Global Business

Alpha-Beta General Information and

Confidential Information for Alpha

By Thomas Gladwin

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Profile of Alpha, Inc. Alpha, Inc. is a large, diversified electrical company based in the nation of Alpha. The company plans to become a leader in equipping the “factory of the future” and is already one of the leading producers of numerical control equipment. It has recently spent hundreds of millions of dollars developing a factory automation capability, including robotics and computer aided design and manufacturing. Alpha, Inc. has been acquiring companies, investing heavily in new plants, and spending considerable sums on product development. It has its own innovative robots under development, some equipped with vision. However, to meet its objective of quickly becoming a global supplier of automation systems, Alpha, Inc. has found it necessary to link-up with foreign firms that are further down the robotics learning curve. Robotics in nation of Alpha There are 30 robotics manufacturers in Alpha. Use and production of robots in Alpha is only about a third of what it is in the nation of Beta. One survey reported that 1,269 robots were produced in Alpha in 1990; the survey also revealed that 4,370 robots were in use in Alpha in 1990, mainly in the auto and foundry industries. Robot sales in that year were estimated to be $92 million, with a significant share accounted for by imports. The industrial automation market in Alpha is growing at well over 20% a year. The robotics portion of it is expected to become a $2 billion a year domestic market by 2000.

Profile of Beta, Inc. Beta, Inc. is the leading manufacturer of integrated electrical equipment in the nation of Beta. The company has been run by scientists since its founding and is Beta's most research-oriented corporation: it employs more than 9,000 researchers and its R&D spending equals 5.9% of corporate sales. Beta, Inc.'s strategy is to become the world's largest producer of robotics in the next few years. To meet this goal, Beta, Inc. will have to double its manufacturing capacity and develop a strong export market. To date, nearly all of Beta, Inc.'s robotics production has been sold domestically. The company's deep commitment to robotics is reflected in the recent formation of a large task force to develop a universal assembly robot with both visual and tactile sensors. Beta, Inc. expects to be using the new robots for some 60% of its in-house assembly operations within three years. Robotics in nation of Beta 1) There are 150 companies making or selling robots in Beta. The nation has “robot fever” and a government that has declared automation to be a national goal. An estimated 12,000 to 14,000 programmable robots are already on the job in Beta, representing 59% of those in use worldwide. Betan firms churned out nearly $400 million worth of robots in 1990 (approximately 3,200 units). The nation exported only 2.5% of its production and imported less than 5% of its robots. Industry analysts see robot production in Beta rising to $2 billion in 1995 and $5 billion in 2000.

Alpha-Beta Role of Alpha

By Thomas Gladwin

© 2010 Dispute Resolution Research Center, Northwestern University. All rights reserved. The Dispute Resolution Research Center (DRRC) requires a per person royalty for use of its exercises. This exercise may not be reproduced, revised, translated, or posted electronically without authorization from DRRC. Any use of DRRC exercises without authorization is a violation of copyright law. Access DRRC materials at http://www.kellogg.northwestern.edu/drrc/teaching/index.htm. Questions? Contact DRRC at [email protected], Tel: 847-491-8068, Fax: 847-467-5700.

Five months ago, your firm approached and held preliminary discussions with Beta, Inc. on a possible robot manufacturing and marketing relationship. Some tentative understandings have been reached regarding the general nature of a collaborative arrangement, but a number of specific details still need to be worked out. Your bargaining team will be going to Beta to discuss these points with Beta, Inc. You would like, if possible, to wrap up the deal on this trip. Your long-range strategic objective is to become a profitable, innovative, global, full-service supplier of automation equipment and systems. You believe leadership in equipping the "factory of the future" will come by putting more pieces of the automation puzzle together than any other firm. You believe that the key to success in this business lies in having a broad range of models to offer industrial customers. You have also determined that you must get into the market now, not five years from now. You must accumulate experience and establish yourself as the first and favored supplier to those companies turning to automation to boost their quality and productivity. Top management has considered a variety of options with respect to achieving these goals. It has concluded, for example, that the company's own robotics program is developing too slowly. Exciting robots will definitely be coming out of Alpha Inc's labs and into production in 2 to 3 years, but at the moment, the company cannot rely on in-house capabilities. In order to establish an initial market presence, to learn the business, and to bridge the transitional R & D gap, Alpha must acquire and exploit the leading edge robotics technology of other firms. Licensing high quality technology from leading foreign firms seems to be the best strategy. Alpha, Inc.'s unique strategic advantage is its experience installing factory automation systems and its large industrial sales, distribution and service network.

These qualifications have made Alpha an attractive potential partner in the eyes of a number of foreign robotics producers, including Beta, Inc., a leader in the field. Beta, Inc. is producing a variety of high quality and cost competitive robots. In preliminary talks with Beta, Inc., it was agreed 1) that the relationship will be for 5 years; 2) that initially Alpha, Inc. will receive fully assembled robots from Beta, Inc.'s current model lines which will be sold under Alpha, Inc.'s name; 3) that later on Alpha, Inc. will begin to assemble robots using Beta, Inc. technology and components; 4) that the agreement will be non exclusive, meaning that Beta, Inc. can enter Alpha, Inc.'s markets directly at any time and can also enter into relationships with other firms in Alpha. Four issues still need to be decided: 1. The number of different models involved. You would like the number to be 8; you will take 6 only as a last resort. Your interest in so many models is in line with Alpha's "supermarket of automation" strategy. Fewer models means that several different manufacturers' robots may be needed to automate a factory. This will increase the transaction costs of putting together a system for a customer as well as the costs to service and maintain equipment supplied by many different manufacturers. 2. The number of Beta, Inc. units to be imported and/or produced under license by Alpha. You would like that number to be 150 of each model, a total of 1200 each year. While you believe that Alpha, Inc.'s share of the market will be at least 1200 robots a year, you do not want to be overextended and have to maintain Beta, Inc.'s expensive robots in inventory. You know that Beta has a commitment to increase its manufacturing capacity and you are confident that as your sales

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volume increases, Beta, Inc. will be able to increase production. Thus, while you do not want to commit to more than 1200 robots the first year, you anticipate being able to sell as many as 2000 per year after the first year. 3. The matter of technology sharing. Beta, Inc. is aware of your research on artificial vision for robots. They do not know that you anticipate that 4 more years of development will be necessary before robots with artificial vision will be ready for commercial use. You do not want to share this technology with Beta, Inc. because you think that it may be Alpha, Inc.'s unique technological contribution to robotics. However, if Alpha, Inc. is to develop its own robotics manufacturing capacity, assistance from a company like Beta, Inc., which is already manufacturing robots in volume, will greatly reduce the learning curve. Beta, Inc. has already agreed in principle to assist Alpha, Inc. in developing the capacity to assemble Beta, Inc. robots during the latter part of the licensing agreement. You want a firm commitment as to when this transfer of technology will occur. You may have to provide limited access to the artificial vision technology in order to get access to the assembly technology. 4. The royalty rate. You are willing to pay a 3% royalty on gross sales of Beta, Inc.'s robots. If necessary, you can go as high as 7% if Beta, Inc. agrees to your demands on items 1, 2 and 3 above. While there are other robotics manufacturers, Beta, Inc. is the only producer with a full product line. If no agreement can be reached with Beta, Inc. you will have to negotiate with at least two other producers in order to have a full product line. This will cause a delay in the implementation of Alpha, Inc.'s strategy to be the premier provider of factory automation. The Alphan Negotiating Style Negotiators from the Alphan culture typically employ a style (i.e. a set of behaviors) that is individualistic, informal, direct, impatient, emotional, and aggressive. Your team should exhibit this style in your bargaining with Beta, Inc. Guidelines for how to do so are provided below. Discuss each guideline as a group and plan how each will be followed in the negotiating session. In your negotiations you must: 1. Behave Individualistically: Initiative and creativity is valued in the Alphan culture. Each

Alphan negotiating team member is expected to contribute to the negotiation. When a team member has an idea, he or she is expected to speak up. Any team member may make a proposal in the negotiation. 2. Behave Informally: Alpha is an egalitarian culture and Alphans do not attach much importance or significance to ceremony, tradition, or formalized social rules. They consider formality and protocol to be pompous and arrogant. Alphans are easy-going, casual, relaxed, and friendly people; they love to kid and joke around. Alphans greet people, with whom they expect to do business with a warm handshake and introductions, focusing on first names. Their business cards typically do not describe their roles on the negotiating team, and they are unlikely to offer them. 3. Behave Directly: Alphans value directness and honesty. They prefer to open the negotiation with a frank discussion of the issues and the parties' interests. They are willing to share information and expect the other side to reciprocate and share information in response. They will typically have prepared several proposals for settlement: an optimistic, even unrealistic opening offer, several concessions and a bottom line. Everyone understands that Alphans' first offer is likely to be an exaggeration of their true bottom line, and such opening offers are not considered inconsistent with the Alphans' basic value for honesty and directness. Alphans are skilled in persuasive communication and argument. They will be prepared to argue why their proposal is the best agreement possible. 4. Behave Impatiently: To be idle is wasteful and nonproductive in the Alphan culture -- "time is money". Alphans like the negotiation to move along at a reasonable pace, with information being shared first, and then alternative proposals discussed and a series of concessions made. Alphans become impatient when negotiations slow down. They will question the sincerity of the other party if that party is perceived to be "dragging his feet". Different Alphan team members may take over from each other to try to get the negotiation to move along. 5. Behave Emotionally: Alphans are a highly emotional people. They display happiness and friendliness both in their facial expressions and in their body language. They will also express frustration and disappointment; however, true anger is typically suppressed except in the presence of closely related others. When anger is expressed in transactional negotiations (as opposed to negotiations to resolve a dispute), it is usually an Alphan

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negotiating tactic intended to intimidate the other party. 6. Behave Aggressively: Alphans are self-confident. They like to take the initiative in negotiation. They

are comfortable speaking up and will argue persuasively for their positions, even to the point of emphasizing the benefits of a position to the other party. Alphans will use threats if necessary to accomplish their ends.