negotiating tactics

Early in my career as a global manager, the CEO of the Japanese company Casio came to visit.  That was during the endaka (rising yen) period of the 1980s, so a weak-yen beneficiary like Casio didn’t have a particularly compelling story.  But I was very interested in hearing about the company’s experience establishing manufacturing operations in China.

When I asked the chairman, he made a sour face (not what I had expected).  He said that the Chinese government was very difficult to negotiate with.  Discussions took a long time, so that the company had an increasingly large investment in their success.  An agreement would finally be reached and a signing date set for contracts.  On that day, after all parties had sat down for what Casio expected to be a purely ritual occasion, Beijing would reopen negotiations and demand further concessions (the Chinese side might also contend that these were due as reparations for WWII war crimes like those in Nanjing, a particular vulnerability of  Japanese on that vintage).

Even though both labor costs and capital costs were lower than in Japan (another aside:  this almost never happens), Casio was already concluding it couldn’t make a profit in China.

Relevance?

The tactic of striking a deal and then reopening negotiations isn’t a very popular one. And, in my experience, it’s not commonly employed when companies negotiate.   The one who employs it shatters any illusion the other might be developing that he cares about either the venture’s success or the other’s welfare.  There also overtones of not wanting or expecting to do business with the other again–or, what may amount to the same thing, that the one side will always have the upper hand, and never need a favor from the other.

 

What reminded me of the Casio visit was Senator McCain’s complaint on Sunday that both parties had reached an agreement last Thursday to end the government shutdown and raise the debt ceiling–but that the administration had demanded more concessions after an NBC/Wall Street Journal poll was released showing Republicans falling to a twenty-year low in public esteem.  If press reports are accurate, this is the second time the administration has employed this tactic.

As I’ve written before, I don’t like talking about politics.  The investment conclusion I draw from Washington’s bickering is that both sides think the other will be swept out in the next election.  At least until then we can expect recurring confrontations, with the trading opportunities that they bring.  Yes, this means potential profits.  But it also means ulcers.  So the behavior diminishes the attractiveness–and lowers the potential returns–of US securities markets.

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