Don Grant, Adjunct Professor, former President/COO of Integrated Measurement Systems, Inc

My Experiences with Global Business

NegotiationsPortland State University

Summer 2011

INTRODUCTION

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Agenda for this Class Session

Introductions Comments about the International Business

Negotiations Course Description of a few of my business negotiation

experiences My advice for successful global business

negotiations Open questions

Let’s Keep the timeframe at about 30 minutes

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Don Grant, Adjunct ProfessorMy Background with Regard to this Course

BS, US Naval Academy, then, nuclear submarines

Harvard MBA 33 years in high tech industry companies Held various positions from Engineer to

President/COO in 5 companies Retired from corporate employment in 2005 Adjunct Professor at the Oregon Graduate

Institute for 5 years - teaching international business and operations management to graduate students

Current/Recent activities Member of Advisory Board for 2 technology companies Consulting for several high tech companies Service on non-profit Boards – Saturday Academy & Junior

Achievement Student of Mandarin language – 2 ½ years

COMMENTS ABOUT THIS INTERNATIONAL

BUSINESS NEGOTIAIONS COURSE

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Comments about this International Business Negotiations Course

The skills you learn in this course are essential for a successful business career

The framework described in this course is very valuable – be sure to GRASP how to use it effectively!

The text used by this course should be very useful to you in your business career

I wish that I could have taken this course 30 years ago!

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GENERAL COMMENTS

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General Comments About Business Negotiations

Developing your negotiations skills is a like a “journey” , it is not a “destination” You need to learn from each negotiation

episode and improve The context, culture, and priority all

drive the nature of the negotiation –examples:

BIG organization vs small organization Chinese culture vs USA culture “You bet your company” vs “routine

business” negotiations8

General Comments About Business Negotiations

A key issue in successful business negotiations is that all of the stakeholders must come away feeling satisfied with the results

Even if you “win the negotiation” when some of the other stakeholders feel dissatisfied, the deal may unravel – even months or years later

Stakeholders are persons or groups who have a stake in the negotiation: often they may not be present at the negotiating table or even in the country

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DESCRIPTION OF A FEW OF MY BUSINESS NEGOTIATIONS AT

IMS, INC

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Integrated Measurement Systems, Inc – Global sales management

IMS sold engineering test systems (capital equipment - $750,000 to $2,000,000 per system) to integrated circuit vendors & design centers on a global basis

IMS also sold integrated circuit test development SW to the same customers

Main countries or regions outside the USA: Japan China So. Korea Taiwan Israel Europe – France, Germany, Spain, Portugal India

IMS Vanguard IC Test System

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My Negotiation ExperiencesJapan and IMS

In Japan, it is useful for a small company to establish a joint venture (JV) with a Japanese company

IMS’ distributor (via a JV) was Tokyo Electron (TEL), a $3B company based in Tokyo

TEL was expert in selling to other Japanese companies

In Japan, negotiations are done by establishing multi-level relationships with each company over an extended period of time - examples: CEO to CEO VP to VP Engineer to Engineer

IMS sales prospered in Japan; all of the competitors were virtually locked out of the business because of the reputation of TEL

In Japan, significant decisions are made using the Ringi system

Ringi system is a collective process – involving a large number of people Nemawashi (groundwork) is needed The person in charge will first draw a plan

in written form H/she will take or send it around to his/her

superiors If another department is involved, the

consent from them will also be needed The final decision will be made by the

authority of the company This can take months to complete

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My Negotiation ExperiencesBIG South Korean Company and IMS

The South Koreans are tough negotiators they organize their companies to drive negotiations with

vendors When making a sale to a large So. Korean company the

following negotiating steps were necessary Negotiate with the department that would use the product Negotiate with the VP of that department Negotiate with purchasing

Purchasing was under no obligation to accept the specs and terms that had been previously negotiated

Negotiate with the company’s USA subsidiary Receive the Purchase Order and negotiate the “surprises”

that were inserted into the PO document The So. Koreans knew a great deal about our company

Our unpublished price list Our fiscal quarter end and our current financial situation Details from our last PO’s that were delivered to other

companies in South Korea The background and business experience of key executives

My Negotiation ExperiencesBIG South Korean Company and IMS

On the last day of one of IMS’ fiscal quarters, the BIG Korean company faxed the promised PO to us at 6PM The last possible time to ship the product was

midnight to recognize revenue in the quarter

The PO was as negotiated, but it contained about 10 pages of “additional terms” which were unacceptable to IMS

I had to negotiate (via telephone) with the Korean subsidiary in California until about 11PM! The unacceptable terms were modified and, of

course, IMS had to give an additional discount to compensate!

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My Negotiation ExperiencesIsrael and IMS The Israeli’s are the toughest negotiators that I

have dealt with – they never stop negotiating! Israel has a small community of high tech

companies who collude with one another The Israeli purchasing agents from these companies

shared the specific information from all of the recent IMS PO’s

The buyer of our product would not accept anything less then the best terms and price from any of the recent IMS PO’s with any other Israeli company

They always start the negotiations with extreme bargaining positions

Negotiations in Israel are of the “in your face” style – it’s up close and personal!

It was common to have the Israeli side present a “barely acceptable” offer about 1 hour prior to IMS negotiating team’s departure for the airport

My Negotiation ExperiencesIsrael and IMS

After the delivery of the product, the typical Israeli company was demanding in every way Even though, IMS’ product was quickly placed into

operation (one or two days) and was put into use 24/7 by the factory

Nevertheless, it was not uncommon to have weekly conference calls to work through a never ending list of “problems” with our product!

The product was not “accepted” until all of these deficiencies were cleared This meant that IMS was often not paid

for 6 or more months after delivery!

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My Advice for Global Business Negotiations

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Comments about Business Practices Around the World

Each country has its own generic business practices based on its culture, laws, and customs

In addition, each company has a culture of its own and, and, therefore, its own unique generic business practices

Don’t expect every business person to conform to the generic practices

Adapt your negotiation practices to the specific country, company, and person

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Comments about Business Practices Around the World

For most Asian companies, the goal of negotiations is to establish a good business relationship

For most Western companies, the goal of negotiations is to obtain a legal contract

As a negotiator, you have to achieve both: A Western company cannot book (using GAAP

rules) a business relationship An Asian company will not do business without a

good business relationship

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My Advice Learn the language

Become proficient if you will do significant business with companies in that language

Do not attempt to negotiate important matters using a foreign language unless you are fluent in the language and the business culture

Learn the conversational language for incidental business activities

Learn the local business practices (for the country and the company)

Hire local experts who you can trust Local culture experts Business advisors in the applicable industry Lawyers Translators

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My Advice

In Asia, Expect lengthy and multiple negotiation meetings over several months before reaching agreement / establishing the business relationship

Take the long term view, be patient Beware of IP theft

This is a common practice Beware of business theft Beware of corruption

Corruption in is a common cultural practice USA law (FCPA) is often enforced against US

companies who practice corruption in foreign countries

Set flexible travel plans to take away the bargaining chip of “last minute dealing”

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Some Useful References

Kiss, Bow, or Shake Hands, Terri Morrison and Wayne Conaway, Adams Media

Inside Chinese Business, Ming-Jer Chen, ISBN 1-59139-327-2

The Chinese Negotiation, John Graham & Mark Lam, Harvard Business Review reprint R0310E

Sun Tse the Art of Negotiating in China, Laurence Brahm, Published by Naga

Japanese Business, Culture and Practices, Jon Alston and Isao Takei, Published by iUniverse

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Questions??

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