s3-euw1-ap-pe-ws4-cws-documents.ri-prod.s3.amazonaws.coms3-euw1-ap-pe-ws4-cws-documents.ri-prod.s3.amazonaws.com/97… ·...

© 2015 William W. Baber and Chavi C-Y Fletcher-Chen

Practical Business Negotiation: Educator Notes

ContentsChapter 1.........................................................................................................2Chapter 2.........................................................................................................3Chapter 3.........................................................................................................5Chapter 4.........................................................................................................6Chapter 5.........................................................................................................8Chapter 6.........................................................................................................9Chapter 7.........................................................................................................9Chapter 9.......................................................................................................10Appendix II Inheritance far away......................................................................11Appendix IV How not to give concessions......................................................12Appendix VI...................................................................................................12Notes for OVD................................................................................................13Notes for AP and Shepard Fairey and HOPE............................................................17Notes for Shoe Business Coopetition.....................................................................19Notes for ZawaSoft and Pak-Ton..........................................................................25Notes for Recruit the best!..................................................................................28Notes for Sonde SA strikes a balance.....................................................................29Notes for Cultural IP anime.................................................................................32Notes for Toyota Tsusho and Encana – second round.................................................36Notes for Channel-Port aux Basques......................................................................40Notes for Three party email negotiation – residential real estate....................................44

TablesTable 1 Developing satisfaction.......................................................................................................5Table 2 HIT list example.................................................................................................................7Table 3 Stakeholder analysis example...........................................................................................12


Table 4 OVD case..........................................................................................................................15Table 5 Information relating to Tang and Lee...............................................................................19Table 6 Information relating to Tang and Lee...............................................................................21Table 7 Profit calculation (approximate).......................................................................................23Table 8 PXWX white snake storyboards.......................................................................................33Table 9 RekiMan storyboards (modern version)...........................................................................33Table 10 PXWX white snake storyboards.....................................................................................34Table 11 RekiMan storyboards (modern version).........................................................................35Table 12 RekiMan storyboards (ancient version, more than 1400 years old)...............................35Table 13 Rates and amounts (10 year term)..................................................................................42Table 14 Some additional convenient sources...............................................................................43

Chapter 1

Q1: Answers a, b, and d are predominantly distributive. Answer c is much more complex and requires integration of many issues, not all of which will be distributive. Even the others (a, b and d) have the potential to be partly integrative.

Q2: The agent can be very aggressive because there is only one “Ichiro” and many other companies would pay for his participation in their advertising.

Q3: Answers b and d are predominantly integrative because they are very complex and involve intangible values that may be difficult to evaluate. Depending on culture and expectations, some students may or may not choose answer a. Answer c is definitely not integrative – it is a simplified commercial transaction and it would be very difficult to make it more complex.

Q4: Write an example of a typically distributive negotiation: Many answers are possible.

Q5: Write an example of a typically integrative negotiation: Many answers are possible.

Q6: Integrative – even if it is “entirely based on money,” such a transaction will be very complex with integrative potential. Further, it would be nearly impossible for such a transaction not to include personalities, other institutions and many complexities.

Choosing the strategyUrgency LowStakes HighSuccess Chance Cannot be determined, probably not “low”Relationship MediumStrategy Start with compromise; as the relationship improves, they can move to a

collaborate strategy

Case: The incompetent translatorAnswer: Yes – the costs would have outweighed the benefits. Particularly a young company with limited resources could have bankrupted itself in the process of a court battle.


Chapter 2

Why do you think that “echo questions” are effective?Various answers are possible. Generally the echo questions focus the conversation on that topic.

What do both sides learn from an echo question?Various answers are possible. Generally, one side learns what is important to the asker, and the asker learns the other parties’ ideas about that issue.

What is the benefit of asking open questions? Various answers are possible. Generally open answers lead to general knowledge that can help to solve problems and create value.

In which situation during a negotiation would you ask an open question? Any of these, except when you want specific facts. Even at the closing of a negotiation, there is still opportunity to develop ideas and plans.

What kind of question would you ask after hearing, “Our company can deliver 2,000 units”?Closed – can lead to specific information about delivery time and cost. Example: “When?”

or

Probing – can deepen information about needs and purpose and therefore offer more opportunities to create value. Example: “Can you deliver more in certain months of the year?” (probing for scheduling differences). A series of probing questions will generate more information and problems that need to be solved than will a closed question.

Write the question you might ask: Various answers are possible.

Develop 2 questions Tanba Agro could ask Hyogo Cake.Various answers are possible including probing and open questions about the business, high and low activity times (daily, weekly, seasonally) and many other questions.

How can you manage reciprocity in order to comfortably share information without losing control or not receiving reciprocal information from the other party?Provide small amounts of information as the other parties give information. Do not provide much more than the other sides do.

Case: Professor’s patentAnswers should vary – the point here is to consider various ways the professor could be thinking. These ways would later be confirmed by further research or during the negotiation. The professor could be interested in getting cash to enjoy in his retirement, gaining fame for his important work or helping others by putting his process into use. Any of these or a combination could be an


important motivation for the professor. Failure to discover his interests may lead to poor negotiation results.

South America intellectual property – relationshipVarious answers are possible: small talk about soccer, local culture, food or other easy topics.

Leading to repeat businessAny of these could result in future business, though (3) is the least likely. Even in the case of (3), no benefits will be gained by not building some relationship.

Why build relationships?The best summary is (b).

“Without mutual development, long-term relationships have no value.”Yes. Concrete mutual developments increase the chances of interaction in the future. Vague agreements to work together again are likely to remain indefinite talk.

The other party tells you. . . . You reciprocate with. . . .Negotiators should propose solutions and/or share their own information in order to build the relationship.

Is it ever useful to be assertive? Why or why not?Yes. Issues that you feel are high stakes must be pressed. Successful negotiators do not avoid issues that are important for them.

Is satisfaction high if a high money goal is achieved?No – satisfaction may be related to money, other tangible resources or intangible results.

What can you do to develop satisfaction in the other parties?Various answers are possible.

What can you do to develop satisfaction in the other parties?

Table 1 Developing satisfactionCategory Write out some practical ideas for creating feelings of

satisfaction in each of the four categories from Curhan et al.

How the other parties feel about themselves during the negotiation process

Show respect to them and their company;Show knowledge of their company, culture, local history;Use flattery;Compliment their skills and preparation;

How fair the negotiation process seems to the other parties

Use standards that are understood and respected by the other parties (appropriate to their industry, company, culture and language).


How the other parties feel about the relationship with you and your team

Show respect appropriately;Indicate how you have learned from them;Show your appreciation for their skills;Indicate or agree to concrete possibilities for future collaboration;

Measurable issues in the negotiation

Show that the other parties have done well in comparison to historical examples and appropriate standards.

Chapter 3

What if both sides know about anchoring and try to anchor early?The anchor and counter-anchor may equalize each other with the same rough result, as if no anchor had been set at all. Therefore there is no reason not to anchor, even if you and the other parties are familiar with anchoring.

Case: Help! We can’t stop!

1. In the Section above, do you think the Japanese company had a good BATNA?No – they failed to develop alternatives.

2. Compare the BATNA of the US company before and after the Europeans made an offer. How did the US BATNA change?It became much stronger after the European offer.

3. How would you try to improve the BATNA of the Japanese company?Start researching other acquisition targets.

4. Write in less than 20 words the key error of the Japanese side.They were too slow, did not create alternatives and could not quit.

5. Should you tell your BATNA? Why or why not?You can tell your BATNA if it is strong, at least stronger that the other parties’ BATNAs. If not you may want to avoid clarifying your BATNA.

Do you agree? (Fujimori)Yes – the ability to scrap a deal means that the alternatives (BATNAs) are very strong.

Chinalco exercise


Various solutions are possible, especially those emphasizing communication skills, research into interests and proposals that bring interests together.

Win-Win negotiating is also not perfect. Why not?This approach may fail to create new opportunities based on the abilities of the negotiating parties. Win-Win often remains limited to just the opportunities available at the start.

If Win-Win is not perfect, is Win-Win + new value creation a better way? Is it perfect?Win-Win + new value creation is potentially better because it creates new opportunities.

Chapter 4

The best orderVarious answers possible depending on the preferences of the student.

3D negotiation

Start with Set upDo next Deal DesignLast Tactics

Explain why it is a good idea to strengthen your BATNA even if it takes more time than the planned length of your negotiation.If the current negotiation fails, you will have already made progress on your alternative negotiation. If the negotiations take longer than planned, you may be able to improve your BATNA and therefore your results.

Why should you try (or not try) to weaken the BATNA of the other sides?Making the BATNA of the other parties weaker will improve your position and your ability to improve your results. This is a competitive approach, so it is not necessary, or even unwise, if the relationship is strong.

How might you be able to weaken the BATNA of another negotiation partner?Various answers are possible: improve your business efficiency, find alternative resources, find alternative partners, etc.

The right hotel, the right dealUse this simple table for your HIT list

Table 2 HIT list exampleHave to have Intend to get Tradable$190/night Lower than $190 /night Can trade higher room feesGuarantee no more than 25% of the rooms

Free access to facilities, WiFi, etc.

Can guarantee up to 35% of the rooms


Can . . .

Please choose some interests that could be included in your notes.All of these are valid choices.

Write down some sources and what you expect to find in themThis list could be very long. Some examples: Annual reports – data on financial health, product success, HR policies, CSR, etc.Analyst reports – data on financial health, product success, HR policies, CSR, etc.Business magazine articles – personalities, strategies, company values, etc.Specialist technical magazines – reviews and details about products and strategiesBlogs – comments and conjecture about business plans, individuals, company values, etc. Academic journals – case studies, special approaches, etc.Linked In – leading personalities in a company Customer review websites – strengths and weaknesses of products

Consider the following elements of negotiation. Write a number before each one to indicate what should come first, second, third, and so on.

_7_ Major issues, get to the point!_1 or 2 or 3_ Company history_8_ Problem solving_6_ Information sharing

_1 or 2 or 3_ Small talk_4_ Rules and protocol_5_ Agenda_1 or 2 or 3_ Introductions and personal experience

Various reasons for selecting first, second and third are appropriate based on personality and culture of the individual or the situation. Generally, rules and agenda should be clarified after the initial introductions and relationship building in order to avoid unintended false steps, insults and bruised egos.

Chapter 5

What kind of behavior can you expect from an individual, maybe someone named Paul Tomlinson from San Francisco, California, U.S.?You can expect nothing specific. Paul might not even be a native English speaker.

Write your very brief conclusion about culture and negotiation:Various answers are possible. Answers should emphasize research in advance and flexibility in reacting and learning during negotiation.

Culture and languageYes – effective and efficient communication within your team is most important. However, extended use of the home language may place a perceived barrier between your team and your counterparts.


Chapter 6

Which offer above is better designed for Tomo? Why?Version A, because it is vague about what Tomo will give Hiro.

Which offer above is better designed for XinFab? Why?Version B because XinFab gets a specific result in exchange for a vague offer.

Write a sentence or two making offers that are a little better for you.Various answers are possible. They should follow the formula of a precise request with a less precise offer.

Which do you think is better for a face-to-face negotiation, whiteboard or computer and projector?Whiteboard – allows for easy changes to diagrams with participation by all parties. (Answer explained in the following paragraph in the text.)

Deadlock 1Various answers are possible (delay the discussion, link the accessories to other issues, etc.)

Deadlock 2Various answers are possible. These might include interacting first with AAT for example. Some answers could be too expensive, such as finding another expert. Coercive threats would be unacceptable as an answer.

Chapter 7

Write what you think are the advantages of playing the hard card first.Various answers are possible: a party that seems to have low power may do this to project greater power and experience than they seem to have. See discussion following this question.

Write what you think are the disadvantages of playing the hard card first.Strongly negative opening moves are likely to be met with negative responses. Few negotiators will reward an aggressive start with concessions or with a positive response. See the following graphic.

How would you feel if an offer was retracted a day or two after having agreed it during negotiations?Various answers are possible. Some students will feel comfortable with retractions, others may be very upset – this may depend on culture, but it is not a moral issue as some students may feel.

Job’s success at business negotiation and his belligerent behavior are well known. Does that make it a best practice for Apple? Or best for all companies?No – Apple has been in several court cases (such as publishing and hiring) because of Job’s very aggressive approaches to negotiation.


What are some reasons not to retract an offer after it has been made? Various answers are possible. The retraction may upset the other side if their culture is against this sort of behavior.

What are the reasons to retract an offer after it has been made?Various answers are possible. New information may arise that shows it was a bad offer, the parties may get access to new resources, it may be better for one or more parties to re-integrate the offer into a new package, etc.

Was Disney’s ultimatum successful?Yes.

What did Disney’s ultimatum demand?The main point was an opportunity for renegotiation.

Explain why it was or was not an acceptable “hardball” tactic.Most people will agree it was acceptable because the alternative, default, would have hurt the banks and Disney much more than the renegotiation.

Chapter 9

I think Team ___ is best because . . .Various answers are possible.

Cross cultural teams (disadvantages)Communication time and effectiveness may be lower and disharmony may arise easily. See discussion in the following paragraphs.

Cross cultural teams (advantages)Diversity of people may bring diversity of ideas, problem solving skills and experience.

Appendix II Inheritance far away

1. Is this negotiation mostly distributive or mostly integrative?Despite the seemingly simple sums of money, it is very integrative because questions of reputation, legacy, complex interests, time and their linkable solutions are involved.

2. What are the interests of Thomas?Avoiding excessive travel, avoiding excessive cost, avoiding ownership of a house far away, keeping his personal property that might be in the house, the money involved, the reputation of his grandmother, etc.

3. What are the interests of Bob and Cheryl?Maintaining their reputation, gaining some financial reward, gaining some use of the house, gaining some form of employment or activity, furthering their volunteer interests,


etc.

4. Are there issues other than money that could Thomas integrate into the negotiation?Yes – see above.

5. Should Thomas, Bob and Cheryl negotiate directly or include another person(s)? If so, who?They could work directly, but not if there are strong emotions involved. They could ask lawyers or volunteer figures such as a respected community member to join.

6. Approximately what are the reserves that Thomas and Bob and Cheryl should set before they start talking?Thomas’ reserve should be related to the possible cost of repeated travel, legal fees, and court costs. The Willises should set their targets around the level of the costs Thomas might have to pay.

7. Is it possible for the parties to create value together? Certainly – all parties can agree to public or non-profit use of the house, a positive legacy in the community, saving face and possibly sale of the house after its value has increased.

8. What is Thomas’s BATNA?It is poor – he would engage in a court action that would be expensive and perhaps only partly successful.

9. What is the BATNA of Bob and Cheryl?A little stronger – they may have a strong case to receive some money, but if they lose the case, they may have very high costs to pay.

Appendix IV How not to give concessions

What did the sales team give?A large discount.

Why? They probably felt this would restart the negotiations in a positive light. It was a poor way to change the framing of the negotiation.

What did the buyers give?Nothing in return.

Why?They had no reason to give a concession in exchange for an unexpected concession with no agreement.

What do you think happened to the sales team after this?


Various answers possible, including demotion and firing (in fact the head of the team was fired).

Write a sentence or two for the sales team to correctly offer this discount:The sales team should offer the discount incrementally in exchange for a specific concession by the other side. “If you are willing to . . . we can improve our price a little . . .”

Appendix VI

Are the lists complete? If not, please identify stakeholders not included above.The lists are close to complete – but students may identify a key administrator within the department or numerous peripheral stakeholders.

The stakeholder table for the Sensitive Foreign Investment case might look like this when partially completed:

Table 3 Stakeholder analysis exampleStakeholder(person, organization, group)

Rights(What they should receive without doubt)

Responsibilities(What they should or must do)

Wants(What they want but do not absolutely need)

Needs(What they must get in order to be satisfied)

How to handle

Huawei Fair treatment under UK law

Must clearly show that the UK’s IP laws will be respected

Strong market position

Fair opportunities

Jointly develop plan to separate UK operations from foreign operations.

XMOS Opportunity to gain investment

Must demonstrate that they can protect the IP of Xilinx, Bosch, and others.

High investment and high freedom of action.

Must retain investment of current foreign partners.

Xilinx

Bosch Must get return on their investment without


losing control to competitors.

UK Government

Must maintain a credible threat of prosecution in case of wrongdoing

Prime Minister

Must not be embarrassed

Japanese companies in UK

Notes for OVD Teaching notes

Case concept – OVD can offer only intangible value in exchange for tangible value. Smart negotiators from the private company sides should see that and block them. Conversely, OVD should work to keep themselves in the game.

It would be best to keep the state partner (OVD) out or minimize them in the final deal, as they have little tangible to offer. If they are kept in, it should be low percentage granted based on performance (or clawed back based on missed performance). The state partner would be glad to get as much as possible, offering cheaper land lease and smooth sailing legally and political impact, all of which is intangible. Essentially they are offering something that cannot be easily measured, defined or policed in exchange for cash.

Scenario: The private companies GlobalDesign and LCM are holding a first meeting facilitated by the government agency Office for Venture Development (OVD). OVD is ostensibly aiming only to get the two parties to talk. But OVD is legally able to take an equity position in private companies. It can do so in exchange for cash, services or good will.

In this scenario, OVD is interested in gaining a share of both companies in exchange for smoothing their pathways to government contracts. OVD will propose taking 20% but will be satisfied with anything including no equity, just pay for performance (nearly a bribe). In fact, getting cash out of the deal is the real reason OVD has brought the companies together, not merely to fulfill their mandate of “making business happen.” The two private companies would do best to block OVD as much as possible.

Strategies for OVD include:

offering to help get government permits without bribes and in half the normal time because other government agencies will react positively to OVD

threatening to block and slow permits needed from other government agencies


offering to help get government contracts offering to bring more “good” foreign business opportunities to the new JV helping the JV (and LCM) to find new space (factory and office) as they grow helping the JV (and LCM) get government finding for training, R&D, etc.

Strategies for GD and LCM include:

allowing OVD a small share in exchange for never paying bribes and minimizing the risk that your JV will experience those problems

requiring OVD through strict agreement writing to support you in a variety of active ways

blocking OVD out of the deal entirely while somehow ensuring that they will not aggressively pursue you, make trouble and block your future deals

Wrap up:

Ask students to explain how OVD made itself strong (offering nothing tangible in exchange for something tangible)

Ask students to explain how they limited OVD Ask students to explain why they blocked OVD Write out a few key agreement clauses: gain x share if . . . number of meetings of

specified quality, claw back if OVD does not perform, and precisely what OVD should perform when and at what quality

A key point of this simulation is that OVD offers no tangible value and is attempting to gain a long-term share of profits when it should provide any intangible benefits for free. Negotiators on the other side should identify this and offer OVD only a fee or a share for a limited term only. This way they can placate OVD but not give away value. OVD’s position is fundamentally unethical, but this sort of proposal may be encountered from government agencies and consultants.

Table 4 OVD caseGlobalDesign Confidential LCM, Corp. Confidential OVD ConfidentialScoring:

The private companies should be graded on their ability to cut OVD out entirely while coming to an agreement with each other. If OVD is kept in, it should be tied to milestones, contingent performance clauses and even claw back clauses.

Scoring:

OVD should be graded on their ability to stay in the deal, or on their process and efforts at persuasion to stay should they get cut out.

Best result: MOU without OVD (maybe pay small fee).Middle: OVD gets 1–5% share with some requirements.Poor: OVD gets 20%.

Best result: 20% share of JV with few requirements.Middle: 1–5% share with some requirements.Poor: 0% with small or no fee paid.


Confidential information for GD

GD is a design company that used to have its manufacturing in its home country (Canada). As costs increased locally, it began to outsource manufacturing and has not manufactured in Canada since 2003. Most manufacturing work has been done in China where relationships have developed pretty well.

The difficulty and risk of doing business in China was increased by the need to cooperate with bribery. Recently, bribery has changed from low risk to high risk as the Chinese government has begun to charge officials and foreign workers with bribery-related crimes.

You hope to develop a relationship with LCM that will slowly lead to more and more business. If LCM has the right technology, skills and attitude, you will propose a JV with them and draft a non-binding Memorandum of Understanding (MOU) right now.

You are happy that OVD has prepared these meetings, but you do not really expect them to participate in this boring technical meeting.

You need this kind of partner:

Manage CAD/CAM data preferably from SolidWorks or possibly MasterCam They must be able to handle large data files easily The engineers must speak English well There must be an ISO quality control system in place They must be willing to work with you on quality control improvement Their attitude must be constructive and flexible Must be willing to spend at least $500,000 in cash, more “in kind” Must be willing to give you at least 40% share of a JV or the maximum legal share

(50%) You need to be confident that LCM will respect the secrecy and value of your IP by

not selling the designs, extra product, or low quality product to third parties You hope that LCM can manage local permits without getting GD (or LCM or JV)

employees in trouble You hope that LCM can help get contracts for the JV from other companies (not only

GD)

Confidential information for LCM

A manufacturing company (plastics and light metal assemblies) in the suburbs of Hanoi.You have been supplying assembly and sub-assembly contract manufacturing to local branches of foreign manufacturers for eight years. Most of your customers are subsidiaries of Japanese companies in Ruritania.


As a partner, you can provide the following:

CAD / CAM data (engineering files) from MasterCam, SolidWorks or IsoCAM Files up to half a gigabyte are okay, larger files will require installation of faster internet

connection (cost is less than $1000 and can be done within one month) You have two engineers who speak English pretty well You currently follow ISO 9001-2008 You have good quality control in place, but are interested in improving this You feel the Canadian side should offer expertise and know-how to the JV for improving

quality control

Further:

You are excited and willing to consider alternatives – you hope the Canadian side has the same attitude

They must be willing to spend at least $500,000 in cash, more “in kind” (especially sending an engineer for a few months)

You can contribute up to $600,000 in cash (but only $200,000 per month over three months)

You can also contribute two engineers, equipment and software, one support staff, poor office space, a share of your existing manufacturing machines, and 164 square feet of safe warehouse space. You hope that GD will help the JV to expand this in the coming six months or yearYou expect a 50/50 share in the JV but you can be flexible – of course they may not take more than 50% according to the law

You think that you can manage permits without bribery, but the permits process may be slow (6–12 months instead of a few weeks). In the past you have had to pay small bribes to local (city level) government of up to $1000. You have never had to pay a bribe to the national government, but you have heard of situations where other companies had to pay a lot.

Your experience so far includes three contracts for around $200,000 with a local subsidiary of a Japanese company; regular contracts every 4–5 months of around $50,000 with a local subsidiary of an American company, and a single $250,000 contract with a local subsidiary of a Japanese company (you hope this will continue as the relationship seems okay). You are happy that OVD has prepared this meeting, but you do not really expect them to participate in this boring technical meeting.

Notes for AP and Shepard Fairey and HOPETeaching notes

There is no confidential information for either side in this case.

If the students are not able to consider the potential costs and risks and set their own reserves


appropriately, the educator might provide these:

Fairey: Not agree to pay more than $6 million. This sum would represent a severe loss but would be slightly better than paying for two long court battles, losing them, and risking further court battles with other individuals and organizations.

SP/Garcia: Not agree to less than $50,000 for AP and at least half that for Garcia, as well as a public statement against plagiarism or copyright infringement by Fairey. Any less than this amount would represent a loss of prestige and ability to protect creative visual content.

In any case, both AP and Fairey should agree to some form of further joint action that is profitable in measureable financial or intangible ways. Failing to do so would be a loss of an opportunity to create new value and new business for both sides.

The grading rubric includes quality of preparation. Students will have to have some familiarity with planning approaches, and they will need suitable time to implement them. Lacking these, the rubric would have to be altered.

No confidential information is included for this scenario. Students representing either side will have to analyze the potential for gain based entirely on common knowledge. This means students should develop some idea about ZOPA as well as their reserve points) as they plan.

Interests

Profits prior to current agreement: This issue is one in which there is little money (the money does not exist, it has been spent or Fairey has conveniently forgotten about it and only an expensive audit will find it). However, the issue involves a certain amount of expense and irritation. A smart AP can put this on their tradable list, even if they first present it as a “have to have.” It could be ideal for AP to give up the money in favor of getting a higher outcome in another issue.

Concern about other artworks/photos: AP would worry about the use by Fairey or other artists if it could not protect its photos. Large-scale use by artists of their work could upset their photographers, damage their revenues and make recruitment of photographers more difficult.

Fairey should be worried about losing badly to AP because other artworks of his are based on original work from other people. Some of these are now with private collectors – what they bought cannot be un-bought. Others are in outdoor public areas and belong to cities or libraries. These could in fact be removed or destroyed – an embarrassment perhaps to Fairey that could also cause other organizations to seek removal of his work or sue him to remove his uninvited street artist work.

Future cooperation could give Fairey access to millions of images, going back to before 1900. Those images would be safe from lawsuits if sourced from AP with AP’s agreement.

Reputation, Fairey: presents himself as a controversial “bad boy” street artist.

Fairey’s comment about being broke should be seen for what it is: a bluff. He is anchoring low


(at $0). Artists are seldom famous for being good accountants and money managers. But at the time of these events, he had an expensive studio and creative content deals with fashion labels. An audit would probably reveal some funds and perhaps some other interesting things. There is no doubt that an audit is a threat, a reasonable one, that AP can use as leverage. Even if AP paid for half or all of an audit, Fairey might feel strongly about avoiding it.

Apology and other statements

The sides can agree to carefully worded statements that help both without a direct apology (which might be very damaging to Fairey). In the real world outcome, a smart AP helped Fairey keep dignity and avoid lawsuits, but AP got his voice against misuse of images and plagiarism – a careful balancing act that created value for both parties. Rumpelstiltskin, able to spin straw into gold, would be jealous of AP’s and Fairey’s ability to turn a distributive problem into value.

2010 video (before resolution of the HOPE case): http://vimeo.com/18870869 (copyright issues mentioned between minutes 3 and 4)


Notes for Shoe Business CoopetitionConfidential information for Wei Wei

You are Wei Wei, a patent clerk in the company Asian Pacific IP1 based in Taipei, Taiwan. You are one of Mr. Tang’s most trusted business advisors and have a relationship with Tang spanning several years. Your senior manager first secured the original patent on behalf of Tang and Lee in Taipei, Taiwan in 1998. In subsequent years, you and your senior manager have advised Mr. Tang on a variety of business endeavours and have overseen all of Tang’s patent applications since 1997.

Knowing Tang and Lee’s history, you are aware that your client values Mr. Lee’s inventiveness. Tang regards Lee as an extremely intelligent person but a poor businessman with a fierce temper. Lee graduated with a PhD in physics, and his training has given him a superb understanding of the science behind product development.

Mr. Tang’s sports shoe products represent 20% ($100,000) of the total output of Tang Industries – Tang’s father’s family business, which has production plants located throughout South East Asia. Yet, Lee and Tang currently divide the profits from the original prototype equally (50–50 split). Also, Tang’s new and improved second-generation roller-skate trainer was granted patent design in 50 individual countries and was granted patent utility in East Asian countries only. Arguably, Tang’s second-generation trainer is based on the idea of Lee’s second-generation trainer, but he believes they are fundamentally different. As his second generation trainer differs only marginally from the original prototype and you want to protect your client from a potential lawsuit, you have convinced Tang to apply for patent design (and utility in East Asian countries), instead of the more valuable invention patent.

Table 5 Information relating to Tang and LeeSecond generation

Manufacturing price/pair

Market price/pair

Global market sale (Pair/year)

AdvertisementPer year

Transportation cost(200 pairs/batch)

Tang’s shoe $6 $15 15,000 Far East5,000 South America5,000 Europe

$10,00(newspaper ads, brochures, company website)

$1,000 average$1,200 outside Asia$800 in Asia

Lee’s shoe $8.50–$11.50 $18–$26 Unknown Unclear Unknown

Tang’s second-generation trainer continues to be popular in Far East Asian and emerging markets, his second generation trainer is available at many large supermarkets and sports shops, and at affordable prices. Tang manufactures his products in South East Asia, where his family enjoys business connections (e.g., China, Malaysia and Indonesia). Tang’s father is a figure whom Tang respects enormously. Tang hopes to emulate his father’s success with his own sports shoe business.

Hired as a patent clerk directly after graduating, you quickly established a reputation for finding innovative solutions to hopeless cases. Over the years, you have impressed your client and know the history of Tang’s business dealings, so finding a satisfactory solution is highly important to you as Mr. Tang is your major client, and along with his father – a respected member of your Taiwanese community.

1 A fabricated company name


As a trusted advisor and a member of Mr. Tang’s preferred patent clerk team, you are expected to seek a resolution in your client’s favor.

The profits from the sale of the prototype should be divided roughly on a 75-25 basis in your client’s favor.

For legal reasons regarding the IP of the prototype trainer, the profit from Lee’s second-generation trainer released in the Far East would need to be shared with Mr. Tang.

Tang wishes to monopolise the online market and is reluctant to share this platform with Lee, unless Lee is willing to share information relating to his recent innovations. Your client is aware of Lee’s new trainer designs and believes they could give his products a competitive edge.

Tang’s outlook: By 2020, Tang believes that the number one market for future sports trainer sales will be driven by the United States, Mexico and Canada, collectively generating more sales than central Asia, Europe and the Fast East combined. Tang’s outlook suggests that the majority of his future revenue will come from e-business and not from traditional retailers (e.g., sports trainer specialists, shopping malls, etc.) With this in mind, Tang has an eye on Mexico, as Mexican production factories employ skilled craftsmen at very cost-effective rates. First, manufacturing wages are likely to be 30% lower than in China by 2015. Second, the North American Free Trade Agreement gives Mexican goods easy access to the world’s largest market, the U.S., as well as to Canada. The Mexican free trade agreements cover 44 countries. Third, the attractiveness of transportation costs from Mexico to other countries should give Tang’s business a substantial edge over his competition.

In addition, your ambition has always been to study abroad and Tang has offered you a one-off payment and sabbatical for study should you be able to get Lee’s advisor, Helmut, to reach an agreement that would satisfy Mr. Tang. Should you fail to reach a satisfactory agreement on behalf of your client, you may put your client at risk of copyright infringement and a potential loss of revenue. In such circumstances, it is likely that you would also lose Mr. Tang’s respect as well as the opportunity for your foreign education, costing you your dream of studying abroad.

So negotiating with Helmut is a task you intend on doing well.

Confidential information for Helmut

You are Helmut, a conservative German patent clerk and trusted business advisor to Mr. Lee. You have worked 20 years for Fabion Richter,2 a prestigious law firm. You work in Fabion Richter’s Singapore branch. Your speciality is to help clients with Intellectual Property (IP) rights – patents, trademarks and copyright.

For some time, you have known that your client, Lee, has been disappointed by his former business partner Mr. Tang for taking credit for your client’s original ideas. A middle-aged Taiwanese innovator and entrepreneur, Mr. Lee graduated with a PhD in physics in 1991. Lee joined a division of Runaway Sports company in 1993, where he was introduced to Mr. Tang, and over three years of moonlighting outside of office hours and on weekends, Tang and Lee developed designs for a unique roller-skate trainer.

2 A fabricated company name


Based on a concept devised by your client, this first generation model roller-skate trainer was granted a patent in Taiwan in 1999. The original patent application had been prepared by Tang’s advisor’s company – an Asian Pacific IP firm in Taipei, Taiwan. Tang’s advisor, Wei Wei, is a respected Taiwanese patent clerk with whom you will be negotiating.

Table 6 Information relating to Tang and LeeSecond generation

ManufacturingPrice/pair

MarketPrice/pair

Global market salePair/year

AdvertisementPer year

Transportation cost (200 pairs/batch)

Tang’s shoe $5–$7 $13–$17 Unknown Unclear UnknownLee’s shoe $10 $22 10,000 Europe

4,000 North America3,000 Far East

$15,000 (retailer brochures, Internet, transportation waiting area)

$1,500 average$1,700 outside EU$1,300 in EU

Upon leaving Taiwan, Lee established connections with a distributor in Europe and quickly designed a lighter, cleaner and bolder model of the original prototype, which led to positive reviews. Lee’s new product was classified as patent utility and patent design in Europe and in North America. Lee’s marketing strategies place emphasis on product functionality. Lee is also developing a shock absorbing foam-based material to be located in the shoe’s sole, an attribute that has not yet been granted a patent, but something Lee feels will make a lasting impact on future sales. Lee will use this pending patent priority to secure his intellectual property to notify potential infringers, particularly Tang, who may otherwise attempt to copy his innovation. Should infringers attempt to clone Lee’s property, then they may be liable for damages (including back-dated royalties), seizure and injunction once a patent has been issued.

Lee’s second-generation trainer was tailored to appeal to the North American and European markets and is presently manufactured in the Czech Republic, Turkey and Estonia. Lee’s redesign has retailed well in Europe and to individual buyers in the North American online market, but has failed to appeal to the majority of sports goods consumers. Your client believes his products are ahead of the competition by several years, and he has intimated that the online market will be the primary source of revenue by 2015, saying that conquering North America will be his company’s number one priority. Lee has also suggested to you that Tang’s sports trainers are scientifically inferior in their current state and that Tang is a shrewd businessman but is fundamentally dependent on his father’s network.

As a trusted advisor and a member of Mr. Lee’s preferred patent clerk team, you are expected to seek a resolution in your client’s favor.

The profits of the prototype roller-skate trainer are to be re-evaluated and divided in your client’s favor on roughly a 60–40 basis.

Since your client holds patents in Europe, you must receive a substantial percentage of the profit should Tang wish to enter Lee’s major market with his own line of sports trainers.

Lee is waiting on a patent for his second-generation trainer (the most recent innovation). Lee’s foam-based sole, which your client believes will be a game changer should his patent application be granted, is likely to affect Tang’s business.


Lee intends to expand his online market for local business customers to place their orders online. Lee has found manufacturers in Mexico and East Asia for his shoe product distribution outside Europe. Their distribution cost is 8% cheaper than the average transportation cost that Lee is currently paying.

Your client is considering releasing a third generation budget-based roller-skate trainer specifically aimed toward customers in Asia and the Far East, but Tang is likely to do what he can to prevent your client from entering his number one market.

Lee’s outlook: A major American sports brand is interested in acquiring your most recent project, which they intend to repackage and distribute to suit their existing customer base. At the same time, they wish to purchase your client’s roller-skate trainer and are particularly interested in acquiring Lee’s recently developed foam-based sole, which they may incorporate into their existing range of trainers. Your client has the option of negotiating with the major American sports brand should Tang fail to meet your client’s expectations. You have also advised your client, however, that the American sports shoe brand has, as yet, failed to make Lee a genuine offer. The American brand may be simply testing the water and wanting for Lee to set a price on his IP.

You have devoted the majority of your career to work as a patent clerk, and you desperately want to be promoted to a position on your company’s board. You are optimistic about your goal and believe that Mr. Lee may help you to secure additional business. By resolving Tang and Lee’s long-standing dispute, you are confident that your employers would look favorably on your application as a future board member of Fabion Richter, should you be able to find a resolution that would please your major client – Mr. Lee.

Should you fail to reach a satisfactory agreement on behalf of your client, the consequences would mean placing your client at risk of infringement and a potentially costly lawsuit. Your client could stand to lose valuable business opportunities should negotiations not go well. Additionally, your employers would not look positively on your incompetence. Lee is a respected client and losing him would affect how you are perceived by the board, as well as jeopardizing your reputation with Lee himself.

So negotiating with Mr. Tang’s representative, Wei Wei, is a task you intend on doing well, as your fortunes with Fabion Richter may depend on it.

Teaching notes

This exercise is a highly integrative negotiation through the use of video-conferencing. This e-negotiation requires the participation of two parties. The objective is to train those negotiators wanting to develop insight into interest-based negotiation over several encounters, while also managing value and resource conflicts and developing negotiation strategies by identifying common interests, value creation, value claiming, BATNA and points of concerns, in terms of marketing 4P strategies. The goal is for two parties to reach a mutually satisfactory agreement.

Exercise execution

This negotiation exercise suggests the use of video-conferencing in a form of team-based


negotiation. The ideal number of team members for each party is three negotiators. The suggested length of preparation is 80 minutes. The exercise should take 80 minutes and be divided into two sessions. With both sessions lasting 40 minutes, it is suggested that the two sessions take place on separate days to give the participants ample time to re-evaluate their positions between sessions one and two.

Participants are encouraged to plan their individual strategies in advance of the first session and re-evaluate their position after the first session has been completed or before resuming the negotiation on day two, as a great deal stands to be gained by considering what has been discussed during the first session. Participants are allowed to use email once for information conveyance before video-conferencing on day one begins.

Points of concern and initial planning

It took many years before Tang and Lee could broach the idea of a future collaboration due to an absence of trust. They rely upon their trusted business advisors to discuss the details. Both Tang and Lee held long-standing grudges, and these feelings prevented the two from seeing the larger picture and what might be achieved should Tang and Lee put aside their petty differences. Lee felt mistreated by Tang wanting to take ownership of the original idea but failed to provide a legitimate reason to support this view. Neither of the entrepreneurs thinks about what might be possible if they were pool their resources and unite.

The suggested content of initial email exchanged prior to the first day negotiation session could list the agenda and the background of participants involved, as well as preparation for the required information, such as seeking information regarding the unknown market research data and numerical information to enhance effective and efficient communication in information convergence while minimizing the undermining issues of miscommunication.

Table 7 Profit calculation (approximate)Second generation

Global market saleper year

Advertisementper year

Transportation cost (200 pairs/batch)

Profitper year

Tang’s shoe 250,000 ($10,000) ($125,000) $115,000Lee’s shoe 168,000 ($15,000) ($105,000) $84,000

Marketing 4P strategies are:

Product: How is it differentiated versus your company’s competitors? What is the most the product can cost to provide and still be sold sufficiently profitably?

Place: Where do buyers look for the products? How accessible can the products be? How can you access the right distribution channels?

Price: What is the value of your company’s product? What are the price differences between your company and your competitors? Are the products established in certain areas?

Promotion: How do your company’s competitors promote their products? How does that influence your choice of promotional activity?


Further questions for consideration

What are the distinguishing attributes of their positions?

Lee’s product is the market leader in Europe. Being more fashionable, Lee’s shoe is more likely to have greater and perhaps longer lasting appeal. Especially in the middle-income group, Lee believes what he is developing is more relevant to the North American markets. Also, this view may be supported by a major American sports brand taking interest in his product/business and, most recently, his foam-based technology, which Lee believes has enormous potential. Tang’s product is the market leader in countries where his father has established trade links. When compared with Lee, Tang’s sports shoe is cheaper to manufacture, and each pair of shoes sold generates an additional 10% profit for his business as his manufacturing costs in Southeast Asia help to save his business capital.

Should Lee be able to align himself with a cost-effective Mexican manufacturer, his products may be made and distributed more affordably in the future. Particularly to the all-important North American markets (i.e., Mexico, Canada and the United States). Tang also has the benefit of being able to consult his father, who has been in the import/export business for many years.

What are the points of dispute?

Tang’s family financed the development of the original prototype, yet Tang has not received any gratitude or recompense from Lee. Lee believes he came up with the original idea, possibly by coming from a science background. Lee believes that his most recent innovation, the foam-based sole, is a departure from the original technology. Tang may be unaware that his current resources are to a large extent related to his father’s production facilities, capital and network. Without the Tang family’s financial support in the first place, Lee wouldn’t have had sufficient capital to grow his business.

What would prevent Tang and Lee from establishing a joint venture?

Patent renewal and ownership of the original prototype. The patent for the prototype expires in 2019.

Tang and Lee will need to reach amicable terms instead of filing lawsuits before their patent expires or both stand to lose their existing intellectual property.

Royalties of market profits and patent infringement in second-generation trainers. Lee may choose to sell his designs to a major American sporting brand; as far as we

are aware, he would not be obligated to pay Tang anything. The consequences of such a transaction may damage Tang and Lee’s already fragile relationship.

Lee’s temper and pride may block the two companies from future collaboration. Worst case scenario: Tang’s and Lee’s trusted representatives fail to put aside their

individual concerns and find an amicable solution for their clients and pursue personal ambitions instead. The fortunes of Helmut and Wei Wei are linked to their benefactors and both stand to gain should a “Win-Win” scenario be reached. A successful resolution does not mean one Taiwanese client gaining market share or resources at the cost of the other. Tang and Lee both possess individual attributes that, if shared,


are capable of augmenting or expanding their existing businesses. Should trust be attained, their relationship may be less transactional and more constructive.

What do Tang and Lee stand to gain by pooling their resources?

Manipulating the market could prevent the competition from establishing a foothold in Asia and Europe. By reunifying Tang’s and Lee’s resources (i.e., networks and manufacturers) and by resolving their conflicting values regarding product design and market share, they might establish a globally recognizable universal sports brand. Perhaps more could be achieved if they were to focus on their individual strengths while working under a single brand, with Tang directing the business and Lee focusing on product development. If both Tang and Lee negotiate for individual gain and focus on the transactional process of hard bargaining, they are more likely to encounter deadlock, leading toward litigation.

Notes for ZawaSoft and Pak-TonTeaching notes

The parties should be able to come to an agreement – there are no deal breakers buried in the case and the zones of possible agreement (ZOPA) are broad. There are ample opportunities for agreeing on the key issues and creating much more new value. The success of the students should be based on their ability to create new value. Some areas might include:

Zen: Joint events or publications. These could be adjusted to minimize religious ideas and maximize the mental and cognitive benefits of Zen practice.

Logo placement: Solutions should include visible placement of the logo similar to Intel’s “Intel Inside” campaign.

Piracy: Agreements about protecting the software could include co-development and sharing of staff such that they can confidently share the risks and benefits and react to changes in the market.

Buyout: A complete buyout of ZawaSoft by the larger company could make sense and allow for far more joint new value creation because the firms are no longer separate and will work for common causes.

Confidential information for ZawaSoft Corp.

ZawaSoft is a small company with only three years of history from the technology cluster in Fukuoka, Japan. There are 35 employees with and an annual revenue of ¥10,000,000,000.

Your software could be used in many industries from small electronics to bicycle batteries to equipment in space. Anywhere rechargeable batteries are used, you can make them last longer. What most businesses, including Pak-Ton, don’t know: You protect your software by embedding it in the controller chip where it is encrypted. The software is only unencrypted when used in active memory, so therefore it is immune to all but the most sophisticated forms of copying and piracy. You expect that both your security technology and “On the Spot” will improve over the years as you continue developing it.


GoalsYou want a two to four year contract that includes:

Your company name to be used on the batteries (or other final product) so you can improve your brand

A non-exclusive deal so you can sell similar software to other customers in other industries

A price of no less than ¥2,000,000,000 per year for several years, or at least $30 million for only one year

BATNA: Sony would like to buy the technology for ¥11,000,000,000, but they would not allow ZawaSoft to continue selling or using or developing the product.

Note: Your shareholders, interested in quick returns, have suggested you sell immediately to Sony or get a non-exclusive high value contract for several years with Pak-Ton and other companies.

Exercises Who will you include in the negotiating team from these staff members: Marketing team

leader; Head of marketing; CFO; CEO; Legal officer; Lead software engineer; Chief Technology Officer (CTE).

Plan your negotiation strategy – reserve price and positions, the topics to discuss, the sequence of topics, opening offers, linked issues you want to include, new value creation possibilities, etc.

Use one or more planning tools found in the Appendices of this book (e.g., interest and priority cards, Raiffa scorecard, backward planning, or other tools).

Confidential information for Pak-Ton

Pak-Ton is an established battery manufacturer in Nagoya with 7,000 employees around the world and an annual revenue of ¥500,000,000,000.

Your batteries are used in small electronics around the world. You are the leader in this field with 55% of market share worldwide for rechargeable electronic batteries.

You believe “On the Spot” will improve your sales perhaps for a year or two. It might improve your brand image, too. Best of all, it might help you stay ahead of your rivals, Sony and Panasonic. However, you know how difficult it is to protect software from piracy and theft. You worry that ZawaSoft’s “On the Spot” software could be widely available in just a few years, or even months.

Confidential information about goalsYou want:

An exclusive deal, at least for electronic batteries used for small electronic equipment (less than two pounds in weight)

A price of ¥3,000,000,000–¥4,000,000,000 for a one-year agreement (or more for multiple years)

a. You could pay 15% more per year if you have reason to be so satisfied about the


agreement Term: one to two years seems best unless you are confident that the software would be safe

longer; three years is possible, but not more than three and a half years

BATNA: Sell your batteries without ZawaSoft’s software – Pak-Ton batteries are the best on the market even without “On the Spot”

Exercises Who will you include in the negotiating team from these staff members: human resources

staff, CEO, battery production manager, software engineer, electronics engineer, marketing strategist, head of product development, and legal officer?

Plan your negotiation strategy – reserve price and positions, the topics to discuss, the sequence of topics, opening offers, linked issues you want to include, new value creation possibilities, etc.

Use one or more planning tools found in the Appendices of this book (e.g., interest and priority cards, Raiffa scorecard, backward planning, or other tools).

Notes for Recruit the best!Teaching notes

Students are expected to prepare their reserve points, understand their BATNA and have some idea about the other side based on the general information and confidential material.

Careful exchange of information, listening skills and probing will be necessary to correctly get the fine details such as the number on the shirt.

Confidential information for agent representing Bolas Chojonez

You would prefer a shorter contract, three or at the most four years, because you hope Bolas might leave Nuernburg and move up to a top club in this league. For now, Nuernburg is a good starting place, perhaps an easy starting place for Chojonez, but there are 11 other teams in the Bundesliga that you can consider.

Chojonez wants you to get special compensation for any games missed, losing only half of what players usually lose for missed games.

You want as high a salary as possible. The contract should start above the team average with increases after the first year. Chojonez does not seem to care about the salary (he just wants to play), but you will take a percentage as your commission, which you wish to maximize.

Generally you want to protect Chojonez from the distractions of public appearances so he can concentrate on developing his skills. On average, players in this league make three to five public appearances a year (other than games). He is a very shy player, so you want him to play without the pressure of extra public events. After all, if he improves you will earn a lot from his future contracts!


It may seem unimportant, but Chojonez wants to have the number “02” (oh-two) on his shirt – it is his lucky number. This is more important to him than getting maximum pay. In fact, he will probably refuse to play if he does not get the correct number.

As the agent, you will receive a small percentage of the total agreement, so be sure to get a lot of money!

Confidential information for FC Nuernburg

You are cautious about the player’s skill – he is too young to be sure about. For this reason, you want to get a long contract, five to eight years, with an agreement that you can buy the contract out and end it after a few years if necessary. You are aware that Chojonez is good – but not reliably great, at least not yet. Therefore you could spend your money recruiting two or more less impressive players and improving them.

You want to pay a reasonable salary, but the team cannot afford too much. A good starting salary would be around the team average, preferably below, with a chance to grow. Your total budget for team pay is €9.5 million for this year, and you expect this to grow in coming years. You can be flexible about the amount deducted per missed game, pay in the second year, etc.

You want to include Chojonez in public relations events as much as possible. This means a couple of times each month. You believe these public appearances directly increase the number of people attending games and watching on TV, which means more income for the team.

You are preparing a press release to announce this agreement (but of course not all the details), and the fact Chojonez will wear number 32, a historically lucky number for the club. Other numbers are available, including 1, 2, 3, 5, 11, 19, 22, 27, 31, and 37. There are no numbers higher than 39 and no numbers with a zero due to casual club tradition.

Notes for Sonde SA strikes a balanceTeaching notes

The Japanese affiliate (in Osaka) of Sonde, SA has a small number of French expatriates on the sales and design team – only 10. Of these, five change annually, meaning that each person is in Japan for two years. These expatriates arrive and leave with the Japanese fiscal year (April–March). They expect to take 3–4 weeks of vacation in August like most people in France, but they are limited to a few days during Obon, a three-day vacation the second week of August. As a result, several of them stay home “sick” for a week or more in August and/or September. At the end of two years, they generally stop working early in March, staying home for almost one month. They say they are sick, but they probably go bicycling in the countryside!

This intercultural simulation includes five roles. There are two French roles (the site CEO and a representative of the French workers) and three Japanese roles (human resources manager, the head of the sales and design team, and a low level supervisor). Each role includes requirements


that the person should achieve during the conversation. Some of these goals are in direct conflict with the goals pursued by other roles. There will therefore ultimately be some dissatisfaction and some compromises. The overarching goal is to come to a general agreement that respects as many goals as possible and provides reasonable compensation or compromises to those parties whose goals cannot be met.

There is no requirement to hammer out a full agreement now. Japanese organizations generally require a document to be agreed upon by a large number of managers, any of whom can request changes, in a process that may take one or more months (or even years). A suitable outcome will be one in which all parties are reasonably satisfied and no party has completely collapsed.

Meeting participants:

HRM Chief Manager Head of sales and design team French CEO of Japanese affiliate Japanese supervisor of the design team French worker (sales and design team member)

Your role: HRM ManagerYou will have to carefully consider the issues and recommend some action to the CEO. If the CEO makes a decision that is not productive, you should counsel him about changing it. You are from Hong Kong and have been working in Japan for 10 years. You are very familiar with Japanese business standards.

GOALS: Try to find some answers to the problem, but do not promise any solutions yet. Keep the French workers and the supervisor happy. Do not make a clear final decision – that will be resolved formally after this discussion.



You are: French workerYou are expecting to work through August again, and you feel very upset. The Obon vacation is short and every place is overcrowded because almost everyone in Japan is off. How can you enjoy a vacation like that? You work hard, why can’t you get a week or two off for a proper family vacation? Why is there no respect for family and personal time?

GOALS: Get more vacation time! It would be nice to get some clear promise of action. And it would be nice to know the results you can expect. Action should come soon so that you can plan for family vacations.




Japanese Supervisor (kachou, 課長)You are the direct boss of the French workers and some Japanese staff. The Japanese staff has begun to complain about this situation (the French calling in “sick”). You had to work extra hard in March last year because French staff were missing. You feel very worried because these are your direct employees complaining – they seem to be the source of the problem. You work extra hard to keep the French workers happy.

GOALS: Be sure that the French are working and are seen at their desks. You can accept a temporary solution before a formal decision and document is developed, circulated and agreed to (a 6–10 week process).



French CEO of the Japanese operationYou have to make some decisions or plan some action because there seems to be a lot of dissatisfaction from the French, and now even from the Japanese staff. Hopefully the HRM manager will be able to get an answer.

GOALS: End the complaints from all sides. This is a simple goal, you feel. After this, there are some serious strategic issues to be dealt with. You have some sympathy for the French because long summer vacations are normal in France. However, this operation is in Japan.



Head of the design/sales team


You are Singaporean, and your team includes the supervisor’s French staff and many other workers from Japan and other countries. You have to support not only the French workers, but also the Japanese workers. There must be some way to make everyone satisfied. You have adapted well to Japanese work life and have been in Japan 15 years.

GOALS: Find some possible ways to resolve the problems. Do not make a clear final decision – that will be resolved by a formal process based on the recommendations of this meeting and other mangers. It will be a 6–10 week process (or longer).

Notes for cultural IP anime Confidential information for PXWX

Your president has asked you to decide whether to immediately break with RekiMan and start court proceedings or, if it seems useful, explore whether there really was any theft of intellectual property. If not, you must explore continuation or expansion of business relations with RekiMan.

Demands/reserves

According to the president of PXWX, you should:

Try to continue current business activities with RekiMan, if you are comfortable that RekiMan did not steal your IP. You can agree to some kind of explanation or retraction of the claim you made in some medium or at some event, as long as it is not too expensive or too embarrassing for the president or company. For example, you would not hold a press conference involving TV. However, you are open to a variety of other actions.

Recover the stopped business relationship and contracts. Restart business immediately. If you think RekiMan is likely to cancel the contract, you

can offer a discount of up to 10% of the total contract value. Agree to a slightly longer deadline (at least 10 more days, 20 would be better) to avoid

cost and difficult production scheduling. If RekiMan really seems to need the current deadline (difficult!) or less than a 10 day extension, try to get them to share the cost of hiring more staff or of outsourcing some work to another company in Hangzhou, as it will require extra staff and overtime and the cost would be high.

Explore any new tasks or business activities that you could undertake with RekiMan.

Your Task

Assemble an appropriate team from PXWX (not including the president) to negotiate with RekiMan. First, determine if they stole PXWX ideas or not. If not, try to restart the business. Try to form a Win-Win (and beyond) agreement with RekiMan.

Table 8 PXWX white snake storyboardsA giant white snake The snake could Many people tried to The snake captured


lived in the icy glacier at the top of a tall mountain. 1

freeze a person by breathing on him or her. 2

destroy the snake but they were not successful. 3

the daughter of the village chief.

4Finally, a single hero fought the snake.

5

He used a large amount of burning oil to destroy it.

6

He rescued the daughter and they got married and had lots of kids.7

Table 9 RekiMan storyboards (modern version)A giant white snake lived in the mountains. Its home was a river that flowed down into the valleys. 1

When people first settled the area, the snake took the form of a tall woman.

2

The people tried to live in peace with the white snake, but they feared it.

3

Together, they fought against it

4

…and were successful when they set fire to the forest around its home

5

When it came out to avoid the fire,

6

a group of people shot it with arrows

7

Many people were killed, but the white snake was also killed. 8

The balance of nature was disturbed in that area for centuries. 9

Now people believe there is a new white snake, and they protect it carefully.

10Confidential information for RekiMan

Your president has asked you to present enough evidence to PXWX to prevent them from starting court proceedings and to further explore the possibility of maintaining or expanding the relationship with PXWX.

Your storyboards are based on an obscure folk tale from Japan involving a giant white snake in the Yamashiro mountains. You can present an ancient version of this story that your storyboards approximately follow.

Demands/reserves

According to the president of RekiMan, you should seek:

A public apology regarding the statement in the Hangzhou Business Press and in other media. At the least, you want a written retraction of the claim in the Hangzhou Business Press. Best would be an article in the WBP and a statement on TV, as well as comments in other media.

Restart of business. The disruption of work has only been a little more than one week.


Restart should begin right away with some kind of guarantee from PXWX that deadlines will be kept. Deadlines should not be extended more than 10 days.

To manage the deadlines, encourage PXWX to agree to hire more staff or subcontract some of the work to another company. If they subcontract, you are willing to pay up to one half of that cost. If PXWX wants, you are willing to send a staff member from your Hirakata office to help with the process. This individual speaks some Chinese and has recently completed an excellent MBA program in Kyoto!

If you are comfortable with the relationship, you can discuss new business activities with PXWX. These could include buying stories and ideas from PXWX, doing an adaptation of their White Snake for the Japan market, identifying suitable Japanese historical or folk content that PXWX might use in China, training or staff development projects, or almost anything else.

BATNA

Having been active in Hangzhou and at trade events in China for some years, you are very aware of other quality companies in Hangzhou and other locations in China that could provide the same services reliably for a reasonable (or possibly better price). Breaking your relationship with PXWX would cost you $1,200,000, in the short term for urgent replacement services plus about $100,000 to start and develop a new relationship with another company.

Your task

Assemble an appropriate team from RekiMan (not including your president) to negotiate with PXWX. First, try to convince them that you did not steal their ideas. If successful, try to restart the business. Try to form a Win-Win (and beyond) agreement with PXWX.

Table 10 PXWX white snake storyboardsA giant white snake lived in the icy glacier at the top of a tall mountain. 1

The snake could freeze a person by breathing on him or her. 2

Many people tried to destroy the snake, but they were not successful. 3

The snake captured the daughter of the village chief.

4Finally, a single hero fought the snake.

5

He used a large amount of burning oil to destroy it.

6

He rescued the daughter and they got married and had lots of kids.7

Table 11 RekiMan storyboards (modern version)A giant white snake lived in the mountains. Its home was a river that flowed down into the


The people tried to live in peace with the white snake, but they feared it.


…and were successful when they set fire to the forest around its home


valleys. 1

23 4 5


6

a group of people shot it with arrows

7

Many people were killed, but the white snake was also killed. 8

The balance of nature was disturbed in that area for centuries. 9

Now people believe there is a new white snake, and they protect it carefully.

10

Table 12 RekiMan storyboards (ancient version, more than 1400 years old)A giant white snake lived in the mountains. Its home was a river that flowed down into the valleys. 1


2

The people tried to live in peace with the white snake, but they could not.

3


4…and were successful when they set fire to the forest around its home. 5


6

a group of people shot it with arrows.

7

Teaching notes

The initial problems, whether one company stole the other’s idea and whether they will work together, should be quickly solved. The issues regarding timing and cost are simple distributive matters with limited room for integrating. The parties, however, have to manage the apology without damaging the face of either company. Wise parties will convert this problematic issue into an opportunity for joint publicity, improved reputations, and new value.

Key education points include exchanging information, equitable claiming of value, maintaining a relationship, and creative exploitation of new value opportunities.

Notes for Toyota Tsusho and Encana – second roundTeaching notes

A primary learning goal in this case is to research complex issues deeply in order to create new


value opportunities.

The world of gas and oil in North America is a complex one. This simulation requires students to read deeply in order to reject some of the red herrings in the general and confidential information. Some of these include:

Avoiding gas other than dry CBM gas Avoiding infrastructure projects Entering into power generation

Complexity is a feature of this simulation, so students will need to understand the relationships among the measuring units (BTU, cubic feet, BBL, etc.), among the larger oil and gas companies (Encana, Imperial, Shell, etc.), and the various plays (Horseshoe, Duvernay, Bakken, etc.), well costs, and so on. Prices, technology, and geopolitics all play a role, so students need to rely on current information from reputable internet sources.

Students should check and update all points of information.

Win/fail criteria

If Toyota Tsusho pays Encana more than the Henry Hub price for gas during the years before Kitimat (or other) liquefaction projects are completed, it will lose money primarily because the gas will not be saleable in Japan until the ship loading facilities in North America are completed. Completion of those facilities will radically change prices in North America (upward) and in Japan (downward). The smallest and fastest liquefaction plant, the floating BC LNG project, may be working in 2016, but it will not have high capacity. The higher capacity projects such as the Apache/Chevron Kitimat LNG plant may be working as soon as 2019 or 2020. In any case, the BC LNG project includes Idemitsu, a Japanese company, which will sell gas in the Japanese market.

Transporting gas or oil to export facilities in the USA is possible, though transmission through the USA and shipping to Asia will not be cheap. Students will be able to estimate the cost of transmission and shipping using information available online. In any case, US export facilities will not be functioning until the 2018–2022 timeframe.

If Toyota Tsusho buys a portion of Prairie Sky Royalty, they must base their price paid on the value of the same percentage of gas in the field. Therefore, the current price of Prairie Sky Royalty shares, the price of that gas and the amount in the field (reserves) should be watched by both parties in the negotiation.

The 2012 agreement saw Toyota Tsusho paying a relatively high price for that gas. More than its sale price in North America in the following year or so. Toyota Tsusho students should not come to a similar costly agreement again!

“The Japanese corporation paid $3.86 per thousand cubic feet equivalent for proven plus provable reserves compared with the investment bank’s 54 cents


per MCFE valuation for all of Encana’s proven plus probable Canadian reserves, Potter, with CIBC World Markets, said.”

From the Calgary Herald, www.calgaryherald.com/business/Encana+sells+Horseshoe+Canyon+stake+

Toyota+Tsusho+million/6492821/story.html#ixzz1vhJGesC2

An easy mutual win for the parties is to agree to capture and sell gas that is being flared at existing wells (oil wells in particular). If the parties provided trucks, compressors and tanks at well sites, they could sell the gas at a low profit margin, but gain environmental benefits (including carbon tax improvements) and improve their environmental image. A reasonable investment by each side per well would have tangible and intangible payoffs.

There are many other possible ways to jointly create new value – the students must look for opportunities in the details of their businesses.

Kitimat and Canada oil and gas information

Numerous articles about the Kitimat projects can be found at:

http://www.theglobeandmail.com http://www.calgaryherald.com http://resourceinvestingnews.com http://www.reuters.com http://www.bloomberg.com http://www.albertaoilmagazine.com http://www.bcogc.ca as well as the websites of companies and government agencies active in the region.

Commodity price information can be found at:

http://www.bloomberg.com http://www.cnn.com

Pipeline maps can be found at:

http://www.eia.gov http://www.encana.com http://www.nrcan.gc.ca

Confidential information for Toyota Tsusho

You prefer dry gas plays over wet gas plays. Your reason is that you do not want to invest in equipment to process wet gas, even if you can gain profits selling the condensates. You prefer to have a simple business process in which you buy gas at low cost and ship it by trucks or pipeline to a Pacific port to be compressed and loaded onto ships for transportation to Japan. This is a


high margin, low investment and simple business. You avoid a large amount of regulation, a more complex web of stakeholders and the need for greater investment in staff and equipment if you remain with dry gas only. Perhaps in some years you will have enough experience to consider wet gas plays in Canada.

Your management team has decided that you can use an additional $300 million to $350 million for dry gas plays in North America, and even up to $450 million if the value is very good. In any case, you will have to explain to the top management how your negotiations brought the best possible advantages to the company.

The Toyota Tsusho management team understands that almost no shipments, certainly not large volumes, can be made from Canada to Japan until liquefaction facilities are completed between 2016 and 2020 in Kitimat. Until then, Toyota Tsusho needs to gain long-term share of supply, without losing money.

Dry gas seems clean and simple to you at Toyota Tsusho. You are not very interested in wet gas with condensates, or Canada’s “dirty” oil sands. Any source of low cost gas is suitable to you. Infrastructure projects are possible areas of investment.

Your current BATNA in general terms is not to expand on the existing agreement and instead develop relationships in the U.S. or with other Canadian companies such as Imperial or smaller companies.

Your task: Explore all issues, improve your BATNA, agree to additional investment if suitable and search for ways to create value.

Issues to consider (please expand the list as needed):

Lifespan investment Wet or dry gas Participation in and availability of pipeline/infrastructure projects

Control of substantial amounts of gas, developed or not – however, you do not want more than a 49% share in any given field, business or operation in Canada

Rights to suitable “plays” in Canada that Encana controls Price based on volume and substance (CBM, condensates, oil, etc.) Activities of your competitors in Japan and other countries in East Asia

Confidential information for Encana

Encana’s strategy since 2011 has been to move into oil production, especially shale oil and shale gas, in Canada and the U.S. That means leaving behind dry gas, power generation and perhaps other activities. With the price of natural gas low, the existing Horseshoe Canyon Coalbed Methane play is safe and predictable, however low margin.

The 2014 spinoff and IPO of Prairie Sky Royalty allows Encana to easily sell more of the Horseshoe play in large or small percentages. After the IPO, Encana still owns 60% of the


company. Toyota Tsusho could buy as much as they want, taking earnings in cash or gas. This stock clearly has a good future – it opened in Toronto at about $24 per share in June 2014 and quickly went to about $40 (TSX: PSK). With such a good price, you have a lot of flexibility in offering the Horseshoe play to Toyota at a high price, or even at a 10–14% discount if they bought half or more of your remaining shares of Prairie Sky or provided other value for Encana. A sale of Prairie Sky shares would likely be the easiest transaction for all parties.

To generate serious profits for Encana, you need to avoid investment in CBM or attract investment from other companies. Stronger profit opportunities are coming from gas with condensates, usually in deep shale rock requiring high investment per well. The interest (and deals) from Toyota Tsusho and Mitsubishi have been very welcome, especially after the difficulty interacting with Chinese companies in Canada in recent years.

Of course, you are not limited to inviting investment in CBM plays. You are very interested in partnerships to build pipelines, compression plants, new oil and gas development, anything really. Further, you can sell assets and business units such as power generation plants.

You of course would like Toyota Tsusho to buy gas that is being flared at sites other than the Horseshoe play. It would increase your environmental credibility and make some money that is otherwise (literally) being burned. Gas is flared currently as a convenience, for safety and to decrease release of greenhouse gases.

In any case, you will have to explain to the top management how your negotiations brought the best possible advantages to the company.

Your general BATNA is to develop agreements with other companies in Japan (Mitsubishi, Idemitsu) or other countries (Petronas, Korea Gas).

Prairie Sky Royalty holds the royalty rights to five million acres of the CBM Horseshoe/Clearwater play. This company is owned by Encana. Prairie conducted an IPO in June 2014, selling 52 million shares (40% of the company) on the market. Encana holds the remaining 78 million shares. Encana can sell as many of these shares as they wish to any party.

Your task: Explore all issues, improve your BATNA, agree to additional investment if suitable, and search for ways to create value.

Issues to consider (please expand the list as needed):

Lifespan of a field and investment lifespan Dry gas compared to wet gas/condensate projects Pipeline/infrastructure projects Percent share in and control of a play with Prairie Sky Royalty or any infrastructure Capturing and transporting gas that currently is being flared


Notes for Channel-Port aux Basques Confidential information for Channel-Port aux Basques city managers

The town of Channel-Port aux Basques, Newfoundland is seeking funding from the Scandinavian French Development Agency, Agence Française de Développement (AFD). The town hopes to borrow a few hundred thousand dollars from the fund for renewal of public spaces. Channel-Port aux Basques’ tax revenues match expenses closely (about $4.2 million in 2013) and will probably decrease in the future as jobs and population decrease; therefore, the town is only able to pay a low interest rate and is not able to borrow a large amount of money. It seems they will have to bargain hard for even a small amount of money.

The Railway Heritage Centre has been a success since it opened in the 1990s, as has the smaller Gulf Museum. The first weekend in August includes the Port aux Basques Heritage Days Gala, Astrolabe Days, noting the important shipwreck finds of Wayne Mushrow and the town’s historical connection with Europe. The town needs more such events and attractions to boost its tax revenues in order to take on debt.

Every few years, irregularly, the town organizes a summer homecoming event in which former residents, especially those born there but living elsewhere in the world, are encouraged to join in a remarkable weeklong festival. Unsurprisingly, few tourists join the event as it is irregular and far from other major cities, and there are few hotel rooms anyway: only two hotels with 30–50 rooms are available, in addition to a sprinkling of bed and breakfasts.

As the mayor, municipal manager and staff, you cannot accept a loan more expensive than 2% interest, and you cannot imagine borrowing more than $400,000. That amount, however, would be the minimum necessary to fix the school roof and build a small community center for the aboriginal Mi'kmaq and Métis people, who are seeking a community center in which to gather and preserve their native culture. The Mi'kmaq population, about 5% of the community of 4,200 people, includes small business owners (from fishing and maritime services to construction and food services), as well as individuals who are very poor due to lack of steady work, addiction or other problems.

Ideally Channel-Port aux Basques would build a better community center ($200,000), make other improvements to the school ($100,000), improve the museums further ($100,000), and consider other projects that could bring tax revenues and employment to the town. But there could never be enough revenue to support such spending!

The mayor and manager’s meeting with the AFD will begin today, and you are cautious but a little hopeful about it. You must get the money cheaply or not at all.

Your job is to get some funding, if possible. You do not have to agree to the exact amount, and you do not have detailed financial information available at this meeting, but at least try to determine if there is a possibility to borrow. You have legal discretion to borrow more than $400,000 and pay a higher rate. However, you are certain this would lead to a town bankruptcy, higher local taxes and the loss of your jobs. You are not very familiar with AFD, but you think they might be of help to your efforts.


The meeting with AFD is taking place in the city of Halifax at the annual development conference. Other towns will be represented there, perhaps seeking funding as well. Research your town, AFD and your proposals carefully.

Confidential information for French Development Agency, Agence Française de Développement (AFD)

The town of Channel-Port aux Basques, Newfoundland is seeking funding from the French Development Agency, Agence Française de Développement (AFD). The town hopes to borrow several hundred thousand dollars from the fund for renewal of public spaces. However, Channel-Port aux Basques’s tax revenues are so low that the town is probably only able to pay a low interest rate on a small loan.

Your information about the town’s revenues from taxes and fees suggests it would only be able to borrow about $300,000 at a very low rate. The problem is that your organization, AFD, cannot make such small loans cheaply (see Table 13). You do not know much about the town, except that it is historical, not very big (about 10,000 people), and that about 5% of the population is Mi'kmaq or Métis, First Nations peoples who mainly live by subsistence fishing and agriculture, operating lodges for outdoorsmen and logging. Channel-Port aux Basques’s history relates to France: one of the oldest continually inhabited towns in Newfoundland, it was founded in the 1680s by Basque fishermen from France and Spain as a supply location. Prior to that, Basque, French, Portuguese and Spanish fishermen visited irregularly to trade with the aboriginal population, beginning around the mid 1500s. The town is some 560 miles east of the city of St. John’s, Newfoundland’s main city. France’s early history in North America is not well understood; therefore, Channel-Port aux Basques represents an opportunity to highlight this cultural connection in a way favorable to AFD. AFD’s charter is to strengthen the economic development in regions with historical and cultural ties to France, with preference for underdeveloped countries in the south.

The problem for you, the executive manager and deputy manager of the AFD and staff, is that most towns cannot afford the lending conditions stipulated by your charter. You need a partner municipality to work with; therefore, you are considering for the first time to start a project in a modern country, Canada, but in a location with a very poor economic environment. If you cannot work with Channel-Port aux Basques, you expect that the AFD will be under great pressure in the following year to cut costs, programs and staff. This in turn will make your jobs much harder and your chance of success lower.

Executive manager:

You used to work in city management, so you guess that profit, after wages and before debt payments, from a 25 room hotel in Channel-Port aux Basques could be about $40,000 per year, if it were possible to keep it very busy in the summers.

Deputy manager:


You worked many years in museums and cultural finance projects, so you guess that gross profit, after wages and before debt payments, from a museum expansion in Channel-Port aux Basques could be about $30,000 per year, if it were possible to keep them busy.

Your meeting with the mayor and the city manager is taking place in Halifax, Canada at the annual development conference. The possibility of a large loan seems very poor, unless there are some other sources of revenue you do not know about. However, you are reasonably hopeful that some agreement can be reached. No other towns have approached you about funding at this event.

Together, your job is to see if there is a possibility of lending to Channel-Port aux Basques, though you do not expect to have enough financial detail at this meeting to make a final agreement.

Table 13 Rates and amounts (10 year term)Amount Rate$300,000–$600,000

3.25%

$750,000 3.0%$900,000 2.75%$1,200,000 2.25%$1,500,000 2%$2,000,000 1.5%$2,500,000 1.25%

AFD legally may offer the loan as much as 0.75% below the posted rate. However, doing so will require AFD to pay the difference, and AFD has no funds for this purpose.

Research the town, Newfoundland and your proposals carefully.

Teaching notes

Goal #1: Identify a dangerous deal and avoid itGoal #2: Problem solving through information exchange and discoveryGoal #3: Maintain a good relationship in order to consider options in coming years

There is no solution to this simulation: a deal would send the town into bankruptcy and/or badly damage the AFD. It is up to the students to set their own reserve points, goals and to understand their BATNA without guidance from the instructor. If they do this correctly, they should safely arrive at the conclusion that there is no ZOPA and that no deal is the best deal. Nevertheless, problem solving efforts are welcome, and good negotiators should thoroughly explore all avenues before giving up. In the end, a no deal solution is the logical outcome.

Creative problem solving

The students may consider a variety of ways to create new value or otherwise solve the city’s


revenue problems. These might include:

Expansion of the Gulf Museum Expansion of the railway museum Developing the homecoming festival into a regular annual event Creating other festivals (folk music, maritime themes, etc.) Seeking other funding (government grants, etc.) for developing and curating the

museum(s) Demonstrating that they can expand the revenue base of the city with concrete projects

These problem solving ideas may help Channel-Port aux Basques, but are of no use to AFD. Nevertheless, the process of problem solving may create enough good will that the two sides agree to a meeting in 2014 if the town’s economic situation has improved.

Research sources

Channel-Port aux Basques and the organizations, events, artifacts and places in this case are real. The difficulties the town faces are obvious due to its remote location. Some specific elements of the case are cited below.

The websites of the town and of Statistics Office of Canada may be helpful.

Table 14 Some additional convenient sources“The town’s anticipated expenditures for 2013 are $4,222,291.88. The anticipated revenues are exactly the same, leaving little wiggle room for unplanned expenses.”www.gulfnews.ca/News/Local/2014-02-04/article-3602876/UPDATED%3A-Tax-rate-steady-in-Port-aux-Basques/1

There are only twenty-one known sea astrolabes in the world. Only four of these are Portuguese.

The Mushrow Astrolabe is the centerpiece of The Gulf Museum in Port aux Basques, Newfoundland, Canada. This rare and significant find is on display during the summer months.

www.mushrowastrolabe.netAt the Railway Heritage Centre, wander through restored railway cars to experience the history firsthand. During the summer, Boxcar Theatre performs here regularly. The center is also the provincial starting point of the Trans-Canada Trail.

http://gowesternnewfoundland.com/explore-by-region/southwest-coast/channel-port-aux-basquesDetails about the AFD and its activities overseas including loans and grants.

www.afd.fr


Notes: Three party e-mail negotiation – residential real estateTeaching notes

This exercise involves hard bargaining and linking of issues and compromises through email. The e-negotiation requires the participation of three parties. The scenario involves geographical boundaries, temporal flexibility and foreign language challenges. The objective of this exercise is to train those negotiators wanting to develop insight into online hard bargaining, using email transactions and writing effective emails. The goal is for three parties to reach a mutually satisfactory agreement. The agent takes a middle position and the buyer and seller may not directly communicate.

This negotiation emphasizes efficient and effective communication in the face of complexity. Additionally, the participants must plan their communications to carry the right information at the right time. At the same, participants must remain flexible and reactive.

The negotiation is limited to five days to reflect the time pressures common in the real world. Real estate transactions are often subject to competition and require quick action in order to complete before other buyers present new offers.

Please share the section on designing good emails after the confidential information with students.

The buyer: confidential information for Mr. and Mrs. Pim

You are Mr. and Mrs. Pim, a Thai couple in your mid-thirties. You are planning on raising a family together. The husband (Mr. Pim) has elderly parents who moved to Singapore to retire. For the past three years, Mr. Pim has divided his time between working and entertaining his parents while in Singapore and commuting to Malaysia to spend time with his wife. Mrs. Pim has been working a full-time position in Kuala Lumpur, Malaysia. Recently, she secured a tenured position, which requires her to commit to living in Kuala Lumpur long term. Both of you need to be working full-time. For the foreseeable future, your husband will continue working in Singapore, as the neither Mr. nor Mrs. Pim earns sufficient money to be able to support a family on a single income.

The housing market in both Singapore and Malaysia indicates it is a seller’s market and house prices are likely to increase along with mortgage rates. It is in your family’s interests to secure a house deal at this time before you are priced out of the market.

However, you have no prior experience in buying property, and as such are classified by the bank as first-time buyers. You have set aside a modest budget of 55,000 MYR for the down payment in order to secure a competitive mortgage rate. You have shopped around and have visited several regional banks in Singapore as well as in Kuala Lumpur. Your collective pre-tax income is in the region of 55,000 MYR per year, excluding bonuses. In the past three years, your combined pre-tax bonuses were 6,000 MYR on average.

Based on your joint income, the most competitive mortgage rate you have been offered is a fixed


term mortgage, set at 3.25% per year, plus an additional compulsory insurance rate of 0.54%. The duration of the loan will be 20 years. Also, the bank will charge a one-time handling fee of around 200 MYR for setting-up the loan. You were told that you may borrow up to 250,000 MYR for the house. This sum would also include the cost of the agent’s fee, relocation, renovation, legal fees, furniture, etc. You are inexperienced, know little about the cost of legal fees, and expect to consult with your real estate agent for general knowledge. The real estate agent has agreed to help you clarify the cost of your legal fees which will be payable to your solicitor.

You want to purchase a townhouse that has a minimum of three large bedrooms and is located in a secure area in which to raise a family. You both currently rent apartments in Ampang, as well as a modest apartment in Singapore near Mr. Pim’s retired parents.

You would prefer your future home to have double-glazed windows throughout and original oak flooring is something you are keen on. Fully installed air conditioning is also important to you. The ideal size of the property surface should be over 360 ft2. You would also prefer to purchase a home that already has a fully fitted kitchen and comes with a new-ish boiler, as you have limited capital. Financially speaking, you would prefer to allocate as much of your budget toward the down payment as you wish to reduce the term of your loan. You have been attracted to specific properties that feature small back gardens, something rare in townhouses in the areas you are interested in. You believe having access to a back garden is important as you wish to start having children. However, such properties offer a reduction in living space. Neither of you have access to a car. The house should offer easy access to the train, as well as links to the metro or bus.

Over the past three months, you have spent a great deal of time viewing properties and have focused your search in Kuala Lumpur, although you have seen flats close by Mr. Pim’s parents in Singapore. After viewing several properties, you have short-listed two houses you are seriously interested in from Wang Homes (brochure: Ref. KLA03A) and KLP Agency (brochure: Ref. HASQ141). Your preference is for the house promoted by Wang Homes, as the property requires little renovation, and the cost of the house appears fair. You will only negotiate with KLP Agency should you fail to reach an agreement with Wang Homes. Should you fail to reach an agreement with both Malaysia real estate agents, then you always have the option of buying a home in Singapore, but living close to your parents is a less desirable option as Malaysia has more to offer.

The house promoted by Wang Homes is ready to move into, and you have clear ideas on how to renovate that property: new windows with UV protection, insect window screens, attic conversion and a small library. The agent estimates the total cost to renovate to your standard would be around 9,000 MYR. Your second option, the house promoted by KLP Agency, requires more renovation work before you could move in. The total cost has been estimated at around 12,000 MYR.

Moreover, you would have to pay an additional month on your apartment in Kuala Lumpur while the house is being renovated. The cost of your monthly rental would be an additional 900 MYR. You estimate that you will need 1000 MYR at least for moving your property from the rental to


the new house; therefore, you have little money for furniture and white goods. However, you may consider making an offer on the homeowner’s existing furniture as the quality appears good.

Ref. HASQ141KLP Agency

House in Ampang

Spacious townhouse built in 1930, situated in a secure district of Ampang. The house is in a calm residential suburb and has several shops nearby with access to a small supermarket.

The property includes 4 bedrooms, an office and spacious living room, as well as a fully-fitted kitchen and a full bath. Total living space is 120m2. A small garden (50m2) is toward the rear. The house faces southwest and has a cellar (8m2). The property is only a 450m walk from a metro station and bus station. Energy performance certificate is rated at the level of Standard.

299,000 MYR INC.

Year 1930 established Garage No, but driveway parkingType Terraced house Kitchen Separate kitchenInterior Excellent Transport Metro and busEnergy 8 year-old boiler Window UV protection, PVCFlooring Laminate flooring Garden With a hut/shedHouse tax 800 MYR / year Cellar DryCommunity charge

No Bathroom 1 bath/shower room2 toilets

Ground floor:Entrance: 2m2

Living room and dining space: 36m2

Separate kitchen: 14m2

Toilet: 4m2

Garden toward rear: 110m2

First floor:Landing and hallway: 5m2

Living room: 36m2

2 bedrooms: 12/16m2

Bathroom: 6m2 including wash basin, toilet, bathtub/shower

Second floor (attic):Landing and hallway: 5m2

Living room: 36m2

2 bedrooms: 10/11m2

Office: 6m2


Real estate agent: confidential information for Wang Homes

As an agent, your responsibilities are primarily to join a seller of a property with a potential buyer. Although your fees are dependent on the sale of the property, you are required to link the interests of both parties. Your salary is a modest one, and the majority of your income is generated through property sales and in bonuses.

You are responsible for advertising the properties that you are promoting. You are the negotiator and the one who persuades potential property buyers. Without a sale, you generate no additional income, so satisfying the buyer and seller is important to you.

When promoting a property to a potential buyer, you will need to make the buyer aware of what assets the seller is offering as a part of the sale, such as furniture. You should be very aware of your inventory and use anything unique to distinguish this home from the competition. It may be useful for the buyer to know the potential cost of legal fees to help them set a realistic budget. Your agency’s fee will be related to the price of the house when sold. The legal expenses are separate to this.

Agent’s fee

The agent’s fee is a maximum of 3% of the sale price of the property. Generally a real estate agent’s fee is negotiable and set from 1%–3%, which is included in the house sale price (as indicated by “Inc.” in the brochure). Generally it is the buyer who pays the agent’s fee. Your agency’s rates are listed below:

2.75% of the sale price for houses up to 500,000 MYR in value 3% of the sale price for houses over 500,000 MYR

Solicitor’s fee

The solicitor’s role is to legally transfer ownership of a property. For an existing property, the buyer needs to set aside approximately 0.7% (for a house valued at 150,000 MYR to one million MYR, also abbreviated RM) of the purchase price of the house to cover the cost of solicitor’s fee. Be aware: the money spent on purchasing a property does not include the solicitor’s fee. The value of the house sold will dictate the amount of the cost of solicitor’s fees. Hence, the solicitor’s legal fee is 0.7% of the cost of the house, which excludes the agent’s fee.

Stamp duty fee3

The prescribed rate of duty is as shown below:

The first RM100,000. Up to 100,000 charges 1%.RM1.00 for every RM100 or fractional part of RM100.

Any amount in excess of RM100,000 but not exceeding RM500,000. Between 100,000-500,000 charges 2%.

3 See http://miea.com.my/site/index.php?cat=69


RM2.00 for every RM100 or fractional part of RM100. Any amount in excess of RM500,000. Above 500,000 charges 3%.

RM3.00 for every RM100 or fractional part of RM100.

House gain tax for seller

30% on profit made on sale within two years of purchase 20% on profit made on sale in the third year after purchase 10% on profit made on sale in the fourth year after purchase 5% on profit made on sale in the fifth year after purchase During the sixth year after purchase and thereafter, individual tax is 0% Citizens or permanent residents are entitled to an exemption of RM5,000 or 10% of the

gains

It is important to be aware of these additional costs and a successful agent will remind both the buyer and seller of what is expected of them.

Just three days ago, you managed to find an apartment that suits Mr. and Mrs. Lee. Since then, the couple has made a successful offer of 465,000 MYR. Selling Mrs. Lee’s house in Sri Hartamas is your new project. Finding a buyer for her house will enable her to finance the down payment on her new property. The house in Sri Hartamas has been advertised for offer in the region of 275,000 MYR. This figure would provide Mrs. Lee with enough capital to finance her new apartment in Kuala Lumpur.

Mrs. Lee is eager to move out of her existing property, having recently remarried. She originally wanted to sell her house for close to 282,000 MYR, but in the hopes of attracting a quick sale, and being aware of her costs, you advised her after some debate to set the house price in the region of 275,000 MYR. This would enable her to make the down payment and move into her new house quickly. As teachers, it would be of great benefit to both her and her husband to be able to move in before the new term starts.

It may be an idea to encourage Mrs. Lee to leave any large or unwanted items such as bulky furniture. Additionally, it may be worthwhile to persuade Mrs. Lee to see the benefit of striking a deal with a first-time buyer, as such a buyer would enable her to move quickly into her desirable new home and avoid the hassle of a more time-consuming move.

You have supplied the potential buyer (Mr. and Mrs. Pim) with a brochure that promotes Mrs. Lee’s property. You believe the couple is interested in viewing the property for a second time and have supplied the couple with estimated renovation costs. The cost of renovation (9,000 MYR) has been supplied by your agency’s business partners who are specialists in home improvement

Through asking questions, you are hoping to prompt Mr. and Mrs. Pim into making a genuine offer on the property. You may consider informing your buyers about any of the property’s distinguishing features and give details about room sizes, house tax, local facilities and the properties fixtures and fittings (i.e., curtains, white goods and furniture). These details can be overlooked and often help stimulate an offer. It is worth mentioning to future buyers that Mrs. Lee’s house comes with a fitted kitchen, valued at 5,000 MYR.


You are hoping to meet the expectations of both the seller and the buyer, and you will do what you can to push the sale forward so that you can secure a bonus!

The Seller: confidential information for Mrs. Lee

You are Mrs. Lee, a Malay teacher in your mid-fifties. You have two children from a previous marriage. Having recently remarried, you have decided, along with your children, to move in with your husband and relocate to Kuala Lumpur. The property you currently own is a pleasant period, semi-detached townhouse situated in the leafy district of Sri Hartamas – about seven kilometres to the downtown of Kuala Lumpur.

Built in 1900, your property has several original and interesting features that enticed you to purchase the property 18 months ago. You bought this four-story building for 220,000 MYR. This sum included all legal and agent’s fees.

You originally wanted to advertise the property for 282,000 MYR, but your house agency, Wang Homes, suggested lowering your original figure to a figure in the region of 275,000 MYR (see house brochure) in the hopes of generating a quick sale.

Since moving in, a great deal of your free time has been spent tastefully renovating the property. This has been a time-consuming and costly process. Tasks undertaken include:

re-wiring all of the house’s electrical circuits (3,000 MYR) installing two modern fully equipped bathrooms (8,000 MYR) new front door (500 MYR) new roof (7,500 MYR) house removal (1,000 MYR) re-painting the house (1,000 MYR)

You have tried to maintain the property’s original style, Art Nouveau, an international philosophy and style that was most popular around 1890–1910. In addition to renovating, you have paid several designers to help you plan the house’s interior and acquired a selection of furniture worth 7,000 MYR, including a dining table, sofa, shelves, etc. Just six months ago, you spent around 3,000 MYR on white goods. You are happy with the style you have chosen. You estimate the cost of moving all the furniture to the new apartment to be around 2,000 MYR.

You believe what you have done should generate value in the property and intend to remind your real estate agent of this. You believe if your real estate agent promotes the house effectively, then no further concession to the house’s sale price should be necessary. Hence, the real estate agent can negotiate a better price on your behalf.

You feel disappointed to be selling your home even though it is for a good cause – to move in with your husband. All of your children adore the property, and in the short time that you have lived there, you have collected nothing but fond memories. Despite this, you believe your love and care coupled with the property’s excellent transport links and unique Art Nouveau features


should all be helpful in selling the property for a figure close to your asking price.

Not being especially wealthy, you consider the money spent on repairs and modernization to be a small fortune. After all, you believe that expenditures should have bearing on the true value of the property. You believe it is a seller’s market and have already shown several interested parties around the property, but as of yet, you have received no serious offers.

Three days ago, you and your husband found and have made a successful offer on a large apartment in the city of Kuala Lumpur, priced at 465,000 MYR. Your real estate agent at Wang Homes was responsible for helping you find this spacious apartment (210m2). All you need now is for a buyer to pay you sufficient money to enable you to make the down payment on your new property so you, your new husband and your children can move in before the start of the new term.

Wang Homes is a resourceful company. They have various business partners in moving, decoration, and renovation, as well as mortgage information. Having bought and hopefully soon sold your existing property with the same agency, you believe you ought to be entitled to a reduction to the agent’s fee. You have not mentioned this to your agent as yet, but will do so during your email negotiation. He should after all, appreciate the additional business.

s3-euw1-ap-pe-ws4-cws-documents.ri-prod.s3.amazonaws.coms3-euw1-ap-pe-ws4-cws-documents.ri-prod.s3.amazonaws.com/97… ·...

Documents