Uppsala University
International Business

Final Paper

FINS - Foreign Investment Negotiation Simulation

Final Report - Megatronics

by

Stephan Wolter

Content

Introduction  2

FINS  3
Features  3
Players  3
Foreign Market  4
Product  4

Strategy  5
Goal/strategy/tactics-pyramid  5
Global Strategy  5

Negotiation History  6
Progression  6
Strategy changes  7

Evaluation . 8
Progression and way of negotiation  8
Agreeme  9
Future outlook  11

Personal comments  11
Learning experience  11
Criticism  12

Ending remarks  14

Appendix  15
Strategy Paper  15
Contract about a Joint Venture between Systrop S.A. and Megatronics Inc. (Blueprint)  17
Contract about a Joint Venture between ParaInfo S.A. and Megatronics Inc. (Blueprint)  18
Contract about a Joint Venture between Electro Paradys S.A. and Megatronics Inc. (Blueprint)   19

Literature  21

Introduction

"WTO REACHED AGREEMENT for talks on a global trade deal. A seven-year struggle ended in Qatar when delegates put together a trade-liberalization agenda to open markets between rich and poor nations. If ensuing negotiations are successful, companies from wealthy nations would get better access to markets in poor nations, which in turn would receive greater foreign investment….."¹

This and other articles with such a statement appear in great number in today′s daily press. The trend is given by globalisation and free trade. The spread of market based economic systems², trade agreements like the General Agreement on Tariffs and Trade (GATT), institutions like the World Trade Organisation (WTO) and a better cultural understanding³, push the boundaries of bargaining and trading far beyond the borders of an individual country.

Multinational Companies (MNC) are dominating the Fortune and Global 500. Their economies are comparable to those of countries′. They offer thousands of workplaces and represent a phenomenon in strategy and structure, which is thoroughly investigated by economic and business researchers: Why do MNCs emerge? How do they go abroad? What strategies and structures can be found? In what way do MNCs differ to domestic firms? How can emerging complexity be handled? These are only some of the questions, which have to be answered.

The key point is to utilize the absolute advantages⁴, the comparative advantage⁵, or the ′diamond′⁶, which are offered by special countries, and thus gain competitive advantage for the company. The attractiveness of a country is determined by its market size, education and living standards, costs, political, legal and economical risks, long-run benefits, ethnical issues and cultural factors. It makes sense to disperse a firms value chain activities to those places where they can be performed most efficiency or where they have the greatest value for the company⁷. Therefore a company can go abroad to invest in foreign countries.

FINS

Features

FINS - Foreign Investment Negotiation Simulation – tries to simulate such a foreign investment process between MNCs, the governments of two large emerging market countries and companies based in these countries, in which the negotiation and contract making is in focus of the exercise. "The goal … is to improve … [the] understanding of the interaction among the strategies of multinational firms, local companies and host country governments."⁸ The negotiations are concerned with the development of a high technology manufacturing Microanalyzer industry.

My task was to lead the negotiations in the place of one of the MNCs: Megatronics Inc..

Players

To be able to follow the discussions below it is necessary to have an overview about the players in the game. In the Microanalyzer industries we find three dominating global players (MNCs). The size of the rectangles in the figure 1 represents the recent global market share.

[Abb. 1 ... ]

Interesting is the constellation of the Microanalyzer branch: three MNCs with their headquarters located in very different national markets. Each of the MNCs dominates its own home market. Megatronics is the forerunner in the Microanalyzer technology. It could use the benefits of the first mover advantage⁹. Eurodata and Tanaka are technological follower.

[Abb. 2 ...]

Figure 2 shows the domestic companies located in the two emerging market countries, Tropicalia and Paradiso. Tanaka and Eurodata had connections in the countries by mostly licensing agreements for distribution with some of these companies. The governments of Tropicalia and Exotica complete the list of the players.

 Foreign Market

[....]

1  Wall Street Journal Europe, 15.11.2001, emphasises added.

2  For a further discussion see Hill A.C. (2002), chapter 2.

3 see e.g. Hofstede, G. (1983) "The Cultural Relativity of Organizational Practices and Theories", Journal of International Business Studies, Vol. 14, No. 2, pp. 75-89.

4  Smith, A. (1791), " An inquiry into the nature and causes of the wealth of nations ", Basil, Tourneisen and Legrand

5  Ricardo, D. (1967), "The Principles of Political Economy and Taxation", Homewood, IL, Irwin

6 Porter, M.E. (1990), "The competitive advantage of nations", New York, Free Press. Porter´s diamond consists of the 4 attributes that shape the environment of a country: factor endowments; demand conditions; relating and supporting industries; firm strategy, structure, and rivalry.

7  think e.g. of closeness to the customer.

8 FINS- Participant Manual, p.1.

9 for a further discussion see Hill, A.C. (2002), p. 66, 138.