Tropicalia B:

Sample Post Negotiation Report

University of Kentucky
1
I. Post-Negotiation Strategy/Entry Report
Entry Mode
Initially the Tropicalian government ante! to focus on improving the strength of our local
firms" increase e#ports from our country" an! increase the technology transfer ithin our country$
It as important to uphol! the esta%lishe! relationships e have %uilt ith the local corporations$
This relationship as not only important for us" %ut also even more important for the local
corporations$ &If you !on't have someone lea!ing the %usiness (locally)" you !on't get
government contacts" e!ucation contact an! political contact* +,hite - Trachten%erg" .//01$
Some specific points liste! in our initial policies !irectly relate! to entry mo!e of multinational
corporations +2N3s1 inclu!e the folloing:
1$ 4#port level of any 5oint venture must not go %elo ./6
.$ 7oans ill %e availa%le for 5oint venture pro5ects %eteen 2N3s an! local firms
+for a full policy report" please see figure 11
8fter initial negotiations" e ere not successful in initiating an international 5oint venture
%eteen our local firms an! a multinational corporation$ 8t first" our strategy as to approach
Tanaka an! 4uro!ata as soon as possi%le an! e#plicitly esta%lish are government policies
+figure11$ ,e !i! not mention anything a%out negotiating our policies !uring our first contact
ith 4uro!ata or Tanaka" %ut ere illing to change several policies in or!er to lan! a !eal to
%enefit our country's economic situation$ 8fter %eing re5ecte! or %lon off %y %oth 4uro!ata an!
Tanaka" e 9uickly reali:e! e might have to make amen!ments to our e#isting entry mo!e
strategy an! relate! policies in or!er to achieve our ultimate goals$
8lthough our government as not supportive of holly one! su%si!iaries +,;S1 in our
country" e ere approache! ith a !eal e coul! not pass up$ 8fter %eing re5ecte! %y %oth
4uro!ata an! Tanaka" 2egatronics" Inc$ as illing to negotiate a !eal ith us" %ut only if they
coul! operate as a ,;S in our country$ Keeping in min! the roots of our policy" e initially
hesitate! a%out this %ecause e ere not sure if this oul! %e the %est entry mo!e strategy an!
the %est choice for our government an! our local firms$ 8fter a %rief !iscussion" hoever"
2egatronics state! they 5ust ante! to %uil! a finally assem%le plant in Tropicalia rather than a
full pro!uction plant$ This !eal oul! create 5o%s for our citi:ens an! at the same time" increase
our e#ports an! strengthen our currency$ 8ll of these issues ere congruent to our initial strategy<
therefore e ere illing to accept a ,;S un!er certain con!itions" hich ill %e later
!iscusse! in the transaction report$ 8lthough a ,;S oul! ultimately give 2egatronics total
control over the plant in our country" %ecause of hat the plant oul! %ring to our country" e
ere illing to accept the !eal$ In a!!ition" e felt that %ecause 2egatronics oul! only %e
%uil!ing a final assem%ly plant" it oul! not affect our relationship ith local firms %usiness$
The other strategic issue e ha! to negotiate as the =>?merge !eal that took place %eteen
SysTrop an! Tropimatics$ Sysmatics as forme! as a =oint >enture %usiness %eteen the to
local firms ith the intent to merge ithin five years$ @rom a governmental stan!point" e ere
totally receptive to the 5oint venture an! thought it oul! help contri%ute to the goals of our
country$ ,e actually thought %y SysTrop an! Tropimatics forming a =>" the firm oul! have a
%etter opportunity to enter into an international 5oint venture ith 2egatronics" Tanaka or
4uro!ata$ The => %eteen SysTrop an! Tropimatics oul! later ork to our a!vantage hen
Sysmatics ma!e a %i! on the ne technology +please see figure A for specifics of !eal1$
.
International Strategy
8lthough our government !i! not e#plicitly create an international strategy" it as important to
have certain goals in min! hen e approache! %usiness !eal$ ,e !eci!e! all !ecisions an!
contracts forme! oul! support a transnational approach$ ,e ha! to keep in min! that e not
only ante! to help out local firms" %ut also ant to improve our country's economic state$ 8
transnational approach oul! allo us to focus on glo%al !evelopment" as ell as local
!evelopment$ Ultimately our overall goal as to focus on alloing certain amen!ments in our
policies in or!er to cater to %oth our local nee!s an! glo%al nee!s$ @or e#ample" e agree! to
loer the corporate ta# rate for Sysmatics in the first ten years of their pro!uction agreement
ith 2egatronics Inc$ in or!er to increase e#ports form our country an! to create numerous 5o%s
for our country$ If e ere unilling to negotiate on the ta# rate" Sysmatics oul! have face!
possi%le %ankruptcy an! it oul! have !estroye! our local economy$
8s a government" it as also important e keep in min! several leveraging factors that e
oul! %e a%le to use as part of our strategy$ ,e serve! as %oth a threat an! an opportunity for
the local firms an! the 2N3s$ There ere several factors e ha! to keep in min! !uring
negotiations to use in our favor$ The folloing actions potentially ha! an affect on %oth the local
firms an! the 2N3s:
1$ regulation B e ha! to a%ility to increase or !ecrease costs
.$ ta#ationC e ha! the a%ility to increase returns for our government" %ut also the a%ility to
create a competitive a!vantage for firms over their competition
0$ e#pen!iture B our government coul! create a competitive a!vantage or !isa!vantage
%ase! on ho e aar! grants an! loans to
D$ privati:ation B e ha! the potential to increase competition
E$ consultation B e provi!e! %usinesses the opportunity to influence government policy or
an opportunity for the government to manipulate the local firms
+Source: International 2anagement" 3hapter 1.CStrengthening International Fovernment Relations1
8t times !uring the negotiations" e reali:e! that e ere %ecoming too involve! in negotiations
%eteen local firms an! 2N3s an! nee!e! to step %ack a little$ 8lthough e ere concerne! a%out
certain issues +i$e$ ta# rate" tariff rate1 in possi%le contracts %eteen local firms an! 2N3s" e ha! to
remem%er our goals an! o%5ectives as a government an! focus on e#ports" 5o%s an! tariffs$ By esta%lishing
a transnational approach as a gui!e !uring our negotiations" e ere a%le to stay on tract an! negotiate
specific issues relating to our government policies$
Organizational Structure
8 government can not !etermine! the specific structure of a firm or the specific organi:ational
structure of a 5oint venture" %ut e suggeste! gui!elines e oul! like the local firms an! 2N3s
to honor$ ,e %elieve a mistake e ma!e in our preCnegotiation policies as that e !evelope!
our policies almost as if e ere a local %usiness" rather than a government$ Instea!" e shoul!
have put less emphasis on e9uity onership an! specific value chain activities" an! put more
emphasis on tariffs" ta# an! e#port strategies$ @inal !ecisions on organi:ational structures of the
=> of SysTrop an! Tropimatics ere to %e !eci!e! ithin the organi:ation$ Goever" e have
constructe! an overall country organi:ational %usiness structure" hich creates a picture of ho
our country's %usiness structure has !evelope! from preCnegotiation +figure .1 to postC
negotiation +figure 01$ The structure inclu!es the => of SysTrop an! Tropimatics an! the outC
sourcing !eal ma!e %eteen 2egatronics an! Sysmatics$
0
Future Policies Package
Before negotiations starte!" e ante! to take a strong stance an! only negotiate specific
policies hen force! to$ 8s mentione! earlier" e 9uickly foun! out this oul! not %e the %est
strategy for our government an! e !etermine! e oul! have to take a more negotia%le role in
or!er to %enefit in the long run$ Belo are specific policy packages constructe! !uring
negotiations$
Policy Package with Megatronics
Huring negotiations" there ere %asically to policy packages that ere create!" %ut in the en!"
the to !eals merge! an! colla%orate! into one large policy package$ The first !eal as the
package assem%le! for 2egatronics$ 4ssentially" e starte! off the negotiation trying to keep a
D/6 import tariff" a 0/6 corporate ta# rate ith no ta# holi!ay" an e#port level of at least AE6"
re9uire a social responsi%ility program" an! !eman! that 2egatronics remain in our country for
at least 1I years$ 8fter a rather frien!ly negotiating process ith 2egatronics" there ere several
amen!ments to the initial contract$ ,e ere a%le to negotiate a policy package that oul! %e
%eneficial to 2egatronics an! to us$ Specifics of the !eal ill %e later !iscusse! in the transaction
report$ +see figure D - E to compare pre an! post contract ith 2egatronics Inc$1
Policy Package with Sysmatics
The secon! policy package as negotiate! %eteen Sysmatics an! ourselves$ Sysmatics ante!
us to !ecrease corporate ta# rate to 1/6 over a perio! of ten years" ith an increase in ta# rate
over the ne#t five years until it reach 0/6 %y year fifteen$ Sysmatics also insiste! that e
contact the ,T; in or!er to re!uce tariffs %eteen Tropicalia" =apan" 4U an! US$ ,e ere a%le
to negotiate the 1/6 for ten years ith Sysmatics %ecause of the amount of 5o%s that oul! %e
create! an! the increase in e#ports from our country$ By increasing e#ports" e ill %e a%le to
strengthen our currency an! compete on a glo%al scale$
Future Negotiations and Policy Packages
In future negotiations ith other 2N3s ho ant to enter our market" e ill %e more illing to
ork on specific issues in or!er to have a inCin situation$ ,e have reali:e! through this
e#perience that e may have to approach negotiations in a less concrete manner$ ,e ill
continue to %e consistent ith certain issues" such as ta# holi!ays" %ut ill %e more lenient in
other areas such as tariff re!uctions$ Ultimately" e ant 2N3s to %e a%le to form future =>
ith our firms" in or!er to use the technology that are local firms ac9uire! in an effective manner$
,e are also committe! to allocating fun!s to %uil! a government one! R-H facility$ The
facility ill %e availa%le to local firms an! ill hopefully help re!uce our country's !epen!ency
on 2N3s for technology$ ;ur ultimate goal is to !evelop a state of the art R-H facility" an!
allo our local firms to function ithout !epen!ing on a 2N3 for technology transfer$ ,e ill
use a percentage of the money earne! on ta# revenue to put toar!s a ne facility$ 4ach policy
package offere! in the future to other local firms ho start up %usinesses or other 2N3s ho
ant to enter our market ill %e in!ivi!ually tailore! accor!ing to our nee!s at that specific time$
Hepen!ing on ho our relationship continues ith 2egatronics" e may not see a nee! to %uil!
other ma#i plants in our country$ Instea!" e may have to fin! partners ho oul! %e illing to
%uil! a mini or stan!ar! plant" hich ill continue to serve our local economy an! a!! 5o%s$
There are several policies e have chosen to amen! for future negotiations:
D
Re!uction of import tariff to ./6 in or!er to %e competitive ith other countries in
4#otica +may negotiate !epen!ing on priority of pro5ect1
,illing to accept a ta# %reak for high priority pro5ects +i$e$ 1/6 for ten years1" %ut ill
only allo ta# holi!ays for high priority pro5ects an! ill only allo up to a ECyear ta#
holi!ay$ Stan!ar! corporate ta# rate ill remain at 0/6
8ll firms +local an! 2N3s1 ill implement a corporate social responsi%ility program
4#port levels ill %e set at J/6 +this may %e negotia%le !epen!ing on the pro!uct1
Value !ain "cti#ities
It is !ifficult to comment on value chain activities %ecause e are not aare of specific activities
negotiate! ithin Sysmatics" an! the !eal they constructe! ith 2egatronics$ 8lthough
marketing activities" human resource activities an! hea! 9uarters' location are not as important to
our o%5ectives as government" pro!uction activities an! R-H activities are very valua%le to our
country an! these activities nee! to continue to %e !evelop over the ne#t ten years$ It is necessary
that Sysmatics continues to e#pan! their R-H facilities an! also maintain 9uality an! efficient
pro!uction in Tropicalia$ ,ith the future R-H facility e are constructing" as ell as the
technology ac9uire! %y Sysmatics" Tropicalia ill hopefully %ecome a technology lea!er in the
microanaly:er market$
II. Negotiations
E
Monday $/%&/'(
3ontact 2o!e: In person
Parties: @INS Roun! B" minus 2egatronics B
Time?Place: 1.:0/ P2" B-4 B8 I1/ classroom
@orm: 2ultilateral Summit
Issues:
The Para!iso governments suggeste! a free tra!e agreement" hoever no specific !etails
ere put on the ta%le" nor as there an effort to create any specific !etails$
,e !istri%ute! our government policies to the 2N3s an! local firms$ ,e approache!
Tanaka B a%out the possi%ility of creating a => ith a Tropicalian local firm$ ,e ere
imme!iately re%uffe! for our economic policies" ith no effort to negotiate any points$
4uro!ata B ignore! any our efforts to speak ith them$
;ur local firms ere also ignore! %y the 2N3s an! the Para!iso players" so all
Tropicalian players left an! convene! in a room across the hall$
Strengt!s: ,e entere! ith a !efine! list of government policies
,eaknesses: Summit very !isorgani:e!" our policies seeme! to concrete an! possi%ly scare!
aay the 2N3s$
Issues ,on?7ost: ,on B none$ 7ost B no 2N3s oul! !eal ith us" technology transfer policy
vehemently oppose!$
$/%& )continued*
3ontact 2o!e: In person
Parties: Tropicalian 4mpire" SysTrop" Tropimatics
Time?Place: 1:// P2" B-4 across the hall from the summit
@orm: 2ultilateral
Issues:
,e tol! the local firms they ha! our full support an! our !esire to help them ac9uire ne
technology so they coul! %ecome a ma5or microanaly:er firm" there%y creating 5o%s"
increasing e#ports" an! helping to sta%ili:e the economy +an! accomplish our overall
strategy1$
SysTrop an! Tropimatics !eci!e! to create a 5oint venture together calle! Sysmatics an!
collectively %argain as one firm for the rest of the @INS negotiations$
Tariff policy as negotiate! ith Sysmatics$
Plans ere ma!e to contact Tanaka an! 4uro!ata" even though they ignore! us" an! see
hat kin! of Tropicalian government package they nee!e! in or!er for them to consi!er
Sysmatics as a => partner$
Strengths: 8ll parties ante! to help each other out$
Issues ,on?7ost: ,on B Kept tariff on importe! su%assem%lies an! complete microanaly:ers at
D/6$ 7ost B Tariff on components re!uce! to 1/6$
+uesday $/$'/'(
3ontact 2o!e: 4mail
Parties: Tropicalian 4mpire an! Sysmatics
Su%stance: Sysmatics informe! us they oul! %e meeting ith 2egatronics" Tanaka" an!
4uro!ata in!ivi!ually on 0?01 at 1.:0/ in B-4 on the thir! floor$
,ednesday $/$-/'(
3ontact 2o!e: In person
I
Parties: Tropicalian 4mpire" Sysmatics" 2egatronics" Tanaka
Time?Place: 1.:0/ P2" B-4 thir! floor
@orm: 2ultilateral
Issues:
,e put forth an effort to encourage a => ith Sysmatics$ ,e ante! to kno if there
as anything the government coul! !o to persua!e 2egatronics to create a => ith
Sysmatics$ 2egatronics firmly tol! us they oul! only !o a hollyCone! su%si!iary
+,;S1 in Tropicalia if anything at all$
,hile Sysmatics !iscusse! among themselves" e 9uietly set up a meeting time ith
2egatronics to !iscuss the possi%ility of a ,;S an! negotiate our re9uirements$
,hen Tanaka arrive!" they tol! us they alrea!y signe! a !eal ith Para!iso$ Goever"
they oul! still consi!er a => if Sysmatics on the technology %i!$
,e tol! Sysmatics e oul! help them finance their %i! ith a government loan$
Strengths: 8ll parties ere illing hear each other out$
Issues ,on?7ost: No issues ere on or lost" merely !iscusse!$
$/$- )continued*
3ontact: Telephone
Parties: Tropicalian 4mpire an! Sysmatics
Issue: Sysmatics informe! us they ran some num%ers an! ha! an amount they ante! to %orro$
The amount as reasona%le an! e agree!$ Tenty minutes later" e receive! another
call from Sysmatics" ho tol! us they ante! to %orro more than they ha! previously
tol! us$ ,e ha! faith in them an! ante! them to in the %i!" so e agree! to the ne
amount$
Strengths: 2utual cooperation an! aligne! goals$
Issues ,on?7ost: Both parties on$ The loan amount as reasona%le an! oul! help the local
firms compete
+!ursday (/-/'(
3ontact 2o!e: In person
Parties: Tropicalian 4mpire an! 2egatronics
Time?Place: 1/:0/ 82" 2B8 3enter
@orm: Bilateral
Issues:
This as a !eparture from our inten!e! strategy of technology transfer from a =>$
Goever" having hear! Sysmatics on the technology %i! an! knoing it re!uce! the
num%er of potential 5o%s to %e create!" e !eci!e! to allo 2egatronics to create ,;S
in or!er to create 5o%s in Tropicalia$
,e negotiate! the ta# holi!ay" ta# rate" e#port amount" an! tariffs$ 8 press release as
sent out to announce our ne agreement ith 2egatronics +@ig I1$ 8 contract as signe!
+@ig E1$
Strengths: ,e ere ell prepare! an! !i! not allo 2egatronics to !ominate$
,eaknesses: ,e felt e nee!e! 2egatronics more than they nee!e! us$
Issues ,on?7ost: ,on B e#port amount of J/6$ 7ost B ta# rate issue" alloe! a ,;S instea! of
inten!e! =>$
(/- )continued*
3ontact 2o!e: In person
K
Parties: Tropicalian 4mpire" Sysmatics" Tanaka" an! 4uro!ata
Time?Place: 1:DEP2" 2B8 3enter 7ounge
@orm: 2ultilateral
Issues:
,e ha! one minister at the meeting to support Sysmatics$ Goever" no significant issues
concerning the government arose hile the minister as present$
Sunday (/(/'(
3ontact: In person
Parties: Tropicalian 4mpire an! Sysmatics
Time?Place: I:0/ P2" B-4 computer la%
@orm: Bilateral
Issues:
,e negotiate! the ta# policy ith Sysmatics$
4mail sent to ,T; to re9uest tariff re!uction %y US" 4U" an! =apan$
Strengths: Gigh level of cooperation %eteen parties
Issues ,on?7ost: ,on B ta# issue$ 7ost nothing$
.se o/ Media
,e use! the Fatton Press three times$ @irst" announcing our !eal ith 2egatronics
+figure I1$ Secon!" announcing our plan ith the ,T; to re!uce tariffs %eteen the US" 4U"
=apan" an! Tropicalia +figure 1.1$ Thir!" e sent the Fatton Press the final !etails of our
involvement in the SysmaticsC2egatronics !eal$ ,e !i! not actively seek out the press or use
them to !istri%ute information other than our announce! !eals" as e felt they provi!e!
inaccurate an! untruthful information in their nes releases$
.nresol#ed Issues
;ur only unresolve! issue at the en! of the simulation as the Para!iso governments ha! not
gotten %ack to us a%out our proposal to the ,T;$ ,e nee!e! the approval of at least one of the
Para!iso governments in or!er for the ,T; to approve the !eal$ Goever" !uring the @INS
!e%riefing" it %ecame apparent to us that neither government oul! have approve! the !eal$
+please see figure 11 for !etaile! timeline of our negotiations1
III. Post-Negotiation +ransaction Report
J
"gree0ents/ontracts
Megatronics
,e" the 2inisters of Tropicalia B" met ith the 2egatronics representatives at the secon!
4#otica B Summit on 2arch 01" .//D$ ,e ha! not inten!e! to meet ith 2egatronics" %ut hen
!eals ith 4uro!ata an! Tanaka ere not coming to fruition" e !eci!e! to see hat
2egatronics ha! to offer$ ,hen e ent into the negotiation" our intent as for the 2N3 to
form a 5oint venture ith one or %oth of our local firms$ The company as a!amantly oppose!
to this an! oul! negotiate over nothing other than a ,;S$ Because e currently ha! no other
options on the ta%le" e agree! to negotiate$ ;ur strategy as to help the local firms ith
technology transfer" increase e#ports" an! help the economy" so e kne that ithout any
2N3s" none of our goals for the country oul! %e achieve!$ 8t the Summit" e !iscusse! the
options of a ,;S +final assem%ly only1" a ta# holi!ay" an! a large percentage of pro!uction
%eing e#porte!$ 2egatronics ha! not yet met ith the Para!iso government an! ante! to !o so
%efore they signe! a contract ith us$ ,e !eci!e! to meet the ne#t !ay to propose an offer to the
2N3$
The meeting on 8pril 1 as a huge success< a contract as !ran up an! signe! +see figure E1$
The main purposes of the pro5ect from our point of vie ere: to increase e#ports" minimi:e the
2N3s interference?competition ith local firms" increase the num%er of 5o%s in Tropicalia" an!
increase the strength of our ne currency" the Palma$
8s a result of the !eal" 2egatronics ill operate a ,;S +ma#i plant1 in our country" ith half of
the materials for plant an! e9uipment %eing purchase! ithin Tropicalia$ ,e ante! this in the
contract so more sectors of the economy" for e#ample construction" ill reap the %enefits of the
!eal$ 8lso" a si#Cyear ta# holi!ay has %een impose!" %ut not ithout an agreement to stay in
Tropicalia for at least 1I years$ ,e !i! not ant the 2N3 to collect profits ta#Cfree for si# years
an! then close the plant< that coul! %e !evastating for our economy$ In year seven" a 1E6
corporate ta# ill %e applie!" folloe! %y a ./6 ta# in year J" reaching the stan!ar! 0/6 for
each year after that$
8 re!uction of tariffs as very important to 2egatronics$ ,e agree! to eliminate tariffs on
importe! items use! in the manufacture of e#porte! items %ecause increasing e#ports as" an! is"
one of our main concerns$ Goever" a E6 tariff ill %e applie! to all importe! parts use! to
pro!uce microanaly:ers that ill %e sol! in Tropicalia$ This as !one to protect our local firms<
they have first claim on the Tropicalian market$
Since e#ports ere high on our list of priorities" e ante! 2egatronics to e#port at least AE6 of
microanaly:ers pro!uce! in Tropicalia$ They oul! not agree to this %ecause they see Tropicalia
as a large market for them$ Therefore" e compromise!< 2egatronics must e#port at least J/6
+never to !rop %elo this level1 of microanaly:ers pro!uce! in this country$ 8lso" %y e#porting
an! orking more on a glo%al scale" e felt this oul! increase the strength of the Palma$
Increases in e#ports from Tropicalia shoul! also make the country more visi%le an! attractive to
future 2N3s consi!ering a %usiness relationship in 4#otica$ Because e ant any !eal ith a
2N3 to %enefit as many aspects of our economy as possi%le" it is stan!ar! operating proce!ure
that any company !oing %usiness ithin Tropicalia have a social responsi%ility policy$
2egatronics must have such a policy an! has agree! to uphol! this responsi%ility throughout the
time it operates here$ Pleasantly enough" the 2egatronics representatives ha! no pro%lem ith a
social responsi%ility policy< this helpe! to put us more at ease that e are !oing %usiness ith a
A
highC9uality company$ ,e are not alone in this sentiment< in a report to the Fatton Press" =ustin
8ram%asic" 3hief 4#ecutive of Strategic ;perations at 2egatronics" sai!" &,e foresee a %right
an! prosperous future ith them (Tropicalia)$*
Local Firms: Sysmatics (SysTrop and Tropimatics JV
8t the first 4#otica B Summit on 2arch .A" .//D" our local firms" SysTrop an! Tropimatics"
re9ueste! a private meeting$ They informe! us of their plan to create a 5oint venture +Sysmatics1
ith the plan to eventually merge an! %ecome a 2N3$ Because e sa this as a potential %oost
for the economy +a huge company involve! in e#ports an! foreign investment oul! create 5o%s
across in technology an! pro!uction sectors1" e supporte! the 5oint venture holeChearte!ly$
Sysmatics aske! that e loer the import tariff from our previously state! D/6 rate$ 8fter little
!eli%eration" e agree! to impose a 1/6 import tariff on components" maintaining a D/6 import
tariff on su%assem%lies an! complete! microanaly:ers +figure J1$ ,e !i! this to in fact protect
the local firms from 2N3s ho may ant to import su%assem%lies< e ante! 2N3s to have
our local firms pro!uce those units$ 7ittle !i! e kno e oul! soon %e loering an!" in the
case of e#porting" eliminating tariffs for 2egatronics$ The 1/6 tariff for local firms as
inten!e! to generate revenue for the country hile promoting !evelopment an! pro!uction %y
Sysmatics$
,hile the agreements ith Sysmatics stoo! to %enefit the local firms" the Tropicalian
government as not in a compromise! position$ ,e ante! to increase technological
!evelopment in the country$ By alloing the to firms to merge" e coul! foresee the potential
for the companies to pool their resources to more rapi!ly achieve a!vances in technology$ 8lso"
%y re!ucing the import tariff rate on components" e simultaneously strengthene! ties ith the
local firms$ Re!ucing tariffs oul! have little impact on the flo of money into the country
assuming the ne 5oint venture coul! secure a !eal ith a large multiCnational$ In the future" if
e shoul! nee! help from the local firms" e are certain they oul! have no pro%lem helping us
as e ha! helpe! them$ In other or!s" it as partly a strategic move to !ecrease the tariff rate$
In a!!ition" a larger" more a!vance! firm ith loer import tariffs oul! make Sysmatics more
attractive to a 2N3 consi!ering a %usiness relationship in Tropicalia$ This oul! in turn create
more 5o%s an! help the economy$
;n 2arch 01" Sysmatics came to us asking for a loan so it coul! %i! on the ne pro!uction
systems technology from the University of Kentucky's 3enter for Ro%otics an! 7ean
2anufacturing$ ,e agree!" an! Sysmatics on the technology ith a %i! of LIE/ million$
Therefore" e have aar!e! them a loan in the full amount of LIE/ million +figure A1$
Sysmatics and Megatronics
;n or a%out 8pril 0" 2egatronics entere! into an agreement ith Sysmatics in or!er to take
a!vantage of the ne technology$ ,e ere initially concerne! the contract oul! violate the
agreement %eteen 2egatronics an! the Tropicalian government an! ha! contacte! the
government's layers in case a %reachCofCcontract case shoul! ensue$ Goever" e ere
please! to fin! the ne contract simply e#tenuate! the previous one$ No layers oul! %e
nee!e! at this time$
8ccor!ing to the contract %eteen the local => an! the 2N3" Sysmatics ill manufacture
microanaly:ers an! sell them %ack to 2egatronics$ 8lthough e !i! not take part in the contract"
e have o%taine! a copy of it +figure K1$ Briefly" 2egatronics ill %uil! four fully functioning
assem%ly ma#i plants in Tropicalia$ 3om%ine!" the four plants ill create a total of D/// ne
1/
5o%s %y year four$ 8lso" %ecause 2egatronics ill take full control of the four ne ma#i plants
after ten years" the 2N3s corporate income ta# rate for those plants ill increase to 1E6" ./6"
an! 0/6 in the 11
th
" 1.
th
" an! 10
th
years" respectively$ ;verall" all contracts signe! into effect in
Tropicalia shoul! have positive implications for the economy$
Non-"gree0ent 1rie/ing
Tanaka
Tanaka as the first 2N3 e met at the first Summit$ Muickly an! informally" e approache!
Tanaka a%out forming a 5oint venture our local firms$ They ere a!amantly oppose!$ Goever"
ami! the chaos" e 9uickly gave them a list of our government policies on our ay to a private
meeting ith our local firms$ ,e ver%ally agree! to meet later to see if e coul! come to some
sort of an agreement$
8fter meeting ith our local firms" e approache! Tanaka again an! re9ueste! that they meet
ith our local firms an! us$ They replie! that they ere currently entertaining another offer an!
oul! 5oin us in a fe moments$ Several moments passe!" Tanaka never arrive!" an! later that
afternoon e foun! out Tanaka ha! signe! a contract ith one of the Para!iso countries$ Their
reasoning as that they looke! over our list of policies an! rule! Tropicalia out %ecause they felt
the tariffs ere too high +at that time liste! as D/6 for all imports1" they oul! not %e illing to
create a 5oint venture" an! they oul! most certainly not pro!uce the logic unit in Tropicalia$ 8ll
of these policies ere high on our list of priorities" %ut none ere set in stone$ Nee!less to say"
e ere !isappointe! Tanaka oul! not even negotiate ith us %efore eliminating us as a
possi%ility$ The policies e initially set ere negotia%le" as are many things in %usiness$
8t the secon! Summit" one of the Tanakan representatives met ith Sysmatics an! us as a
goo!ill effort to entertain the possi%ility of some sort of agreement in Tropicalia$ Goever"
Tanaka as not illing to engage in technology transfer of any kin!$ This oul! %e necessary
for Sysmatics to gain any %enefit from Tanaka$ No agreement as ma!e an! Tanaka ma!e plans
to remove all %usiness from Tropicalia" placing all efforts in Para!iso$
!urodata
Relations ith 4uro!ata ere !isappointing at %est$ 8lthough e trie! several times to sche!ule
a meeting ith the 2N3s representatives" they oul! not meet ith us$ In fact" at the first
Summit" one of the 4uro!ata representatives shut the !oor on the Tropicalian 2inister of
Technology Hevelopment's face$ ,e felt this as ru!e an! a clear signal they ere not an#ious
to engage in negotiations ith us$ 8lthough e continue! throughout the eek to meet ith
them" e felt there as little chance for a contractual agreement$ Therefore" although e never
rule! 4uro!ata out completely" e put more of our efforts into securing a !eal ith 2egatronics$
If a company oul! e#ert so little effort into meeting ith us" there as a high chance they
oul! place little priority on any plant they may %uil! in our country$ Shoul! a 2N3 come into
Tropicalia" sustain operations for only a fe years" an! then leave une#pecte!ly" our economy
oul! %e !evastate!$ Therefore" e ante! to negotiate ith a 2N3 that shoe! enthusiasm
an! ha! a longCterm plan for operations in Tropicalia$
The "o#ernment o$ Paradiso South (and North
11
;n 8pril 1" the Para!iso South Fovernment approache! us ith a proposition of a free tra!e
agreement %eteen Para!iso South" Para!iso North" an! Tropicalia$ The reasoning as that !ue
to the e#pecte! importing an! e#porting activity of 4uro!ata an! Tanaka %eteen the countries"
everyone oul! %enefit$ The agreement oul! apply only to 2icroanaly:ers" their
su%assem%lies" an! their components$
The ne#t !ay" e respon!e! ith a resoun!ing &no$* ,e !i! not ant to !rop all tariffs" %ut ere
illing to agree to a :ero tariff rate on all e#porte! pro!ucts$ ,e further offere! to loer our
import tariff rate to E6" hich oul! %e loer than that of the U$S$" 4urope" or =apan$ ,e ere
in fact illing to negotiate on the possi%ility of a E6 tariff to %e applie! only on components"
ith a :ero tariff rate on su%assem%lies an! microanaly:ers$ ,e felt this as more than fair"
given neither 4uro!ata nor Tanaka as illing to pro!uce in Tropicalia$ ,e ante! to maintain
some tariff rate in or!er to keep some money floing into the Tropicalian economy$
Neither Para!iso country ante! to go further into negotiation procee!ings$ 8s a result" neither
4uro!ata nor Tanaka oul! e#port into Tropicalia$ 8lthough this coul! have %een a !etriment to
our country" it oul! actually create an a!vantage for our local firms an! 2egatronics$
The %T& and Paradiso North and South
;n 8pril D" e ere approache! %y Sysmatics to help 2egatronics since the to companies ha!
recently come to an agreement$ ,e applau!e! the goo!ill effort ma!e %y Sysmatics an!
!eci!e! to try to appeal to the ,T;$
Sysmatics aske! that e negotiate !on the import tariff rates ith the U$S$" 4urope" an! =apan$
The company sai! it oul! encourage 2egatronics to manufacture more microanaly:ers in
Tropicalia" therefore alloing Sysmatics to increase e#ports$ This loer tariff oul! create a
inCin situation for %oth firms$
7ater that !ay" e propose! to the ,T; that the 1/6 import tariff ith the U$S$" 4urope" an!
=apan %e loere! to E6$ ,e chose to propose a !ecrease of E6 %ecause e !i! not %elieve the
,T; oul! approve a !ecrease of more than that amount$ Fiven time constraints" e ante! to
propose hat e sa as a feasi%le option that oul! %e approve! ith little !elay$
,e ere shocke! an! pleasantly surprise! hen the ,T; respon!e! ith an offer to entirely
eliminate import tariffs for the U$S$" 4urope" an! =apan on items pro!uce! in Tropicalia$
Goever" the catch as that at least one voting country in 4#otica" either North or South
Para!iso" ha! to agree to this$ @urther" Tropicalia an! one of those other 4#otica countries ha! to
agree to re!uce tariffs on imports from the U$S$" 4urope" an! =apan into the 4#otica countries$
Unfortunately" neither North nor South Para!iso oul! agree to this$ ,hen aske! hy they ere
not in favor of such an agreement" they cite! a lack of perceive! %enefits for their countries$
This as un!erstan!a%le since the proposition to the ,T; as not inten!e! to inclu!e the
reciprocal tariff re!uction$ Goever" these propositions ere ma!e the evening prior to the
closing !ate of negotiations$ Ga! the propositions %een ma!e earlier in the negotiations" perhaps
some agreement coul! have %een ma!e among all countries involve!$ This coul! have tie! in
smoothly to the earlier tariff proposition ma!e %y the Para!iso governments" %ut %ecause it !i!
not" there as no agreement$ Such is %usiness$
1.
IV. Outco0e report2 In/luence o/ policy package on entry 0ode and strategy
;ur policy package that e e!ite! for the preCnegotiation report !i!n't have much influence on
hat really happene!$ Its influence has %een su%stantial in the sense that some 2N3s have %een
reluctant to enter our market %ecause of this package$
The main goal of this package as to attract a 2N3 to %enefit from technology transfer to help
out our local companies$ 8fter these companies merge!" the inten!e! strategy as still relevant
%ut no 2N3 as intereste! %y a =oint >enture$
,e think that this package +figure 11 has %een the reason hy Tanaka !eci!e! not to !o %usiness
ith us$ In fact" it !i!n't ork %ecause of an o%vious lack of communication$ In!ee!" the !eal e
ma!e ith 2egatronics Inc$ shoe! that e have %een more than fle#i%le on the issues
!evelope! in this package$
The !eal ith 2egatronics Inc$ !oesn't respect the terms of the policy package %ecause e
consi!ere! the offer of 2egatronics attractive an! consistent ith our inten!e! strategy of
promoting local companies$ So even if our policy package re9uire! a 5oint venture agreement
ith limite! onership from 2N3s" the reality has %een totally !ifferent an! this has %een
achieve! through intense negotiations ith 2egatronics Inc" Sysmatics an! Tropicalia in a inC
in perspective$ This contract as still consistent ith our illingness to support our local firms
since e re9uire! that at least J/6 of the pro!uction oul! %e e#porte! +see figure E1$ In fact"
this first !eal helpe! to facilitate the !eal %eteen Sysmatics an! 2egatronics$ In our o%5ective to
help them out" e supervise! this agreement$
The policy package !i!n't really impact the entry mo!e since e succee!e! in fin!ing another
alternative through negotiation %ut our policy package has alloe! us to en! up the negotiations
ith something close to our strategy$ It seems that the most influential part of our policy package
as tariffs +see figure 11$ That's the reason hy e are planning on %eing more fle#i%le in a
future policy package to su%mit to other companies ishing to enter our market$
2oreover" our re9uire! onership structure! might have %een felt repulsive %y some 2N3s like
Tanaka or 4uro!ata %ut they !i! a %ig mistake in the en! since our market is too large to %e
ignore! an! the !eal e ma!e has %een !one ith theoretically the most &infle#i%le* company$
The result is that 2egatronics Inc$ ill sell micro analy:ers alone in the %iggest e#otica market$
;ur ta# policy !i!n't impact that much on the strategy$ Goever" %y not granting a ta# holi!ay to
Sysmatics" e ill no %e a%le to finance our longCterm focus of technology !evelopment in
Tropicalia through a ne stateCone! R-H center$
3oncerning our tariff policy" e alrea!y sai! that the D/6 tariff seeme! to %e the principal
reason hy some companies !i!n't ant to enter into Tropicalia$ Nevertheless" e think that our
financing policy has assiste! the success of Sysmatics to in the technological %i! hich has
%een goo! for the hole negotiations since it ena%le! Sysmatics to pro!uce at a loer cost$ ;ur
patent policy that specifie! that patents oul! %e o%taine! initially for 1E years ith a possi%le
1/Cyear e#tension perio! has certainly please! 2egatronics Inc$ hen e signe! the first !eal
ith them$
@inally" even if some aspects of our policy package ere too restrictive" it prove! not to %e an
insurmounta%le o%stacle to achieve a contract that %enefits our hole economy an! that ill help
us in the future to reach our ultimate goal: !evelop highCtech in!ustries ithout relying on 2N3s
10
Pro3ections o/ ta4 earnings5 in#est0ents and 3o6s created in +ropicalia
Ta# rate +per year1
Sysmatics Near 1 to 1/ 1/6
2egatronics inc$ Near 11 1E6
Near 1. ./6
ONear 1. 0/6
Sales price L0"1//
IN USH
Near 1 . 0 D E I K J A 1/
Plant %uilt 1 1 1 1
=o%s create!
Logic 'nit Su(assem(ly .// .// .// .//
)nput 'nit Su(assem(ly .// .// .// .//
&utput 'nit Su(assem(ly .// .// .// .//
Final *ssem(ly D// D// D// D//
*ccumulated +o(s created 1"/// ."/// 0"/// (5'''


Pro!uction 1//"/// .//"/// 0//"/// D//"/// D//"/// D//"/// D//"/// D//"/// D//"/// D//"///

Turnover reali:e! 01/"///"/// I./"///"/// A0/"///"/// 1".D/"///"/// 1".D/"///"/// 1".D/"///"/// 1".D/"///"/// 1".D/"///"/// 1".D/"///"/// 1".D/"///"///

+a4 earnings $-5'''5''' 7%5'''5''' &$5'''5''' -%(5'''5''' -%(5'''5''' -%(5'''5''' -%(5'''5''' -%(5'''5''' -%(5'''5''' -%(5'''5'''
4arnings from Investments
+purchase! ma!e locally1
Logic 'nit Su(assem(ly .E"///"/// .E"///"/// .E"///"/// .E"///"///
)nput 'nit Su(assem(ly ./"///"/// ./"///"/// ./"///"/// ./"///"///
&utput 'nit Su(assem(ly 1E"///"/// 1E"///"/// 1E"///"/// 1E"///"///
Final *ssem(ly ./"///"/// ./"///"/// ./"///"/// ./"///"///
Total 8'5'''5''' 8'5'''5''' 8'5'''5''' 8'5'''5'''
Total investment for plant an! e9uipment that %enefits to the local economy 9$%'5'''5''' in , years
Total amount of ta# earne! from sysmatics from year 1 to year 1/ 9-5':(5'''5'''
total =o%s create! (5''' (y year ,
1D
V. 1ene/its /or t!e econo0y o/ +ropicalia ; Supporting <ocu0entation to as! Flo=s
E0ploy0ent
2egatronics Inc$ ill %uil! one plant every year ith a total of D plants$ 4very plant ill %e a
fully integrate! plant so this oul! represent a total of ."/// employees$ Since Sysmatics has
on the technological %i!" the implementation of this technology improves orker pro!uctivity
%y E/6 across the %oar!" thus facilitating the possi%le re!uction of the num%er of employees
re9uire %y E/6$ 3onse9uently" there ill %e only 1"/// employees that ill %e hire! for each
plant$
8 total of (5''' 5o%s ill in fact %e create! in Tropicalia %y year D through this operation$
+a4es
8s negotiate! ith Sysmatics an! 2egatronics Inc$" Sysmatics ill pay a corporate ta# of 1/6
the first 1/ years$ 8fter this perio!" 2egatronics ill pay a corporate ta# that ill gra!ually reach
0/6 %y year 10$ 8 1E6 ta# rate an! a ./6 ta# rate ill %e applie! in years 11 an! 1.
respectively$ ,e can only %e sure of the cash flos resulting from operations from year 1 to 1/
since e !on't kno hat 2egatronics ill !eci!e to !o as far as pro!uction capacity an! prices
are concerne!$
The total amount of ta#es earne! from year 1 to 1/ ill conse9uently %e 9 -5':(5'''5'''
+see page 10 for 4#cel sheet1$
In!ee!" the num%er of outputs pro!uce! ill %e 1//"/// units a year an! Sysmatics ill sell the
microCanaly:ers for L01// each to 2egatronics$
In#est0ents
This is one of our concerns on this !eal since it ill provi!e value to local firms$ Galf of the
value of plant an! e9uipment re9uire! to %uil! the ma#iCplants ill %e purchase! locally$
Buil!ing a ma#iCplant re9uires a total investment of L1I/ million !ollars$
Through this operation" this is 9$%' 0illion in total that ill %e in5ecte! into the economy in D
years$
So finally e really feel %etterCoff after this agreement since it really %enefits our economy: e
have create! 5o%s" the contract ill give a lot of ork to local firms the first D years for the
%uil!ing of the plants$
8%ove all" e ill get more than L1 %illion from corporate ta#es hich ill may%e ena%le us to
finance a strong state-owned ./0 department that oul! help local companies to %e more
in!epen!ent toar! 2N3s as far as technology transfer is concerne!$ Since technology transfer
as one of our main goals at the %eginning" e can use this current agreement to gather fun!s to
finance such a pro5ect$
2oreover" e think this agreement ill help attract other highCtech companies since e have
!emonstrate! our a%ility to sign contract that %enefit %oth parties even if our policy package
might seem too restrictive$
"dditional Resources
BeamishC2orrisonCInkpenCRosen:eig +.//01$ International Strategy @ormulation$
)nternational Management$ 2cFraCGill 3ompanies: Gightston" Ne =ersey$
BeamishC2orrisonCInkpenCRosen:eig +.//01$ Strengthening International Fovernment
Relations$ )nternational Management$ 2cFraCGill 3ompanies: Gightston" Ne =ersey$
,hite" 4$ - Trachten%erg" =$8$ +.//01$ Boss Talks: Pone si:e !oes not fit all'< at ,PP" Sir
2artin Sorrell sees limit to glo%ali:ation< P,e're losing country focus$' %all Street
Journal< Ne Nork" N$N$
1I
Supporting Figures
Figure -: Tropicalian PreCNegotiation Fovernment Policies
1K
I. E4port Policy2
8 minimum of ./6 e#port sales is re9uire! ith an international 5oint venture$ ;nce e#port
sales reach DE6" 2N3s ill %e eligi%le for up to DA6 e9uity onership
II. E>uity O=ners!ip
2N3s are initially entitle! to 0/6 e9uity onership$ 2N3s ill %e eligi%le for up to" %ut not
e#cee!ing DA6 e9uity onership$ Gigher e9uity onership ill %e contingent on increases in
e#port sales an! an agreement to con!uct R-H 5ointly ith local firms in Tropicalia
III. +a4 Policy
3orporate ta# ill remain at 0/6$ 8n a!!itional .E6 ta# ill %e impose! on !ivi!en!s" interest
an! royalties pai! to foreign recipients$ There ill also %e a ECyear ta# holi!ay aar!e! to high
priority pro5ects +high priority status ill %e !etermine! %y the ministers of Tropicalia1
IV. +ec!nology Policy
Tropicalia ill re9uire a D/CDE6 regional content$ Tropicalia ill also re9uire that logic units
must %e pro!uce! regionally
V. +ari// Policy
Financing
7oans ill %e availa%le for 5oint venture pro5ects %eteen 2N3s an! local firms
Patents
Patents ill %e o%taine! initially for 1E years ith a possi%le 1/Cyear e#tension perio!
Tari$$s
There ill %e a D/6 tariff on complete microanaly:ers" su%assem%lies an! components$ No
!uties are charge! on importe! items use! in the manufacture of e#porte! pro!ucts
VI. orporate Social Responsi6ility Policy
4very local firm an! 2N3 must have a corporate social responsi%ility program to %enefit the
people of Tropicalia$ 4#amples: sponsor e!ucation programs" housing construction
Figure %: Tropicalia's Business Structure Prior to Negoitations
1J
?ocal Fir0s
Figure $: Tropicalia's Business Structure Post Negotiations
Tropicalian
Fovernment
CPreference for local firms
CNo fun!ing availa%le for foreign firms
CPressure for foreigners to enter market
ith international 5oint venture
CRecent re!uction of inflation"
intro!uction of ne currency +Palma1
Tropimatics S$8$
CNo significant e#port sales
CHistri%utor an! servicing agent for
4uro!ata line of microanaly:ers in
Tropicalia
SysTrop S$8
C Histri%ute! Tanaka microCanaly:ers
C8ssem%le! other Tanaka pro!ucts un!er a
licensing agreement
CPro!ucts alays %ase! on foreign !esign
C7imite! amount of e#ports
MNs
+anaka
CCTechnology folloer an! lagge!
%ehin! intro!ucing ne pro!ucts
CHominant in =apanese microanaly:er
market
CNo microanaly:er plants in 4urope an!
emerging markets
CProfit after ta# of L1E/ million
C8ssets of LK %illion
Eurodata
CHominant 4uropean microanaly:er
pro!ucer
C8ssests of L0 %illion
C./6 orl! market share in
microanaly:ers
CNo e#isting microanaly:er
manufacturing operations in emerging
markets
CProft after ta# un!er L1// million
1A

+@orme! a =>1
Near 1 Near . Near 0 Near D
Figure (: Tropicalia Fovernment Pre Negotiation Package for 2egatronics +Negotia%le1
1$ 2egatronics may operate a holly one! su%si!iary in the Tropicalian 4mpire" ith E/6
2egatronics ill %uil! D ma#i plants
in Tropicalia %y year D$ Sysmatics
ill continue to !istri%ute for
2egatronics after year 1/
Tropicalian
Fovernment
SysTrop S$8
+Tropicalia1
Tropimatics S$8$
+Tropicalia1
Sysmatics +=>1
+SysTrop - Tropimatics inten!
to merge ithin E years1
Plant -
C7ogic unit
CInput unit
C;utput unit
C@inal assem%ly
Plant %
C7ogic unit
CInput unit
C;utput unit
C@inal assem%ly
Plant $
C7ogic unit
CInput unit
C;utput unit
C@inal assem%ly
Plant (
C7ogic unit
CInput unit
C;utput unit
C@inal assem%ly
Megatronics5 Inc.
).nited States*
CIncrease in e#ports + J/6 1
C3reate! D/// ne 5o%s
CL1"/ED"///"/// in ta# revenue
C D Pro!uction plants in Tropicalia
./
of material for plant an! e9uipment %eing purchase! locally +as in @INS p$1A" ta%le I1$
.$ J yr ta# holi!ay ith agreement to stay in Tropicalia for at least 1I years$ 8fter J yrs"
2egatronics ill pay corporate ta# of 0/6
0$ No tariffs on importe! items use! in the manufacture of e#porte! items$ Goever" for any
items pro!uce! for sale in Tropicalian market" a E6 tariff +negotia(le1 ill apply to all
importe! parts use! to make these items$
D$ 2egatronics must e#port at least AE6 of microanaly:ers pro!uce! in Tropicalia
E$ 2egatronics must have a local corporate social responsi%ility policy$
.1