Global Business

Alpha-Beta General Information and

Confidential Information for Beta

By Thomas Gladwin

© 2010-2016 Dispute Resolution Research Center (DRRC), Kellogg School of Management, Northwestern University. All rights reserved. DRRC/KTAG teaching materials are protected by copyright law. DRRC requires a per person royalty for use of its exercises. Each purchase of an exercise authorizes copying or electronic distribution of that exercise equal to the quantity purchased. Access DRRC/KTAG materials at www.negotiationexercises.com Contact DRRC at [email protected]

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 Beta

By Thomas Gladwin

© 2010-2016 Dispute Resolution Research Center (DRRC), Kellogg School of Management, Northwestern University. All rights reserved. DRRC/KTAG teaching materials are protected by copyright law. DRRC requires a per person royalty for use of its exercises. Each purchase of an exercise authorizes copying or electronic distribution of that exercise equal to the quantity purchased. Access DRRC/KTAG materials at www.negotiationexercises.com Contact DRRC at [email protected]

Five months ago, your firm was approached by and held preliminary discussions with Alpha, Inc. on a possible robotics 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. The Alpha, Inc. bargaining team will be arriving in Beta to discuss these points with you. Beta, Inc.'s strategic plan calls for significantly boosting overseas sales of robots so as to attain greater scale economies in production. You especially want to develop a presence in the currently small but rapidly growing Alphan market. This requires a high quality industrial sales, distribution, and service network. You have considered the options of exporting directly to, or establishing a joint venture with, or wholly-owned subsidiary in, Alpha. However, given the large cultural differences between Alpha and Beta, the difficulties of servicing robots from overseas, and the rapid technological change in robotics, Beta, Inc. has decided (as have other Betan robot producers) that the Alphan market at this time can probably best be served via a licensing arrangement with a local Alphan company. You can offer that company proven, high quality robotics, either in the form of fully assembled units or the technology and components needed to assemble them. Alpha, Inc. looks like an ideal candidate to become your licensee -- it has the desired technical competence, industrial marketing expertise, service network, quality control, distribution system, general management and business reputation. You are a bit concerned, however, that by helping Alpha, Inc. you may create a competitive monster that may come back to haunt you in the future. In preliminary talks with Alpha, 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 to provide to Alpha, Inc. You currently have eight models in production. You would like to provide Alpha with only four of them for the following reasons: Supplying Alpha, Inc. with robots will require increasing production capacity. You would like to control capital expenditures by phasing in the increased capacity. You are also concerned about increasing capacity to service Alpha, Inc.'s sales and then losing the need for that capacity when Alpha begins to assembling robots itself. If Alpha insists on more than four models, the volume of each model purchased must be sufficient to realize economies of scale and utilize increased production capacity. 2) The number of Beta, Inc. units to be imported by Alpha each year. In order to realize economies of scale you would like the number to be 300 of each model. Your reason for entering into this licensing agreement with Alpha, Inc. is to implement your strategy of rapid growth and deep penetration. If Alpha, Inc. cannot meet these strategic objectives, they are not a strategic fit. 3) The matter of technology sharing. You very much want access to Alpha, Inc.'s artificial vision technology. You are certain that with your manufacturing expertise and your line of universal assembly robots, you and Alpha, Inc. could be the first to market low cost, universal robots with vision. This is the most important issue for you.

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At the prior meeting you agreed with extreme reluctance to help Alpha develop its own robotics manufacturing processes. Just when this transfer of technology will occur was left open. If Alpha, Inc. does not mention it, you will not bring it up. You will only make a firm commitment regarding the transfer of manufacturing technology if you get access to their artificial vision technology and you are able to hold down the number of models provided to Alpha, Inc. thereby controlling capital expenditure costs. 4) The royalty rate. You believe a rate of 5% on gross sales is just and reasonable. If absolutely necessary you might consider a royalty rate as low as 3% in order to get access to the artificial vision technology. While there are other potential distributors for your robotics, no other organization in the world has adopted Alpha, Inc.'s strategy of being a full-service supplier of automation equipment. If no agreement with Alpha, Inc. is forthcoming, you will have to reach distribution agreements with several other organizations in order to have the distribution capacity that your strategy requires. This will delay the implementation of Beta, Inc.'s strategy, since to date no negotiations have been held with other distributors. The Betan Negotiating Style Negotiators from the Betan culture typically employ a style (i.e. a set of behaviors) that is collective, formal, indirect, patient, unemotional, and passive. Your team should exhibit this style in your bargaining with Alpha, 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 Collectively: Betans work together as a group. All Betan decisions must be reached collectively. In preparation for negotiation, Betans agree as a group about their interests and priorities. They also decide who is to speak for the group on what topic. One team member may open the negotiation (see below), another lead the questioning, another indicate that acceding to Alpha's proposals would be difficult, and another make the final commitment to agreement. Team members only speak on their topics. However, all decisions are to be made collectively. If all of the members of the Betan negotiation team cannot agree, then the team will defer making the decision.

2) Behave Formally: Beta is a hierarchical, status-oriented culture. Betans attach considerable importance to customs, rules, and ceremonies. They bow in greeting rather than shake hands. They use last names only. They exchange business cards. During the negotiation, they sit erect, eyes looking down. 3) Behave Indirectly: Betans prefer to start negotiations with a presentation which discusses the Betan company, its general goals in the market, agreements made to date, and optimism for the future relationship. (The purpose is to convey the importance of their organization and its commitment to the issues under negotiation.) At this point, Betans would be likely to inquire about the comfort of the other side, the quality of their accommodations, their experience sightseeing, and the difficulties the trip may be placing on their families. (The purpose of this is to begin to build a relationship with the other side.) Betans are then likely to begin to ask questions about the negotiation issues. Betans are information hungry, but not very forthcoming with information. After the other side has answered the question, Betans may respond by asking another question, repeating the question, or just remaining silent. They are unlikely to offer information in return. Betans often ask for information to be repeated. (Betans are searching for areas of agreement between the two sides. In the Betan culture, it is inappropriate to promote your own positions; rather, Betans listen until they hear where positions come together.) Betans often use the word "yes" and nod to indicate not agreement, but understanding. They seldom use the word "no", but might say “that would be difficult”. (Betans value relationships and to be completely negative would not be relating sympathetically to the other side.) 4) Behave Patiently: Patience is a virtue in Beta. Since it is culturally inappropriate to promote ones own ideas, Betans will wait patiently until the other side suggests something that is acceptable. Betans' patience is fortified by their strong belief that they are a moral people, and that their goals are both right and fair. As a result, Betans seldom make any concessions except at the very end of the negotiation. 5) Behave Unemotionally: Betans value highly self-control, and are trained from childhood not to show emotion. Public display of emotion is believed to lead to confrontation and conflict, which may interfere with normal, cooperative social relation- ships. Betans do not show their frustration with or distaste of others' negotiating behavior. Their faces will be immobile and impassive.

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6) Behave Passively: Betans consider the aggressive, persuasive negotiator, skilled in argumentation, as superficial, insincere, and vulgar.

When confronted with such a negotiator, or one using threats or other crude tactics, Betans retreat to silence.