In our experience, we’ve often been witness to global negotiations that have yielded wonderfully creative outcomes. Indeed, that’s the fundamental idea—international commerce works best (and delivers human progress) when knowledgeable businesspeople meet, communicate effectively, and concoct creative business arrangements that make sense for all parties involved. Usually achieving success is not easy because the diversity of international meetings makes communication and relationship building difficult. But, the diversity of international meetings can also produce new ideas and new perspectives on those ideas that can be exploited for mutual benefit by patient and creative negotiators on both sides of the table.
Despite our best advice, over the years we have also been witness to global negotiation disasters. Below, with some pain, we describe two of those. First, we focus on a single meeting between Americans and Koreans. Second, we briefly describe the complexities of a huge South American energy project. The first case involved millions of dollars and the second, billions. In both cases, opportunities were lost for all involved.
He must have practiced it. The chair cartwheeled through the air, impaling itself into the wall, all four legs at equal depth. The flying chair was a real conversation stopper. Everyone at the table, both the Americans and the chair chucker’s fellow Koreans, just stared at the chair in awe. For long seconds, no one moved. Then the lead American negotiator stuffed his notes into his briefcase, stood up, and announced, “We’re done.”
A sales team of a U.S. semiconductor manufacturer was in heated negotiations over the ever-decreasing profit margins of their wireless semiconductors sold to their Korean customers. The negotiations were always tough, but ever since the decline in U.S. cellular phone purchases, the negotiations had become even more difficult. Faced with decreasing sales and a long-term economic downturn, the American team was in a difficult position. But the Koreans cell phone makers were in dire straits as well.
The Korean company was inextricably linked to the U.S. market by both its semiconductor purchases and its consumer sales. With the U.S. slowdown, inventories of phones and associated component parts were mounting quickly. The only path out of disaster was to continue the series of innovations that would help maintain their lead in the new features war with their global competitors. Although highly efficient in the manufacture of silicon chips, the Koreans didn’t possess the requisite design capabilities. “Features” had become key. The Americans provided those features in their chips.
The Korean contingent represented three levels of their business community. The eldest member was in his 60s and proudly “old school.” He served as the authority figure and decision-maker. Two others, both in their mid-40s, were experts in the technological and financial aspects of the transaction, respectively. They represented the generation that understands their elders, but they were brought up much more Westernized than the eldest members of the contingent. The last Korean negotiator was an up-and-coming business manager in his early 30s with an MBA from a top American university. The last had thrown the chair.
The U.S. team had been quickly composed and included a business manager, a project technician, and Korean American project director. The three hadn’t worked much together, and none had much in the way of international experience. As usually happens within the information technology (IT) sector, given the complexity of the products and services offered, an “international team” is usually composed of “engineer-types” that have shown some propensity toward the “soft-skills area.” Training is almost always nil. Thus, the performance of such negotiation teams varies dramatically based upon the circumstance in which they’re thrown.
And these circumstances were tough. After an 18-hour flight, which included a four-hour layover in Tokyo, the U.S. team was fighting serious jet lag. Further, all still suffered from the national angst associated with the still recent September 11 terrorist attacks on the World Trade Center in New York.
Moreover, the political background music was loud for the Koreans as well. Their cousins to the north were ramping up their nuclear weapons program in direct response to President Bush’s most recent “axis of evil” appellation. This unhealthy mix of circumstance and inexperience had tensions running high. Suspicion, distrust, and fear were part of the concoction. Because tensions are often contagious, the ambiance had turned brutally brittle. That’s when the chair hit the wall.
The Americans should have headed for the door at “We’re done.” But, a fatal hesitation let the senior Korean take command. He ordered his “unruly” minion out of the room. He profusely apologized for his “unprofessional” behavior. He explained how important this project was to the entire company, as exemplified by the younger executive’s “inexcusable” anger. He entreated the Americans to continue. And, he left the chair fixed in the wall. The rattled Americans stayed and talked and gave things away.
Tossed into such a situation, it was not surprising that the American team balked. Unable to comprehend the event, they fell into a depressed, reactionary position. Unable to quantify the chair toss and afraid that the deal would be lost, they acquiesced to most of the Korean demands. The already slim profit margins the product generated for the American company disappeared.
What the U.S. team did not know was that the Koreans had planned the event. Indeed, it was just part of a carefully orchestrated negotiation gambit involving all three levels of Korean managers and careful timing of the show-stopping flying chair. As it remained lodged in the wall, the Americans remained overwhelmed by the emotional outburst. The Koreans were able to extract from the Americans huge concessions, and the young Korean became a hero. Thus, the seemingly irrational Korean behavior turned out to be actually quite rational. The youngest Korean had been thoroughly trained in American negotiation techniques. All four Koreans had traveled many times to the United States to receive cultural training and negotiations training specifically. The Koreans had worked together several times before and had conducted multiple rehearsal sessions. Their regimented negotiation skills development process successively placed them in increasingly more complex and difficult situations. Furthermore, the actual composition of the negotiating team was such that virtually all management levels were represented, from senior level to that of an “apprentice.” The elder member of the team had an ongoing relationship with American senior management back in the United States. The younger Korean negotiators interacted in a more Westernized manner with the Americans. The “chair launcher” was not only a highly qualified engineer but, as mentioned, he had an MBA from a major American university, spoke English fluently, and understood the unique culture of the U.S. manufacturer having done an internship with them during his time in the United States.
Only two of the Americans had worked in Korea before, but even they had only four visits between them. Also, they had only the briefest chance to review the past efforts of previous teams. Although the Korean American manager understood many of the cultural issues involved, he was not trained as a negotiator. All the Americans had been very successful with domestic clients. They and their superiors at headquarters simply assumed that they would be talking English the entire time, and that they were walking onto a relatively level playing field.
Without the proper skill set, the U.S. team had fallen prey to a typical American IT sector cultural flaw. Within the hard sciences/engineering world of high tech, “soft skills” such as sales, marketing, public relations, corporate diplomacy, and relationship building are woefully, even dangerously undervalued. The Koreans had successfully addressed this fundamental flaw in the training they underwent and preparations they made for their meeting with the Americans. Most simply stated, the Americans had (1) not understood cultural differences, (2) made no adjustments based on cultural differences, and (3) carelessly composed their negotiation team. Ouch! When the largest market in the world is not your own, international expansion requires complete knowledge of that market. The Koreans had done their homework. The Americans, behaving true to form, assumed that they would be able to reason with the Koreans. It was precisely this American cultural proclivity to resort to reason that the Koreans had focused on and used to their advantage. The power of reason gave way to the power of “dramatic irrationality.” The chair worked, and indeed, he had practiced throwing it.
Finally, there is a much more fundamental lesson here. One might conclude that the Koreans won this negotiation. But, in reality no one wins negotiations. Business negotiations are not a competitive activity. They are a creative activity if done well. Yes, they may have done the (price) cutting, but the Koreans were also filleted in Seoul on this one because no one asked the question, “How can we better manage the inherent volatility in our industry for our mutual benefit in our ongoing business relationship?” No one asked, “What options are we ignoring by our razor thin focus on prices in this particular deal?” No one asked, “How can we leverage the complexity of supplying a global market from two very different business systems, Korea and the United States?” No one asked questions.