Thank you for agreeing to assist in a negotiating exercise being
conducted as a portion of Temple Universityís Spring 1995
course entitled ìEast-West Negotiations.î This Memorandum
is intended to orient you with respect to the negotiation session
to take place from 9:10 a.m. to 1:00 p.m. on March 25, 1995.
A. General Orientation:
1. Arrival Time.
We would request that you arrive at the Takadanobaba Campus (see
map attached as Schedule 1 hereto) of Temple University (1st floor
lounge) by 9:10 a.m. on March 25 for last minute orientation regarding
the negotiation session.
2. Acting In Role.
The negotiating exercise is intended to simulate an actual negotiation
of a letter of intent for a precision machinery joint venture
between a foreign (United States) company and a major Japanese
trading house. A description of the companies is attached as Schedule
2 hereto. In order for the students to obtain the maximum benefit
from this exercise, we would request that you act in role;
that is, we would request that you conduct yourselves during the
negotiations as you believe would be the case for the actual Japanese
businesspersons who are described in the orienting materials regarding
the companies shown in Schedule 1 hereto. You should work out
with your negotiation partner a division of responsibilities during
the negotiations much as you would with your colleagues in your
job.
Please keep in mind that negotiating a joint venture is not a
ìcompetition.î Yasudaís management wishes
to have its objectives realized and to maintain a good relationship
with UT even if the joint venture does not go forward. It is important
to establish the proper relationship with UT executives and to
earn their trust and respect.
3. Please Avoid ìCreatingî New Issues or Facts.
Also, please do not ìmake upî new facts or issues
during the negotiations (except to the extent that they are reasonably
inferable from the materials you have been provided) in order
to gain advantage during the negotiations. You can, of course,
support your positions with observations regarding the needs,
etc. of your organizations (Yasuda Corporation). Such observations,
etc. can and should be based on your own experiences working within
a Japanese organization which is dealing with foreign corporations.
4. Your Motivations.
By way of background, you will be acting the part of a ìkatchoî
level manager assigned to negotiating a letter of intent with
a United States machine tool company (UT). You have been in your
current job (in the trading companyís international division)
for 4 years and are considered (by Yasudaís management)
sufficiently experienced to carry out this negotiation. You expect
to be assigned abroad next year and will probably have little
continuing responsibility for the UT joint venture after the negotiation
stage.
You are, of course, under some pressure to perform well during
the negotiation; however, management has made it clear to you
that while they would like to do the UT joint venture, it is not
critical to Yasuda that it proceed immediately (or ever) unless
Yasudaís general objectives are served (since the joint
venture will be established in Japan and may end up competing
with other Yasuda efforts). The joint venture is being considered
because of a desire to get closer to UT and its technology and
in an effort to ìcontrolî UTís presence in
the Japanese market (i.e., the joint venture will become a ìclient
companyî of the Yasuda group). Yasudaís senior management
is positive about the joint venture but wishes to ensure that
Yasudaís relationships will not be disrupted in participating
in the joint venture. Since Yasuda is expecting to make a substantial
capital investment in the joint venture, it expects that it will
be able to achieve most of its objectives.
In any event, your image in Yasuda will not be damaged if you
are unable to resolve all of the issues under discussion at the
letter of intent stage--some of the issues may only be resolvable
in direct discussions among senior management following identification
during your negotiations. Also, it is company policy that all
proposed letters of intent must be approved by the Board of Directors
of the company and you must make sure that UTís representatives
understand this condition to your ability to negotiate binding
commitments.
B. Plan For Joint Venture.
The following are details of the structure and plan for the joint
venture:
1. Location.
The joint venture is to be located at a place in Japan yet to
be determined. UT has indicated that it would like to locate the
plan in the kanto or kansai regions (to facilitate servicing the
export markets). Yasuda owns properties in both locations with
support facilities which would be suitable for the factory production
site (close to international and domestic transportation system,
industrially zoned, etc.).
2. Staffing.
The Joint Venture will be managed jointly by Yasuda and UT in
a manner yet to be worked out. Yasuda currently has excess technical,
production and some marketing staff in other division which could
be allocated to this project. Staffing the factory and administrative
facilities would require approximately 15 senior managerial personnel,
35 to 50 sales and marketing staff, 30 research and production
technicians and professionals and 100 production line and other
staff workers. The total staffing would be between 200 to 250
persons.
3. Marketing.
One of Yasudaís chief aims from the Joint Venture is to
expand their machine tool sales with specialty ìhigh endî
precision machine tools which can be produced with UT technology.
Yasuda itself holds a number of ìapplicationsî and
ìprocessî and related technical patents for the production
of machine tools, but UTís technical patents and software
copyrights for machine tool control by computers make it preeminent
in its field for specialty high precision machine tools (used
in medical, research and defense applications). Rather than invest
in developing technology and entering this market, Yasuda wishes
to align itself with a proven winner and capture a significant
portion of the Asian regional industrial and precision machine
tool markets using proprietary technology from UT, and ìmass
marketî machine tools produced by its related company Yasuda
Machinery. Yasuda also has close relationships with a large number
of distributors and users of industrial and machine tools. Yasuda
desires that all sales from the joint venture flow through its
general sales department (to increase its turnover) and thus prefers
that the joint venture not have any sales force of its own.
4. Technology.
Another major motivation of Yasuda in entering into the joint
venture is to secure the rights to UTís ìMIPITî
technology (which enables the production of ìthree dimensional-9
axisî machine tools and lathes). Yasuda wishes to have a
license for both the joint venture and for Yasuda itself. Yasuda
also owns certain ìJOBOTî technology used for the
manufacture of ceramic engines (a business in which UT is involved
in the United States). If necessary to move the joint venture
along, Yasuda is willing to license this technology to UT at an
advantageous royalty rate to Yasuda.
5. Capital Requirements.
It is estimated that the joint venture will require capital of
$100 million. Future expansion would be based on commercial borrowing
based on this capital base, but the parties must put in at least
$100 million to get the joint venture started. Yasuda knows that
UT wishes to have a 50-50 joint venture and this would mean that
each of Yasuda and UT would put up $50 million. Yasuda is willing
to put up its $50 million either directly as capital or (at least
the major portion) as debt. It would, of course, like to obtain
a controlling interest in the joint venture and is willing to
put up any capital which UT cannot furnish to obtain greater than
a 50% share. If UT insists on a 50-50 joint venture, but cannot
raise $50 million soon enough, Yasuda is willing to lend any needed
funds to UT for its capital contribution at an advantageous rate
(200 basis points over Yen Long Term Prime) outside the joint
venture. Yasudaís finance department is not capital constrained
and is willing to lend funds to UT (purely for investment purposes)
at any rate in excess of Yen Long Term Prime plus 30 basis points
(UT is considered a good credit).
C. Issues for Negotiation.
Set forth below is a list of issues for negotiation in the Letter
of Intent including a general summary of Yasudaís position
on each of these issues.
| Issue | Yasudaís Position | Priority |
| Name of Joint Venture | Yasudaís name must be included in the Joint Ventureís name. | Essential |
| Japan sales | Must obtain exclusive rights all sales in Japan through its distribution network. The joint venture should not require a sales force, but Yasuda is willing to consider a joint venture sales force so long as all sales pass through Yasuda at some stage of distribution (for turnover increase purposes). Yasuda prefers existing UT sales to be ìrolled intoî the joint venture but is willing to consider ìfreezingî UTís existing sales to major companies and to permit these to continue to be serviced by UT directly from abroad. | Very Important |
| International Sales-General | Sales from joint venture should be allowed to be sold worldwide although sales to Asia only could be accepted provided they are made through Yasuda exclusive distribution channels. Overseas sales force of joint venture competing with Yasudaís existing operations is not acceptable. | Important |
| OEM Sales Royalty for UT Technology | Joint venture should not have to pay more than 3% for this technology and 1% royalty is preferable for such ìroutineî technology. | Less Important |
| Other Japan Sales Royalty for UT technology | Joint venture should not have to pay more than 3% for this technology since Yasudaís distribution (and technology-see below) will create most of these sales. | Important |
| International Sales Royalty on UT technology | Joint venture should not have to pay more than 4% for this technology since Yasudaís technology and distribution network will create most of these sales. | Less Important |
| Personnel | Yasuda will provide primary staff for the Joint Venture from their existing excess staff in other divisions. If UT wishes to arrange staff, Yasuda will permit this as long as capability is good. | Not Important |
| It is essential that the joint venture and Yasuda obtain a license of this technology from the outset of the joint venture or after one year. The royalty for this technology should not exceed 5% of net sales for Yasuda and 4% of Net Sales for the Joint Venture. Yasuda is getting into the JV to get its hands on this technology. | Essential | JOBOT Technology |
The above list is not, of course, exhaustive of what issues may
come up for negotiation. Please remain flexible and respond to
new issues (if any) consistent with the above information and
your own experience.
Thank you again for your willingness to participate. We hope
you enjoy your negotiation experience.
-End-