Class Helps Students Sharpen Multi-Party Bargaining Skills

Class Helps Students Sharpen Multi-Party Bargaining Skills

Students in Penn State's Smeal College of Business will come to the negotiating table this week in a simulation exercise designed to sharpen their multi-party bargaining skills.

In Barbara Gray's graduate-level class on Power and Negotiation Strategies, the students hope to hammer out an agreement for manufacturing a micro analyzer, a high tech electronic component, in an emerging country. In the process, they'll learn something about the role multi-national companies, foreign governments, and host country companies play in real-world business alliances.

Class members are participating in FINS, Foreign Investment Negotiations Simulation, created by Professor Richard Moxon of the University of Washington. It is a multiparty negotiation exercise involving nine parties-three multinational companies from the United States, Europe and Japan, two host country governments, and four host country firms.

"It is the most complex negotiation we will conduct and provides an opportunity to bring the real world into the classroom in a manageable way," said Gray, professor of organizational behavior in the Smeal College of Business Administration and director of the Center for Research in Conflict and Negotiation.

"It offers students an opportunity to understand the complexity of negotiating from three different viewpoints. They usually discover they have a difficult time completing or reaching their objectives because other players engage in behaviors they hadn't anticipated. They get a better appreciation of the role governments in emerging markets play 'in greasing the skids' for international investment or for setting a high bar for what companies need to do to get into their countries.

"It also exposes them to a whole variety of mechanisms through which cooperation can occur, ranging from distributorships to equity joint ventures, to research and development alliances. These arrangements are occurring all the time in the business world, but students often don't have a good appreciation of their advantages or disadvantages."

In preparation for this week's formal negotiating sessions, class members have been assigned to teams representing the nine participants. The teams are required to develop tactical plans outlining how they plan to achieve the objectives they hope to realize.

Stephanie Vollowitz, a second-year MBA student, finds herself representing Electro ParadysS.A, a firm in the mythical country of Paradiso. One of the goals of her team is negotiating a possible resolution such as a licensing agreement or a joint venture with one of the multinational companies.

"We have analyzed our own strengths and weaknesses," she said. "We have a strong relationship with the government and may be able to get lower tariffs for our company. If the multinational company forms a relationship with us, we can leverage our relationship with the government.

"One possible option is a licensing agreement so we can produce our own micro analyzer. We need to be certain that any agreement will be profitable for our firm by running the financial numbers. That seems rather obvious, but sometimes it gets lost in the negotiation process."

"I've begun to realize how complicated this type of negotiation really is. It closely mirrors a real-life situation and makes you understand the role a government plays. It has helped me understand the complete picture, including different arrangements with a government which may be willing to lower tariffs through effective negotiations."

Chris Hartzell, also a second-year MBA student, is representing the government of the other mythical country, Tropicalia. The country is economically deprived and its government has a reputation of being corrupt.

"Our team's goal is to develop an agreement that would help us eliminate some very serious economic problems in our country," he said. "The country is not very stable and is looking for foreign investments. We also want to increase our technology knowledge. A major multinational company will give us more jobs, increase our tax base and improve our economic situation through increased exports.

"A major factor is understanding your role in the big picture when you have such a large number of parties involved. Prior to the formal negotiation, you try to identify their interests and understand what they want out of it. It becomes an attempt to get what you want and have the other parties gain as well."

Gray, an internationally known expert on team building and conflict management, said many students find it frustrating in conducting negotiations when they can't get access to parties at the moment they want to talk because they have to contend with competing parties.

"The exercise also requires them to think of the feasibility of an alliance they would like to make," she said. "In many cases, they already have formed opinions on the reputation of their classmates regarding their negotiating abilities. This is not unusual in the real world. What you see in the class is a bit of an exaggeration, but it is not unusual for businesses to form alliances with members of another business with whom they have a personal relationship or on the basis of reputation alone.

"In past classes, students often were surprised when asked if the deals struck mirrored their relationships in class. Some did tend to use their own preference for avoidance or affiliation with class members as a driver for the deals they made. However, other deals may have been more financially advantageous."