EMBA 514• Business-Gov’t Relations in a Global Environment• Financial Investment Negotiation Simulation

Meredith A. Taylor BlackInternational Business ProgramsBoise State University - COBE

PART ONE: Who Is This Person? and

Why Are We Here?

Today: Business, Government, & Biz-Gov’t Negotiations

Business Perspective: Why Go Global?

Government Perspective: To Intervene or Not Intervene? That is the Question!

This Multi-dimensional, Multilateral System in which we Operate… Be Prepared!

International Business, Trade &

Globalization

Globalization 1.0

1492 – 1800

Columbus opens trade from the old world to the new world

Country to country trade

Mercantilism / Absolute Advantage / Comparative Advantage

Globalization 2.0

1800 – 2000

Industrial Revolution

Company to company trade

Trade led by falling transportation costs first, later by falling telecommunications

costs

Globalization 3.0

2000 onward

Rise of software power (Windows, Internet)

Individual to individual trade

Newfound power for individuals and groups to go global

Anything that can be digitized, can be global

Foley – Global Entrepreneur (1999-2004)

Business Perspective: Why Go Global?

Why Go Global?

• What are the fundamental reasons a company should expand internationally?

• Why are export sales so important?• What are the benefits to a company that goes

global?

Foley – Global Entrepreneur (1999-2004)

Just a Few….

• 1) Sales to Other Markets• Common needs in foreign markets / more

customers• Improved economies of scale

• 2) Diversification of customers and risk• Diversification of customers and markets …• Leads to diversification of risk

• 3) Access to Lower Cost Structures• Lower labor, material, or other resource costs>> All of which drives higher profits

Foley – Global Entrepreneur (1999-2004)

Building on International Success

• More markets, diversification, and lower costs will always remain the key motivations to go global

• Looking at successful international companies indicates there are further benefits accrued by going global

Foley – Global Entrepreneur (1999-2004)

Beyond Traditional Success

• Global branding• Worldwide distribution and manufacturing• Economies of scale and leaning beyond just the U.S.• Global cash flows

Foley – Global Entrepreneur (1999-2004)

       Fx Translation Risk

         

         

       Fx Transactional Risk

         

     Fx Translation Risk  

        Political Risk

         

     Fx Transactional Risk  

         

      Political Risk  

        Fx Economic Risk

         

   Fx Transactional Risk Fx Economic Risk  

  Political Risk Political Risk   Commercial Risk

  Fx Economic Risk Fx Economic Risk Commercial Risk  

  Commercial Risk Commercial Risk    

- - - - - Export Sales / No Foreign Direct Investment - - - - - - - - - - - - Foreign Direct Investment - - - -

Indirect Export Sales (EMC, Piggyback)

Direct Export Sales - all sales denominated in the home currency of the seller

Direct Export Sales - sales denominated in the foreign currency of the buyer

Overseas Sales and Marketing Office and Staff

Overseas Manufacturing, Sales and Marketing and Staff

Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5

Risk Assessment:

International financial risks grows as a company moves from indirect exporting through to overseas manufacturing.

Foley – Global Entrepreneur (1999-2004)

Government Perspective: To Intervene or Not Intervene? That is the Question!

At the Macro/Governmental Level:

• Economic Development• Protectionism• Trade Promotion• Free v. Fair Trade

Industry-Level Arguments

• National Defense Argument• Infant Industry Argument• Maintenance of Existing Jobs• Strategic Trade Theory

National Trade Policies

• Economic Development Programs• Export Promotion Strategy (low labor)• Import Substitution Strategy (high barriers)

• Industrial Policy• Consider standard settings as well

• Public Choice Analysis

Take a Closer Look: National Trade Strategies/Policies

• Clearly, it is industrial policy of both the US and the EU in providing respective subsidies to each producer. Risks are really high in launching a new LCA so from a policy perspective, maybe that is not such a bad thing. And with the Chinese subsidizing the (heck) out of everything, is this really such a bad thing for the EU and US to be doing (heresy I know).

• I would argue that Government should also step in and save GM (getting good returns for the investment

however) and make sure that whatever champion it seeks to serve, pays back to the Government in one way or another if the project is a success. Ironically, this is how the EU launch aid works for Airbus – when the plane is a success, the Governments get their money back and then some. But when the plane is a failure, like the A340, or A300 or maybe even the A380, then they do not and the company gets a big subsidy. So, very tricky, but I would suggest it is absurd to take the theological position that Governments should just let the invisible hand do the work. That is Naïve in the extreme and certainly something that China, Korea, Japan, and Brazil are not doing. Everybody does it to a certain extent. Is it imperfect – you betcha. So challenge is how to be really targeted and figure out where you will get most bang for the buck.

• These are really challenging and interesting issues that really cross party lines. Our collective focus of all

responsible republicans and democrats (and that is a dwindling bunch in both parties) is to wake up and smell the coffee and realize that China and Brazil, and India are quite aggressive industrial targeting and policy and if we are to compete, we better work our (butts) off and study the right things, and innovate and figure out how to compete with them. That will have to be done in targeted industries of particular importance (like LCAs!).

• So, don’t quote me given the pendency of the appeals – and all our work for China!! – but that is how I see

things personally.

Barriers to International Trade

• Tariffs (revenue & trade barrier)• Export, Transit, Import• Ad Valorem (percentage of market value)• Specific (dollar amount/unit of weight or measure)• Compound (ad valorem and specific)

• Harmonized Tariff Schedule (and World Customs Organization)

Nontariff Barriers

• Quotas• Tariff Rate Quota (TRQ)

• Numerical Export Controls• Product and Testing Standards• Distribution Network Restrictions• Public-Sector Procurement Policies• Local-Purchase Requirements• Regulatory Controls• Currency Controls• Investment Controls

Trade Promotion: How Is It Accomplished?• Subsidies

• Think Cotton• Foreign Trade Zones

• Caldwell• Maquiladora

• Export Financing Programs• Exim bank

• Think Loans• Overseas Private Investment Corporation (OPIC)

• Think Insurance

This Multi-dimensional, Multilateral System in which we Operate… Be Prepared!

Let Us Bring It Into Focus

• Again, Why am I Here?

Research: Cotton Dispute & Its Relation to Ag Negotiations• WTO 101• Business-Government Relationship

• Role of Associations/Industries • Litigation as form of Negotiation

Stakeholders

• Anticipated• Unanticipated, Can Even Be Cross-Sectoral

Lessons Learned

• Strategy (Multilateral, Multi-dimensional)• Interactions – What can control, what can you not

control?• Analysis

Resources

• Will Email ABCs of DC (Business to Government)• Redman’s The Dance of Legislation (Government Insider)• Saner’s The Expert Negotiator (Negotiations)

PART TWO: FINS

FINS: Introduction

• Microanalyzer Industry• Structure

• MNCs• Megatronics – US • Eurodata – EU • Tanaka – Japan

• Governments – Emerging Markets• Tropicalia • Paradiso

• Companies• Tropicalia

• Tropimatics • Systrop

• Paradiso• Electro Paradys • ParaInfo

FINS: Assignments

• Microanalyzer Industry• Structure

• MNCs• Megatronics – US (Kelly)• Eurodata – EU (Elder, Morales)• Tanaka – Japan (Comeskey, Lange)

• Governments – Emerging Markets• Tropicalia (Falzone, Bathrick)• Paradiso (Kilroy, Kunz)

• Companies• Tropicalia

• Tropimatics (Gonzales, Parker)• Systrop (Park, McMullin)

• Paradiso• Electro Paradys (MacMillan, Wees)• ParaInfo (Ramalingam, Rarick)

FINS: Trade Policy & Export Incentives Overview Both members of WTO – Paradiso has actively liberalized

(50 down to 15 in tariffs), Tropicalia still has tight import controls (25 but still some as high as 50). Both members of EXCOM, trying to liberalize trade but not perfect.

FINS: MNC Issues

MNCs: • Invest in Tropicalia or Paradiso, or both? • What type of plant to build (size, assembly or

subassembly manufacturing, local market or export-oriented)?

• Will you be able to finance the deals? Accept the risks?

• All have same issues, just different competitive situation, resource and management constraints, and bargaining power.

FINS: Company Issues

Local Companies: • Enter the industry at all? • Go alone or in a partnership? • Build assembly or subassembly plants? • What size plant to build?• Position yourselves between the governments and

MNCs?

FINS: Government Issues

Governments: • What kind of industry structure and ownership to

allow? • Invest wholly owned subsidiaries or not? • How many companies allowed to enter? • Total foreign ownership?• How create and leverage bargaining power?• Will you give incentives? Invest in industries

yourself?• Strike a deal with other govt to allow free trade and

coordinate foreign investment policies?

Issues Between MNCs and Local Companies• License, subcontract, joint venture, other arrangement?• Ownership percentages in joint venture?• Management responsibilities and control?• Technology payments and contractual provisions• Local market or export?• Size and type of plant?• Pricing of imported subassemblies and components?• Pricing of exported subassemblies or microanalyzers?

Issues Between MNCs & Governments

• Plant size and type?• Number of manufacturers allowed?• Amount of tariff protection?• Foreign ownership percentage allowed?• Technology licensing fees and conditions?• Pricing regulations on final products and imported parts?• Export and local content requirements?• Tax and financial incentives?

Issues Between Local Companies and Governments• Incentives and special consideration for local companies? • Degree of support in negotiating with MNCs?• Number of manufacturers allowed?• Amount of tariff protection?• Tax, financial and export incentives?• Plant location?

Issues Between Local Companies

• Cooperate or compete?• If cooperative relationship, independent operations, or

joint operations?• If cooperative relationship, they face many of the same

issues as those listed before.

Issues Between Governments

• Cooperate or compete?• If cooperative relationship, independent operations, or

joint operations?• If cooperative relationship, is it a free trade area or also a

joint negotiating stance?

FINS: Timeline STEP ONE:• Strategy Reports by Next Tuesday, March

26, 2012 by 5:00 PM – Email MTB.• 1-3 page paper, double spaced,

explaining negotiation strategy plan.• CANNOT negotiate before Evening of

March 26th.

FINS: Timeline

STEP TWO:• Negotiations

• Try to implement your strategies, but if need to alter – keep track (will need to explain in final report).

• Watch out for Press Releases!

What do I mean?

Several representatives of the Zion’s trade delegation held hostage by their Tropicalian “hosts” Tuesday.Tropicalia is no Paradise. Reprinted with permission from Pravda ParadisoZION’S, TROPICALIA April 3, 2012 – Today’s trade summit deteriorated into a hostilities including the Tropicalian abduction of key business leaders from around the world.Members of the Megatronics, Parainfo, Eurodata, and Tropimatics delegation were held for ransom Tuesday evening as talks broke down. After intense negotiations between the governments of Paradiso and Tropicalia, the delegation was released. Details of the resolution have not yet been disclosed.April 4, 2012 Quotable:“Clearly signs of friendship were merely a ruse to put the business future of our region in jeopardy. Viva la Revolution!” – PM Sanchez-Webster, PDRP“Muy bien” - General Raphael Miguel McLean, PDRP

For Immediate Release:

 

Senior management at Tanaka Company announced they’ve successfully

patented breakthrough technology that speeds up the processing

capability of its microanalyzer units. This new technology will also

improve overall field performance of each unit reducing maintenance and

technical support costs significantly. According to Jason Woolsey,

Tanaka’s Senior Manager “The Fukue R&D staff has been working on this

for quite some time and are ready to start implementing these

enhancements this year.” Brooke Brennan, another member of senior

management is excited about the performance improvements their

products will have. “In the past, we have relied upon superior production

capabilities that allowed us to offer quality products at a lower cost. This

new technology, will give us an added technological edge over the

competition while at the same time reducing maintenance and support

costs to the customer.” Tanaka has hired Pat Morita to oversee

implementation of this new technology at their production facilities. Mr.

Morita is well known around the Japanese regions for his innovative

approaches and many inventions. When asked for a quote Mr. Morita

replied, “Walk on road, hmm? Walk left side, safe. Walk right side, safe.

Walk middle, sooner or later get squish just like grape. New technology

helps us not get squish like grape.”

http://en.wikipedia.org/wiki/Pat_Morita

 

 

 

TANAKA CO.

Fukue, Japan    

Phone: 81 52-521-2121www.tanaka.com  

Press ReleaseIssue date: Thursday 12th April 2012 ParaInfo and Euro-Tan form Joint Venture ParaInfo(PI), a Paradiso based Electronics and Technology firm and Euro-Tan(EuT), the Europe and East Asia based Technology Joint Venture Company, are pleased to announce the formation of a strategic joint venture to meet the growing needs for Micro Analyzer technology solutions across America, Europe, Middle East, Asia and Exotica. Mr. Michael Zeigler, CEO of ParaInfo, said, “We are delighted with the joint venture of PI and EuT as it expands our ability to work in Exotica and emerging markets in Asia and other parts of the world where our three companies do not currently have presence. With a pool of talented resources available to us throughout Europe and East Asia, we are now able to deploy more rapidly on behalf of our clients throughout these markets, giving both of us the competitive advantage of time and cost with state of the art Micro Analyzer technology.” He adds, “This collaboration will result in increased employment for the Paradisian’s, revenue generation for the government and establish global trade opportunities.”

Mr. Woosley, Director of EuT based in Japan said, “My partners and I are delighted to be working with ParaInfo. EuT’s expertise coupled with ParaInfo’s local knowledge and skills will allow us to deliver a unique business transformation and expansion offering to our clients in various technology sectors. We were particularly attracted to ParaInfo’s ability to co-invest alongside major shareholders to deliver a truly aligned manufacturing base for the business and its shareholders”.

Paradiso government officials were pleased with the business development. "This just shows how a simple, pro-business, pro-growth tax policy can create competitive advantage for our country and our people. Viva la Revolution!"- Prime Minister Maria Frederico Sanchez-Webster

ParaInfo™

FINS: Timeline

STEP THREE:• Negotiated Agreements

• Only one for each group• Signed by all

FINS: Timeline

STEP FOUR:• Discussion

• What did you WANT to achieve?• What did you ACTUALLY achieve?• Why were there differences, if any?• What did you learn about multiple party

negotiations?

FINS: Timeline

STEP FIVE• Final Report due Tuesday, April 30th by 5:00 PM –

Email MTB• Main body of report – no more than 5 pages.• What happened? Why did you achieve or not

what you had intended?• Reflection: Identify 1-3 major takeaways/lessons

from the simulation and how to apply those in your organizations.

• Appendices should include:• Final deals signed by all participants• Any financial/other calculations you used to reach the deal(s)

FINS: The Rules

• I am an interested observer (& International Court) throughout the process.

• I am the Press– will send out releases independently as well upon review, if deemed appropriate.

• Can negotiate but not conclude any negotiations before the last Session, 8:00-11:00 AM, April 17th

Considerations• Economics of Manufacturing and Trade

• Export? Assemble in the countries? Completely manufacture? • Role of transportation costs, tariffs?

• Investment Climate• What is it in each of the countries?• Attractiveness of regulations in each country?• What are the risks involved?

• Country Evaluation of Microanalyzer Projects• How will countries evaluate your proposed investments?• What criteria might be used?• What will be the most attractive projects?

• Strategic Alternatives• What alternatives are available?• Key issues you anticipate?• How prioritize those issues?• Key bargaining strengths and weaknesses?

Time to Strategize!

Meredith Taylor Blackmeredithblack@boisestate.edu

(change from syllabus)426-3004

Nancy Napier and Harry White: Our In House Experts, So Be Sure to Utilize them as Well