HU Communications Learning About Negotiations Questions

1- What, in general, did you learn about negotiation from the simulation? What surprised you?  What would you do differently?

2- How did the actual outcome of the agreement (if any) compare to the pre-negotiation strategy you developed? How do you correlate preparation with outcome?

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MedLee: In Pursuit of a Healthy Joint Venture
General Instructions
MedDevice, Inc.
MedDevice, Inc. is a U.S.-based Fortune 500 company that manufactures high-tech
medical equipment and devices like CAT Scanners, MRIs and pacemakers. Currently,
MedDevice earns more than 80% of its annual revenue from U.S. sales. Strategic studies
indicate that MedDevice’s greatest growth potential in the next decade is in developing
its Asian and Southeast Asian markets. MedDevice has investigated the possibility of
opening a wholly-owned branch office in Southeast Asia. However, logistical problems,
the complexity of local laws, and the difficulty of breaking into a foreign market that
relies heavily on relationships and connections suggests that forming a joint venture
may be necessary to gain access to key distribution channels in the region.
Lee Medical Supply
Lee Medical Supply is a family-owned company employing about 30 people, located in
Bangkok, Thailand. Lee Medical specializes in the distribution and sales of medical
products including operating tables, hospital beds, X-ray machines, ultrasounds, and a
variety of disposable medical supplies like bandages and syringes. Lee Medical Supply
has been in operation for 30 years under the ownership and direction of An Lee, who is
now 64 years old.
To date, Lee Medical Supply has focused its business on distributing equipment and
supplies for overseas (mostly American and European) companies. Under such
distributorship arrangements, Lee Medical purchases supplies and equipment from
manufacturers and then sells them in Thailand. Lee Medical profits from the difference
between the prices it charges its customers and the wholesale cost it pays its suppliers.
Over the years, Lee Medical Supply has experienced steady growth and strong financial
results. However, as the demand for high-tech medical technologies has increased in
Thailand, Lee Medical has been seeking opportunities to partner with a major U.S.
manufacturer. Such a partnership would allow Lee to share in the greater profit margins
associated with high-ticket items (as opposed to low-cost items like bandages) and to
have some equity in the company’s profits (as opposed to acting just as a middleman).
This case was written by Candace D. Lun under the supervision of Jeswald W. Salacuse at The Fletcher School of Law and Diplomacy
and generously donated to the Program on Negotiation for distribution. Copies are available from the Teaching Negotiation
Resource Center (TNRC), online at www.pon.org, by email: tnrc@law.harvard.edu, or by telephone at 800-258-4406. This case may
not be reproduced, revised or translated in whole or in part by any means without the written permission of the TNRC, Program on
Negotiation at Harvard Law School, 501 Pound Hall, Cambridge, MA 02138. Please help to preserve the usefulness of this case by
keeping it confidential. Copyright © 2001, 2004, 2018 by the President and Fellows of Harvard College. All rights reserved. (Rev.
08/18.)
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MedLee: General Instructions
A Resort Encounter
Mr. An Lee (owner and President of Lee Medical Supply) and Mr. Ralph Thompson (CEO
of MedDevice) met while both men were vacationing with their families at a luxury
resort on Phuket Island, an exclusive vacation spot in Thailand. They met over drinks at
the pool one evening, and finding that they had much in common in terms of business
interests, had several meals together over the next few days. They became fast friends
with great respect for each other’s intellect, business acumen, and sense of humor.
Mr. Lee and Mr. Thompson were intrigued by each other’s respective businesses in
general and by the complementary nature of their core competencies and needs
specifically. MedDevice had cutting-edge technology and products, but no access to
distribution channels and the medical customer base in Thailand. Lee Medical Supply
possessed a strong distribution network, a well-trained sales force, relationships with
most of the major hospitals and doctors in the country, and an intimate knowledge of
the protocol, legal issues, and eccentricities of the Thai market. Lee Medical lacked
access to some of the newer, more sophisticated technologies like CAT Scanners, MRIs
and pacemakers, the demand for which had been increasing exponentially in the
increasingly affluent Thai market. Lee and Thompson spent many hours chatting about
the potential synergy between their two companies.
The vacation ended, but at Mr. Lee’s invitation, Mr. Thompson visited Lee Medical
Supply in Bangkok before returning to the States. The two solidified their friendship and
respect for each other by signing a Memorandum of Understanding to pursue a joint
venture between Lee Medical Supply and MedDevice (attached in Exhibit A), the
purpose of which was to establish a sales office in Bangkok under the name of MedLee,
Ltd. and to develop the market for MedDevice equipment in Thailand and throughout
Southeast Asia. Initial capital would be U.S. $2 million. MedDevice would provide 60%
of the capital, and Lee Medical Supply, 40%.
Mr. Lee and Mr. Thompson are delighted by their new venture. In particular, Mr. Lee
was impressed by Mr. Thompson’s ability to forge a relationship, while Mr. Thompson
was impressed by Mr. Lee’s thorough approach to business. Both fully expect to be in
business together very soon. They parted, agreeing that they would have their
subordinates work out the details of the arrangement in preliminary negotiations.
Specifically, they agreed their subordinates should discuss the following issues for the
joint venture:
1) Decision-making
2) Staffing
3) Profit Distribution
4) Conflict Resolution Mechanism
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MedLee: General Instructions
Mr. Lee and Mr. Thompson would meet at MedDevice headquarters in three weeks
(when Mr. Lee would be in the States on other business) to review the results of the
preliminary negotiations.
You will be conducting preliminary negotiations as either a representative of
MedDevice, Inc. or Lee Medical Supply. You recently read an article stating that 60% of
all joint ventures fail within four years. How would you prepare for your discussion with
your counterpart? In particular, what concern might you have about cultural
differences between MedDevice and Lee Medical Supply?
Profiles of the two companies are attached in Exhibits B and C.
________________________
EXHIBIT A
Memorandum of Understanding
Following our cordial conversations over the last few days, it is in our mutual interest to
establish a joint venture to be called MedLee, Ltd. in Thailand to undertake the sale and
distribution, in Thailand and Southeast Asia, of high-technology medical equipment
manufactured by MedDevice. The initial capitalization of the joint venture will be U.S.
$2,000,000, and the initial period of the venture will be five years.
MedDevice, Inc. will contribute 60% of the capital and Lee Medical Supply will
contribute 40%. We agree that representatives of our two companies will meet within
30 days to negotiate the details of this arrangement.
An Lee
President
Lee Medical Supply
Ralph Thompson
CEO
MedDevice, Inc.
Golden Sands Resort
Phuket Island
Thailand
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MedLee: General Instructions
EXHIBIT B
MedDevice, Inc. Company Profile
A Fortune 500 company with over 30,000 employees, MedDevice is known for its
organization, precision, and efficiency. A rules-oriented company whose culture has
been shaped by the highly regulated nature of the medical equipment industry,
MedDevice prides itself on its structured systems, data-driven approach to making
decisions and merit-based evaluation of employees. All rules apply to all, and the best
ideas and results win out. These are the qualities that have made the company
successful.
Company strategy is to be the first to market with the most advanced and safest
medical technologies. The specific means and timelines for implementing this strategy
are codified into a set of company principles. These principles must be followed exactly
so that each project that is undertaken is uniform, in terms of the processes that are
carried out and in the way that its success is evaluated. All projects are given specific
goals and objectives, including strict deadlines that must be adhered to. Without
constant focus on deadlines, MedDevice would be unable to maintain its ability to be
the quickest to market with superior technology.
There is a “MedDevice Way” of doing things, and that is considered to be the right way.
A common language is spoken and written across divisions of the company.
Standardized processes also help the bureaucracy work efficiently and help with the
measurement and evaluation of performance.
The organization is large, so some bureaucracy and some hierarchy are necessary. The
company, however, is moving away from this and is trying to flatten out layers of the
organization to simplify processes. The CEO is concerned that the organization has
become so large that upper management is out of touch with the employees. There has
been a significant attempt to make the company more egalitarian; there is little
differentiation until you reach the highest management levels in terms of offices (most
people work in cubicles) and perks such as secretaries and personal stationery.
MedDevice prides itself on treating its employees equally and is proud of the fact that
most decisions are made on the basis of data. Thus, an idea can win out if it is sound
and backed up by good business data and results—whether the idea comes from the
CEO or from the newest hire. This is not to say that the CEO doesn’t have any power,
but ideas and rational thinking (including having sound data to back up your ideas) are
the key to decision- making. Decisions are made through persuasion and consensus
building, and at the highest levels, by voting, in which each person gets one vote (i.e., on
the senior executive committee and with the board of directors).
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MedLee: General Instructions
Performance and business results on an individual basis are measured and rewarded.
MedDevice operates on an “up or out” policy. That is, employees are evaluated
annually, and are retained or promoted if their performance is up to par. Those who do
not make the cut are counseled out or moved to other divisions. While much of the
work is performed in teams, an individual’s achievement is rewarded in accordance with
his or her specific contribution to team effort. Everything, it seems, is quantified and
measured. The saying goes at MedDevice, “If you cannot measure it, it will not (or even
did not) happen.” This policy ensures that the best workers are retained and promoted
and that they are evaluated on the basis of agreed-upon objective standards, rather
than on subjective factors.
This dedication to ensuring merit-based evaluation of employees manifests itself also in
an anti-nepotism rule. Close relatives of any employee who is in upper management
(General Manager level and above, including General Managers, Vice Presidents, CFO,
and CEO) cannot be hired by MedDevice. If members of upper management have
relatives who were already working at MedDevice prior to their promotion into upper
management, their relatives can continue their employment, on the condition that
someone to whom they are related will never evaluate them. In some cases this has
required people to quit or to transfer to divisions far from the purview of their relatives.
This further ensures fairness within the organization and equality of opportunities.
(Close relatives in this context include spouses, children, sisters, brothers, uncles, aunts,
cousins, nephews, and nieces of the employee in upper management).
________________________
EXHIBIT C
Lee Medical Supply Company Profile
Lee Medical Supply is fairly typical of the small, family-run and owned businesses in
Thailand and other parts of Southeast Asia. The Company was started 30 years ago by
An Lee, who remains owner and President. His seniority and experience is well
respected—after all, he built the company from the ground up and has nurtured its
development and growth into a profitable venture. What Mr. Lee says generally goes;
employees respond, for the most part to both the letter and spirit of his directives.
Decisions are made from above and executed with little discussion or dissension by the
subordinates.
The key to Lee Medical Supply’s success and growth over the years has been its
cultivation of long-term relationships with its suppliers and customers. Mr. Lee sees
himself as a partner to suppliers and customers, and he maintains close and frequent
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MedLee: General Instructions
ties with them. He even hired the son of one of his best customers when he could not
find work. Mr. Lee takes these relationships very seriously and attributes his ability to
grow from a one-man business into a solid and steady profit-making company of 30
employees to: 1) the quality of these relationships; 2) patience; 3) a long-term outlook
towards profits and business planning; and 4) loyalty/low turnover of employees.
The structure of the office seems loose because there are few official titles; however,
employees know where they stand with respect to everyone else at any given point in
time. Many of Mr. Lee’s relatives and close family friends work at Lee Medical Supply.
The choice positions are generally reserved for Lee’s sons and close male relatives.
Indeed, 50% of employees at Lee Medical are either related to Lee or have a long-term
association with the Lee family. For example, Mr. Lee’s eldest son is Vice President, his
nephew is Chief Financial Officer, his cousin is head of Sales, and his daughter is Office
Manager. Such is the nature of a family-run business and Mr. Lee feels that the
interconnectedness of everyone employed at Lee Medical helps the business because all
are working towards the same goal. In addition, Mr. Lee trusts his relatives’ motives and
loyalty more than he would anyone else. Since there are few people working in similar
positions, there is little competition among employees.
Training is done by apprenticeship rather than through formalized programs.
Employment usually spans decades. No formal performance evaluations are done,
mostly because there is no need for them. Mr. Lee’s philosophy is that over time,
people will learn the skills they need to complete the job if they are loyal to the
company and to the family.
Standard procedures have evolved over time, but there is no need to formalize them in
such a small organization. Suggested changes in procedures may come from employees,
but they are implemented only with the approval of Mr. Lee.
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