, Uppsala, Sweden

Preliminary discussions

One day in spring of 1995, Bernard (manager of the Technical Department at Conney) met Lars and discussed the results of a project for which Lars was responsible and congratulated him on the positive results of the operation. At the end of the discussion, Bernard told Lars that he had received a letter from a manufacturing firm in India called ITR who had asked about the possibility of a joint venture co-operation for a tool-manufacturing plant in India. Bernard said that a man by the name of Feiz (originally from India), who had presented himself as an ITR representative, and a company called Hanfa (a Swedish consulting firm) had also phoned. Conney had no earlier experience with Feiz, ITR, India or other countries in Asia, but Lars became interested and proposed that Bernard arrange a meeting before the summer. In the meeting 2 weeks later, Bernard, Feiz Hanfa's marketing director and Lars met, and from the beginning, it was obvious that Feiz was interested in finalizing the agreement at that meeting. He tried to convince Bernard and Lars that Conney would obtain a good market position in India through this proposed joint venture. However, Bernard and Lars were suspicious in principle about a long-term joint venture since Conney was accustomed to selling tools to Swedish firms in the traditional way - by selling tools and receiving payments. ITR was asking them to enter into a joint venture in a country with a different socio-cultural structure, so from the beginning, Bernard had a rather conservative attitude toward the project.

Feiz showed them a detailed investment calculation in which, after an initial investment of 70 million Swedish Kronor (MSKR), Conney would break even after 2 years, and after 5 years, the sales in India could reach 40% of the total sales for Conney. However, Feiz did not succeed in convincing Lars and Bernard to give an immediate answer; instead, they suggested discussing ITR's request in India and said that they would let ITR and Feiz know when they would schedule a trip to India in the summer of 1995. Lars and Bernard then met with the top managers at Conney and received a very positive response to the idea of the joint venture. According to Lars and Bernard's financial plan, Conney would need to invest about 100 MSKR over 3 years before they would break even, and after 5 years, Conney's sales could reach 85 MSKR, which would be about 15% of total sales. All managers in the meeting declared that since the Asian market was new to them, it would be interesting to go forward and see how negotiations developed. They appropriated 150 000 SKR for the negotiation. During the summer, Lars and Bernard sent a letter to ITR describing Conney's position. At the end of the summer, Feiz was informed that the date of the journey to India would be 26 October. At the end of August, Feiz called Lars and explained that he had been in contact with India's embassy and that they had declared their interest in the project. Feiz also informed them that India's industrial commission would be coming to Sweden in October and that his aim was to make the project one of the topics of discussion in negotiations between India's and Sweden's ministers. Feiz had received this information from Farah, his partner in his consulting firm in India which assisted foreign firms in the Indian market, and mentioned that Farah was acquainted with two of the commission members. It was clear to Lars that such contacts were positive and could assist the project in the future, but it also occurred to him to wonder what would happen if ITR did not go through with the joint venture. By focusing only on ITR, Conney might have to forget the Indian market if they were not successful. It was therefore necessary for Lars to collect more information about ITR in Sweden. In the beginning of September, Lars called a friend in India named Hassy who worked in a Swedish firm in India and asked him if he had any knowledge about ITR. Hassy said that he did not know anything about ITR, but after a few days, he called back and said that according to Indian law, it is easier for companies like ITR to get financial support if they were connected to a reputable foreign company. It became obvious to Lars that there was a risk in concentrating only on ITR. Lars called Feiz the day after and informed him that Conney was interested only in the joint venture contract and not in the accomplishment of a joint venture agreement and that if ITR did not fulfil Conney's demands, there would be no contract. Feiz understood the problem and explained ft at they would have to put more pressure on the commission.

On 4 October, Feiz called Lars again and said that the Ministry of Industry (involved in the commission) had already bought similar tools from another Swedish firm. Two days later, Lars sent another letter to the embassy declaring Cooney's willingness to enter into a joint venture with the Ministry of Industry. He also mentioned that it would be better to negotiate the matter with the commission members. During this whole process, all the contacts and decisions were made by Lars. Lars only described a summary of the results for Bernard, who formally became the manager of this project. On 12 October, Feiz called Lars and asked if Lars and Bernard could meet with the commission in Stockholm on '13 October. The meeting was arranged specifically for this project. Bernard could not go to the meeting, but both Lars and Feiz went. From the commission, the deputy ministers from two ministries and three department leaders from other authorities were p ,8

involved. They finally agreed to formulate a letter to the commission so that the project would be discussed at the ministry level of the two countries. In a meeting the next day, the ministers discussed the project and agreed to support it. Up until this time, Hanfa had played a passive role in the negotiations and finally informed Lars and Feiz that they would withdraw themselves from the project.

Project negotiation in India

On 25 October, Lars and two secretaries left Sweden, and the next day, Lars met Hassy and his friend, Paran, in India. Hassy already knew about the ITR project since Lars had phoned him in Sweden. After some general discussion, Lars asked them both if they had any information about ITR, and Paran suggested that ITR would not be the best partner for Conney in India because the firm was not well known. He said that it might be better to enter into a joint venture co-operation with firms having a better reputation. Lars briefly described his meeting with the Indian commission in Sweden, and Paran told Lars that one of the commission members must have been his friend Gova. Paran then called Gova to ask for a meeting. The same day, Lars called ITR and Farah, and they planned to negotiate. Gova also called that day and said that there was another firm called Azadi who was willing to co-operate, but Gova did not disclose the interest of the Ministry of Industry for such a joint venture.

A few hours before the meeting with Gova, Lars met two more of 11 assy's friends, Yon and Vaji. They discussed the project, and it became evident that both Yon and Vaji were friends of the Minister of the National Industry, which owned 30% of ITR's stock and thus had a strong influence on ITR. None of them recommended signing an agreement with ITR. Later, Lars met with Gova, Paran and Hassy, After a general discussion, Gova stated that it would be better for Lars to visit other more reputable firms like Azadi as well and that if negotiations with ITR were unsuccessful, Conney could still enter into a joint venture with the Ministry of Industry. The next day, Lars had a meeting with ITR's general manager and other members of the decision board. After discussing ITR's background, Lars stated that a JU was out of the question since the two firms had no knowledge of each other. He added that he would have to make investigations into other potential partners, but it seemed that they did not take Lar's investigation very seriously because they thought ITR was the only alternative. Lars did not discuss the costs of the program with them, but after studying ITR's financial reports, Lars realized that ITR would likely face problems in financing its part of the project. At the end of the discussion, they decided to have another meeting. A few days later, Lars met again with Gova and discussed the problem of the cost of the program. A day before this meeting, Lars also had met another deputy minister who had pointed out the financial problems for even the Ministry of Industry; however, Gova stated that the matter mainly depended on who and which organization or ministry in India undertook the responsibility. They decided to have another meeting.

At a lunch arranged by Homa and Vaji, Lars was introduced to a powerful person in the firm of Azadi, and he and Homa asked Lars if he would meet with one of the leaders in this firm. This company was large and contrary to the other firms, had no contact with foreign firms. He asked Lars to contact him for a meeting, but after a few days, Lars realized that this firm did not have a 'very good' reputation, which made Lars a little uneasy.

In another meeting with ITR, Farah tried to find a solution to the problem, and they discussed several alternatives. One alternative was to have ITR as an agent and sell large quantities to ITR. Another alternative was to make a small investment together with ITR. When they discussed the financial terms, Lars guessed that ITR would have financial problems with both alternatives. ITR already had established contacts with other firms in Germany and the Netherlands that could sell the same tools at lower qualities and prices. Four days after the discussion with Farah, Lars received a phone call from Feiz, and Lars realized that Farah had informed Feiz about the problems in the negotiations and had asked him to come to India. A few days later, ITR's leaders, Feiz, Farah and Lars met again. This time, the leaders provided Lars with complete information about ITR. Lars did not want to bring up the matter of ITR's reputation and Conney's interest in other companies, so he concentrated on the costs of the project. ITR's manager, however, believed that the problem could be solved.

During the time of the meetings with ITR, the Ministry of Industry and Azadi were going on, Lars met with Gova and his colleague several times. Before the last meeting, they formulated a preliminary agreement that contained a request from the Ministry of Industry to present a plan for the joint venture project. If the plan was satisfactory, they could then discuss the proposed joint venture. Lars personally preferred to sign the agreement with the Ministry of Industry and not with ITR since the Ministry was promising a joint venture co-operation with a break-even point after 3 years and sales in the fourth year reaching 20% of total sales for Conney. Moreover, for the sake of cost and reputation, Lars believed that this proposed joint venture was a more appropriate alternative. However, Lars did not realize that the bureaucracy in the Ministry could negatively influence or even jeopardize the whole project because the project was small compared to the total operation of the Ministry. In addition, Lars was not fully aware of the conflicting interested between groups in the two Ministries of Heavy Industry. In the Department of Industry, there was a powerful person who was very interested in signing a contract with Luland, another Swedish company. Later, Lars discovered that there were several other firms from the US and Europe negotiating for similar projects with the two ministries and local firms.

Lars and the two secretaries left India in November after more than a month of hard negotiating with ITR, the Ministry of Industry and Azadi. The negotiations had cost more than 200 000 SKR, and the future of the proposed joint venture was completely unclear. Six weeks after Lars returned to Sweden, Feiz called Lars and told him that the ITR managers were in Sweden and that they had signed a preliminary contract with Conney's competitor in Sweden. In January, Lars began to hear negative comments from his managers. Some accused him of being incompetent and said that he had mistreated the joint venture project in Sweden. Others complained about his lack of ability to negotiate and questioned his decision to

Lars's

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