My Experiences with Global Business Negotiations

1. My Experiences with Global Business Negotiations Portland State University Summer 2011

2. Introduction

3. Agenda for this Class Session • Introductions • Comments about the International Business Negotiations Course • Description of a few of my business negotiation experiences • My advice for successful global business negotiations • Open questions Let’s Keep the timeframe at about 30 minutes

4. Don Grant, Adjunct ProfessorMy Background with Regard to this Course • BS, US Naval Academy, then, nuclear submarines • Harvard MBA • 33 years in high tech industry companies • Held various positions from Engineer to President/COO in 5 companies • Retired from corporate employment in 2005 • Adjunct Professor at the Oregon Graduate Institute for 5 years - teaching international business and operations management to graduate students • Current/Recent activities • Member of Advisory Board for 2 technology companies • Consulting for several high tech companies • Service on non-profit Boards – Saturday Academy & Junior Achievement • Student of Mandarin language – 2 ½ years

5. Comments about this International Business negotiaions course Summer 2011

6. Comments about this International Business Negotiations Course • The skills you learn in this course are essential for a successful business career • The framework described in this course is very valuable – be sure to GRASP how to use it effectively! • The text used by this course should be very useful to you in your business career • I wish that I could have taken this course 30 years ago!

7. General Comments Summer 2011

8. General Comments About Business Negotiations • Developing your negotiations skills is a like a “journey” , it is not a “destination” • You need to learn from each negotiation episode and improve • The context, culture, and priority all drive the nature of the negotiation –examples: • BIG organization vs small organization • Chinese culture vs USA culture • “You bet your company” vs “routine business” negotiations

9. General Comments About Business Negotiations • A key issue in successful business negotiations is that all of the stakeholders must come away feeling satisfied with the results • Even if you “win the negotiation” when some of the other stakeholders feel dissatisfied, the deal may unravel – even months or years later • Stakeholders are persons or groups who have a stake in the negotiation: often they may not be present at the negotiating table or even in the country Summer 2011

10. Description of a Few of my Business Negotiations at ims, inc Summer 2011

11. Integrated Measurement Systems, Inc – Global sales management • IMS sold engineering test systems (capital equipment - $750,000 to $2,000,000 per system) to integrated circuit vendors & design centers on a global basis • IMS also sold integrated circuit test development SW to the same customers • Main countries or regions outside the USA: • Japan • China • So. Korea • Taiwan • Israel • Europe – France, Germany, Spain, Portugal • India

12. IMS Vanguard IC Test System Summer 2011

13. My Negotiation ExperiencesJapan and IMS • In Japan, it is useful for a small company to establish a joint venture (JV) with a Japanese company • IMS’ distributor (via a JV) was Tokyo Electron (TEL), a $3B company based in Tokyo • TEL was expert in selling to other Japanese companies • In Japan, negotiations are done by establishing multi-level relationships with each company over an extended period of time - examples: • CEO to CEO • VP to VP • Engineer to Engineer • IMS sales prospered in Japan; all of the competitors were virtually locked out of the business because of the reputation of TEL

14. In Japan, significant decisions are made using the Ringi system • Ringi system is a collective process – involving a large number of people • Nemawashi (groundwork) is needed • The person in charge will first draw a plan in written form • H/she will take or send it around to his/her superiors • If another department is involved, the consent from them will also be needed • The final decision will be made by the authority of the company • This can take months to complete Summer 2011

15. My Negotiation ExperiencesBIG South Korean Company and IMS • The South Koreans are tough negotiators • they organize their companies to drive negotiations with vendors • When making a sale to a large So. Korean company the following negotiating steps were necessary • Negotiate with the department that would use the product • Negotiate with the VP of that department • Negotiate with purchasing • Purchasing was under no obligation to accept the specs and terms that had been previously negotiated • Negotiate with the company’s USA subsidiary • Receive the Purchase Order and negotiate the “surprises” that were inserted into the PO document • The So. Koreans knew a great deal about our company • Our unpublished price list • Our fiscal quarter end and our current financial situation • Details from our last PO’s that were delivered to other companies in South Korea • The background and business experience of key executives

16. My Negotiation ExperiencesBIG South Korean Company and IMS • On the last day of one of IMS’ fiscal quarters, the BIG Korean company faxed the promised PO to us at 6PM • The last possible time to ship the product was midnight to recognize revenue in the quarter • The PO was as negotiated, but it contained about 10 pages of “additional terms” which were unacceptable to IMS • I had to negotiate (via telephone) with the Korean subsidiary in California until about 11PM! • The unacceptable terms were modified and, of course, IMS had to give an additional discount to compensate! Summer 2011

17. My Negotiation ExperiencesIsrael and IMS • The Israeli’s are the toughest negotiators that I have dealt with – they never stop negotiating! • Israel has a small community of high tech companies who collude with one another • The Israeli purchasing agents from these companies shared the specific information from all of the recent IMS PO’s • The buyer of our product would not accept anything less then the best terms and price from any of the recent IMS PO’s with any other Israeli company • They always start the negotiations with extreme bargaining positions • Negotiations in Israel are of the “in your face” style – it’s up close and personal! • It was common to have the Israeli side present a “barely acceptable” offer about 1 hour prior to IMS negotiating team’s departure for the airport

18. My Negotiation ExperiencesIsrael and IMS • After the delivery of the product, the typical Israeli company was demanding in every way • Even though, IMS’ product was quickly placed into operation (one or two days) and was put into use 24/7 by the factory • Nevertheless, it was not uncommon to have weekly conference calls to work through a never ending list of “problems” with our product! • The product was not “accepted” until all of these deficiencies were cleared • This meant that IMS was often not paid for 6 or more months after delivery! Summer 2011

19. My Advice for Global Business Negotiations

20. Comments about Business Practices Around the World • Each country has its own generic business practices based on its culture, laws, and customs • In addition, each company has a culture of its own and, and, therefore, its own unique generic business practices • Don’t expect every business person to conform to the generic practices • Adapt your negotiation practices to the specific country, company, and person

21. Comments about Business Practices Around the World • For most Asian companies, the goal of negotiations is to establish a good business relationship • For most Western companies, the goal of negotiations is to obtain a legal contract • As a negotiator, you have to achieve both: • A Western company cannot book (using GAAP rules) a business relationship • An Asian company will not do business without a good business relationship

22. My Advice • Learn the language • Become proficient if you will do significant business with companies in that language • Do not attempt to negotiate important matters using a foreign language unless you are fluent in the language and the business culture • Learn the conversational language for incidental business activities • Learn the local business practices (for the country and the company) • Hire local experts who you can trust • Local culture experts • Business advisors in the applicable industry • Lawyers • Translators

23. My Advice • In Asia, Expect lengthy and multiple negotiation meetings over several months before reaching agreement / establishing the business relationship • Take the long term view, be patient • Beware of IP theft • This is a common practice • Beware of business theft • Beware of corruption • Corruption in is a common cultural practice • USA law (FCPA) is often enforced against US companies who practice corruption in foreign countries • Set flexible travel plans to take away the bargaining chip of “last minute dealing”

24. Some Useful References • Kiss, Bow, or Shake Hands, Terri Morrison and Wayne Conaway, Adams Media • Inside Chinese Business, Ming-Jer Chen, ISBN 1-59139-327-2 • The Chinese Negotiation, John Graham & Mark Lam, Harvard Business Review reprint R0310E • Sun Tse the Art of Negotiating in China, Laurence Brahm, Published by Naga • Japanese Business, Culture and Practices, Jon Alston and Isao Takei, Published by iUniverse

25. Questions??