International business negotiation: automobiles and ships

CASE STUDY

The Authors

Gary A. Lombardo, Center for Maritime Studies, United States Merchant Marine Academy, Kings Point, New York, USA

Acknowledgements

This case study is prepared by the author and does not necessarily represent the views of the United States Merchant Marine Academy, the Maritime Administration, the Department of Transportation, or any other US Government agency.

Abstract

Purpose – The purpose of this case study is to provide an opportunity for students to conduct realistic business analysis applying subject material related to cross-cultural issues presented in the international business and international management courses.

Design/methodology/approach – The hypothetical case study requires students to participate in a complex international business negotiation while treating cross-cultural issues. Two profiled hypothetical companies are negotiating to transport product from Japan to the USA. Negotiation issues are identified and national cultural considerations are emphasized.

Findings – The case reflects refinements based upon its use during the past few years. Students are provided a realistic experiential exercise. Student feedback indicates a heightened sensitivity to cross-cultural considerations and business negotiation skills that transcends their assigned textbook readings and traditional testing.

Research limitations/implications – As with any classroom exercise, differences do exist with “real-world” business practice. Students do not fully appreciate the pressures and tensions experienced by business professionals with respect to selecting a particular revenue stream from a series of potential revenue streams and resource limitations constraining managerial decision making.

Practical implications – The case study provides an experiential exercise for students to apply theories and concepts learned from the textbook and the instructor's lectures.

Originality/value – The case study offers a complex view of the myriad of cross-cultural considerations inherent in an international business negotiation. The case study provides value to the instructor and the students as it reinforces discipline theories and concepts in a meaningful way creating an active learning environment fostering academic excellence.

Article Type:

Case study

Keyword(s):

Cross-cultural management; Cross-cultural studies; International business; Negotiating; Japan; United States of America.

Journal:

Cross Cultural Management: An International Journal

Volume:

16

Number:

1

Year:

2009

pp:

102-113

Copyright ©

Emerald Group Publishing Limited

ISSN:

1352-7606

1. Case description

The primary subject matter of this case involves an international business negotiation between a Japanese vehicle manufacturer that has developed a strategic plan to export its product to Hawaii, Alaska and the United States west coast and a United States transportation enterprise that owns a fleet of roll on/roll off vessels. Issues include national cultural and foreign market penetration considerations. The case is appropriate for senior level undergraduate and graduate students. The case is designed to be discussed during an initial one-hour class and is set up to take an additional two, one-hour class sessions for two negotiation sessions. One negotiation session is hosted by the representatives of the Japanese vehicle manufacturer; and one negotiation session is hosted by the representatives of the United States transportation enterprise. It is expected to require substantial preparation by students outside of the class sessions. The case is designed for use in the International Business and International Management courses.

2. Case synopsis

Two large-scale, complex business entities are profiled. Students are asked to enter into and reach contractual agreement for an international business negotiation. The negotiation involves the transportation of vehicles manufactured in Japan to Hawaii, Alaska, and the United States west coast. The specific elements of the negotiated contract include the number of automobiles and thus vessels to be used under the agreement as well as the identification of the destination ports. Also, the logistical support provided by the United States transportation enterprise will be negotiated. Finally, the shipping costs will be determined. Students are required to formulate their negotiation strategies based upon the facts presented in the case and the national cultural considerations that influence the business decision making process in Japan and the United States. The case deliverables are:

3. The companies

This case study presents the operations of Nippon Automobile Corporation (NAC), a Japanese vehicle manufacturer, and US Shipping Lines, Inc. (USSL), a United States transportation enterprise. These two business entities have entered into negotiations to discuss the possibility of transporting vehicles from Japan to Hawaii, Alaska and the west coast of the United States. The following public information about the two companies and their industry sectors is provided for review:

3.1 Nippon Automobile Corporation (NAC)

3.1.1 Company profile

Nippon Automobile Corporation is an emerging manufacturer of a full range of passenger automobiles, SUVs, pick-up trucks and motorcycles. NAC has been run by engineers since it was founded. The company is the most research and development oriented corporation within its domestic industry; allocating R&D spending at 5.9 per cent of corporate sales. The company prides itself on its superior engineering efforts and the use of advanced technology in the vehicles that it produces. NAC started producing vehicles only in the past few years. NAC's strategic plan calls for it to become one of the top three Japanese vehicle manufacturers within the next five years. To achieve its strategic goal, NAC must double its manufacturing capacity and penetrate export markets. To date, nearly all of its output has been sold domestically. The company's deep commitment to export its products is reflected in the recent formation of a 200 person technical task force to design its vehicles for foreign markets and negotiate arrangements for overseas dealer franchises as well as contracts to transport the products to the foreign markets. NAC expects to be exporting 60 per cent of its production within five years. The NAC profile is shown in Figure 1.

3.1.2 The Japanese vehicle manufacturing industry

NAC is one of the major companies manufacturing vehicles in Japan, a nation committed to engineering perfection. The Ministry of International Trade and Industry has declared success in this industry sector a national goal and encourages the development of export markets. The domestic market for vehicles has been soft. The global industry is highly competitive, with manufacturers from numerous countries competing intensely for sales to purchasers. Some of NAC's domestic competitors have established both assembly and manufacturing plants in foreign markets; notably in the United States. Three of its domestic competitors are among the leaders in the global vehicle manufacturing industry segment.

3.2 US Shipping Lines, Inc. (USSL)

3.2.1 Company profile

USSL Inc. is a global leader. It is a large, broadly diversified, logistical-based enterprise specializing in ocean shipping, rail transportation and trucking as well as port facilities management. The company is registered in the United States and has operations worldwide. USSL is on the forefront of its industry and plans to maintain its leadership role. It has recently spent hundreds of millions of dollars to modernize its assets, acquire companies, and invest in logistics technologies. USSL has found it necessary to develop an international client base to meet its strategic goal of being recognized as a global industry leader.

USSL maintains a fleet of ocean-going vessels that include 23 container ships, 17 roll on/roll off (RoRo) ships and 12 bulk carriers. A RoRo ship is designed specifically for rolling stock, wheeled and tracked vehicles and is particularly suited for automobiles, SUVs and pick-up trucks. As the name implies the vehicles are driven onto and off the ship using either the ship's own ramps or shore-based ramps rather than lifted, via crane, from the dock to the ship for loading and lifted from the ship to the dock for unloading. Cargo loading and unloading tends to be very efficient thus reducing costs. USSL RoRo vessels range in carrying capacity from a low of 4,732 vehicles to a high of 6,498 vehicles. The USSL profile is shown in Figure 2.

3.2.2 The US maritime industry

US maritime businesses incur cost disadvantages compared to foreign firms with respect to labor and compliance with national regulations; specifically the Jones Act. The industry, critical for national defense during times of crises, suffers during peace time as priorities shift to other, more politically influential interest groups. The gradual, but persistent decline hampers the global competitiveness of the domestic firms when competing in the international markets.

4. The negotiations to date

The first round of negotiations took place in an undisclosed major city in Europe. This negotiation round was kept out of the public eye so as not to arouse interest on the part of either NAC's or USSL's competitors. NAC representatives at the first round of negotiations included:

The Senior Vice President reports directly to the President who, in turn, reports directly to the Chief Executive Officer who is also the Chairman of the Board of Directors. At the present time, the Assistant Vice President has responsibility for developing the firm's global strategy. The Director, North American Markets reports to the Assistant Vice President and has specific responsibility to develop the United States vehicle market for NAC. The Director, Vehicle Engineering reports to the Vice President for Vehicle Engineering and has been briefed thoroughly and is very knowledgeable about US consumer preferences with respect to the vehicles that they consider for purchase decisions. The Senior Engineer is the technical adviser to the Director for Vehicle Engineering. All members of the negotiation team are fluent in English based on their graduate education in US educational institutions. They have been selected for their positions and the negotiation team, in part, for their English language skills. This, in itself, is most unusual but represents NAC's commitment to be a global leader in the industry.

USSL representatives at the first round of negotiations included:

The Senior Vice President reports directly to the President of the Ocean Shipping subsidiary who, in turn, reports directly to the Chief Executive Officer of USSL who is also the Chairman of the Board of Directors. The Assistant Vice President has responsibility for developing the Pacific maritime transportation strategy. The Director, West Coast Port Facilities reports to the Assistant Vice President, World-wide Port Facilities. The Director, International Sales reports to the Vice President for International Sales and has been briefed thoroughly concerning the importance of securing the contract with NAC. The Director, Finance reports to the Vice President, Finance of the Ocean Shipping subsidiary and has earned a bachelor's degree in accounting and a MBA specializing in finance. Additionally, the Director, Finance, a certified public accountant, is rumored to be in consideration for the Vice President, Finance position when the incumbent retires next year. The Corporate Lawyer has slightly more than twenty years experience as in-house counsel for USSL. All members of the negotiation team have neither traveled to Japan nor done business with Japanese companies previously. They are not conversant in the Japanese language. They have been selected for their positions and the negotiation team, in part, based on their years of service working for USSL and its subsidiaries and recommendations from their immediate supervisors.

Preliminary talks during the first round of negotiations led to the following tentative agreements between the NAC and USSL:

A staff writer, based in Europe, for the International Business Weekly broke the story during the past few days that NAC and USSL held negotiations and public awareness of the preliminary talks has added pressure on both business firms to complete the deal as soon as possible. Interest by investors, employees and the national governments of both Japan and the United States has created tensions for the negotiators. The two business firms are now preparing for the second round of negotiations. NAC has invited USSL to send a delegation to Tokyo to continue discussions during the second negotiation session to finalize an international business agreement. USSL will host a third and final round of negotiations in New York City.

5. Requirement

The course instructor will assign each student to represent either the NAC or USSL firm. Students, in each company, may select one of the roles identified in the case. The instructor will provide continued specific guidance and information.

Each student team will:

6. Teaching note

6.1 Learning outcomes

Students will develop an understanding of:

6.2 Case context

This case can be used to provide a “real-world” scenario for international business negotiations within the context of a Japanese vehicle manufacturer and a United States enterprise that owns a fleet of ocean-going cargo vessels. The two firms are faced with a potential mutual dependency in that the Japanese entity needs the US company to transport its production output from Japan to the US and the US company needs the Japanese entity's business to generate revenue and profits. This negotiated agreement is critical to the long-term strategic goals of each organization. Although the context is the vehicle manufacturing and marine transportation sectors; the issues are faced by senior management teams in many industry sectors that are interested in conducting international business.

Students are assigned roles as members of the negotiating teams. They are required to prepare for their negotiating assignments by researching national cultural characteristics and submitting a paper for evaluation by the instructor. The students will participate in two negotiation sessions and will sign and submit a written contract presenting the agreements reached by the Japanese and American companies.

6.3 Information provided in the case

The case study provides information regarding the two business firms and the results of the first round of negotiations as well as the student requirements for the two subsequent negotiation sessions. This Teaching Note provides information for the instructor to administer the case. A series of Memoranda have been prepared for the instructor to provide to the students as guidance for their preparation. The purpose of each Memorandum follows; and the Memoranda, each in its entirety, are provided in the Appendix.

Memorandum 1 provides general information regarding the international business negotiation project and its weight in determining each student's final course grade. This memorandum should be provided to the students approximately six weeks prior to the second negotiation session.

Memorandum 2 provides process-oriented information regarding the international business negotiation project. This memorandum should be provided to the students approximately four weeks prior to the second negotiation session.

Memorandum 3 provides confidential company information pertaining to the NAC. This memorandum, provided only to the student in the role of Senior Vice President, Product Placement, should be safeguarded by the company representatives. The document should be neither photocopied nor discussed with non-company representatives. This memorandum should be provided to the students approximately three weeks prior to the second negotiation session. The memorandum should be returned to the instructor at the end of the third negotiation session.

Memorandum 4 provides confidential company information pertaining to USSL. This memorandum, provided only to the student in the role of Senior Vice President, Ocean Shipping, should be safeguarded by the company representatives. The document should be neither photocopied nor discussed with non-company representatives. This memorandum should be provided to the students approximately three weeks prior to the second negotiation session. The memorandum should be returned to the instructor at the end of the third negotiation session.

ImageFigure 1Profile of NAC
Figure 1Profile of NAC

ImageFigure 2Profile of USSL
Figure 2Profile of USSL

Appendix

Memorandum 1

To: Students

From: Instructor

Subject: Negotiation exercise – general information

Each student team will:

An understanding of general business negotiations as well as the Japanese and American approaches to business negotiations is essential for this project. Students are required to research their assigned negotiation style as well as the negotiation style for the other company. Each negotiation team will submit a written (word-processed) report describing the influence of national cultural characteristics on international business negotiations.

The Negotiation Exercise consists of student preparation for the second (hosted by NAC) and third (hosted by USSL) in-class negotiation sessions and the submission of the written negotiated contract. Additional documentation providing guidance will be provided.

The documentation provided by the instructor will identify tentative agreements and each company's undecided issues that will frame the negotiation sessions. Each student in the team representing either the Japanese or American company will receive a grade based upon how close the negotiated outcome is to the team's position with respect to the undecided issues. This grade will be based on the written negotiated contract.

Memorandum 2

To: Students

From: Instructor

Subject: Negotiation exercise – process-oriented information

The following issues are offered as guidelines for a successful negotiation session:

The following information is offered as a suggestion when preparing for the negotiation exercise:

Framework for successful negotiations:

Managing conflict:

Memorandum 3

To: Student in the role of Senior Vice President, Product Placement

From: Instructor

Subject: Negotiation exercise – confidential information: Nippon Automobile Corporation (NAC)

Preparation

Please read the information in the case study and give some thought to what you would recommend as a member of your company's negotiation team. Your challenge is to engage in a successful negotiation. Some issues to consider:

Background

NAC was approached by and has held the first negotiation session with US Shipping Lines, Inc. (USSL) for a possible product transportation agreement. Some very tentative understandings have been reached regarding the general nature of a collaborative arrangement, but a number of details still need to be worked out. NAC's negotiation team will host the visiting USSL entourage during the second negotiation session to discuss these points. NAC expects a return invitation by USSL to host a third session of negotiations.

The topmost need of NAC is to obtain a reliable company to provide ocean transportation for its vehicle exports. This is essential to develop a strong reputation and presence as a provider of vehicles in the US market. The sales distribution and service network is dependent upon achieving this strategic objective. The option of establishing a joint venture with USSL to transport the vehicles is suboptimal because of exploding NAC demand that requires a dedicated focus on manufacturing. NAC can offer its contractual transportation company high volume over an extended period of time.

USSL may be the ideal candidate to become the transportation resource due to its fleet size, technical competence, transportation expertise, service network, quality control, distribution system, general management and business reputation. However, NAC is somewhat concerned that by contracting with USSL other Japanese transportation companies may retaliate.

Four undecided issues remain to be negotiated and NAC's position follows:

  1. the number of USSL RoRo ships dedicated to transporting NAC vehicles should be small, say four at most, given the desire to not commit to a high volume agreement initially;
  2. the number of destination seaports that NAC's vehicles will be shipped to should be three, at least during the first few years of the agreement;
  3. logistics support services provided by USSL should be limited. Any discussion about including ongoing rail and highway transportation from the destination seaport should be subject to another negotiated contract; and
  4. the shipping cost should be at the low end of the $40 to $60 per cubic meter range.

If absolutely necessary and if USSL agrees substantially to demands on Items 1, 2 and 3 above, NAC might consider a slightly higher shipping cost.

Negotiation style

The Japanese national culture is considered to be a high-context culture. High-context cultures are community oriented. Fundamental attributes involve a contemplative and intuitive approach to decision making. Interpersonal relationships are emphasized as an important value. As such, relationship building and developing trust among individuals is a prerequisite for entering into business arrangements. Individual achievement is secondary to developing consensus and promoting group harmony. Individuals in a high-context culture do not resort to logic and reason to gain approval for their decisions but, rather, to intuition and feelings. The context, that is the speaker's tone and body language as well as his or her status, is more important than the literal meaning of the words used in a discussion or speech. Indirectness and formality are hallmarks of a high-context culture. Typically, high-context communication tends to be more indirect and more formal. Ornate and overly elaborate speech and apologies are common. Humility is often displayed. One's word is more meaningful than any written contract. Thus, contracts are distrusted and may be offensive.

It is vitally important that your team exhibit this “culturally-based negotiation style” when interacting with USSL representatives. Guidelines are provided below. Each guideline should be discussed by group members and a plan for how each behavior will be followed should be developed. Prior practice of these prescribed behaviors is essential.

During negotiations you must display group loyalty and behave collectively rather than individually. Decisions should be reached by group consensus. The use of the word “we” is common. Individuals should behave formally and above all be extremely polite. Ceremony is very important as well as addressing all individuals by use of Mr. or Ms. and the person's last name. Business cards are essential. Erect posture, both when standing and sitting, is a must. Bowing to people is an art form and must be done.

Patience is an admirable attribute in a high-context culture. Make every attempt to not make the first concession. Concessions made, if any, should only take place at the end of the negotiation session. Collect as much information as possibly by asking numerous questions about the other company and its products and services. Do not offer information about your company and its products. At NAC tentativeness, vagueness and playing hard to read are standard behaviors. Do not look directly in the eyes of the USSL representatives when talking to them. Facial gazing is considered aggressive and individualistic. In high-context cultures the word “yes” is used to indicate that you hear what is being said and you are attempting to understand the points being made. Do not use the word “no” as it may lead to embarrassment and loss of face. Instead of “no” say “that would be very difficult.”

NAC employees do not display their emotions. As introverts, individuals show neither joy nor disappointment. Remember, laughing is an emotion. It is imperative that you do not openly disagree with a decision or issue that you do not like and, above all, one should never lose his or her temper. NAC employees dislike crude or Machiavellian bargaining tactics such as bluffs, threats and escalating demands. Raw power and excessive logic are not valued personal attributes. When pressed or challenged try very hard not to get flustered and instead of arguing try to change the subject or just remain quiet. The use of pausing in conversations and experiencing periods of silence are common.

Memorandum 4

To: Student in the role of Senior Vice President, Ocean Shipping

From: Instructor

Subject: Negotiation exercise – confidential information: US Shipping Lines, Inc. (USSL)

Preparation

Please read the information provided in the case study and give some thought to what you would recommend as a member of your company's negotiation team. Your challenge is to engage in a successful negotiation. Some issues to consider:

Background

USSL initially approached and has held the first negotiation session with Nippon Automobile Corporation (NAC) on a possible product transportation agreement. Some very tentative understandings have been reached regarding the general nature of a collaborative arrangement, but a number of details still need to be worked out. The negotiation team will soon be attending the second negotiation session hosted by the NAC to discuss these points. USSL would like to wrap up the deal on this trip; but recognizes that a third round of negotiations will need to take place.

USSL's long-range strategic objective is to become a very profitable, innovative, global, full-service transportation and logistics supplier. The executives believe that this leadership position within the global industry is dependent on this contract as well as securing additional similar contracts with manufacturers around the world. A decision has been made to get into the market now, not at some indeterminate time in the future. USSL must accumulate experience and attempt to establish itself as the first and favored service provider to similar global companies.

Providing this service to leading foreign firms seems to make sense. After all, USSL is one of the largest companies within its industry and has more experience than any other firm in the world. These qualifications have made USSL quite an attractive potential partner in the eyes of several foreign industrial manufacturers, including NAC, which is viewed as the upcoming leader in its industry sector.

Four undecided issues remain to be negotiated and USSL's position follows:

  1. the number of USSL RoRo ships dedicated to transporting NAC vehicles should be large, say six or seven given the desire to have a high volume agreement;
  2. the number of destination seaports that NAC's vehicles will be shipped to should be five, at least during the first few years of the agreement;
  3. logistics support services provided to NAC should include ongoing rail and highway transportation from the destination seaport; and
  4. the shipping cost should be at the high end of the $40-60 per cubic meter range.

If absolutely necessary and if NAC agrees substantially to demands on Items 1, 2 and 3 above, USSL might consider a slightly lower shipping cost.

Negotiation style

The United States national culture is considered to be a low-context culture. Low-context cultures rely on logic and linear thinking and are individualistic in nature and action-oriented. People from low-context cultures are informal and direct and develop their arguments based on the evaluation of facts; rather than emotion and intuition. Individuals in a low-context culture use straightforward concise and precise communications and expect what they say to be taken literally. Aggressiveness, impatience and emotional behavior are typical attributes. Detailed contracts are important to reflect the results of negotiated agreements.

It is vitally important that your team exhibit this “culturally-based negotiation style” when interacting with NAC representatives. Guidelines are provided below. Each guideline should be discussed by group members and a plan for how each behavior will be followed should be developed. Prior practice of these prescribed behaviors is essential.

In your negotiations you must act as individuals; not as a group. Each team member is expected to display initiative. The use of the word “I” is common. Consensus building is not a critical value; decisions are determined by the team leader or, in some cases, by a vote among the company representatives. Informal behavior is the norm. Ceremony, tradition and formalized social rules are very uncommon and viewed as unusual behavior that makes others uncomfortable. Thus, the use of first names is valued and handshakes and touching are considered appropriate when greeting a person for the first time.

Time is valued; wasting time is a negative attribute. Delays are not tolerated. Opposition to one's position or decision is frowned upon as it constitutes a potential time delay. The purpose of the negotiation is to discuss a business arrangement to make a profit for the employer. Discussing non-business topics represents non-productive use of time. It is expected that concessions will be made throughout the negotiation sessions. The typical approach is to present an issue, discuss the issue for a limited time, resolve the issue even if a concession has to be made, and then move on to the next issue. An individual should be direct to be most efficient in the use of time. Negative feedback is as important as positive feedback.

People in a low-context culture display their emotions. Individuals do not hide the fact that they may be either happy or angry. As extroverts, individuals typically show that they are confident, assertive and optimistic. Showing warmth rather than reserve is a valued cultural attribute. Risk taking, initiative and the use of power are valued and tends to help advance one's professional career. Tactics include bluffing, threats and warnings.

About the author

Gary A. Lombardo serves as a Professor of Maritime Business at the United States Merchant Marine Academy. Dr Lombardo's academic and professional interests include international business, corporate strategy and corporate finance. He has been invited to deliver seminars and speeches in North America, Europe, Asia, Australia and North Africa. Dr Lombardo has authored or co-authored numerous articles, book chapters, cases and book reviews addressing international business, corporate strategy, corporate finance and pedagogical issues. Dr Lombardo is the Founding Director of the Center for Maritime Studies. He is a former director and officer of several non-profit organizations. Dr Lombardo served as a consultant to US domestic and international businesses. Additionally, he is a Foreign Expert invited to present lectures and seminars at various universities throughout the People's Republic of China. Gary A. Lombardo can be contacted at: lombardog@usmma.edu