Negotiation

Section One:

  • The negotiation being analysed was held between the officials of Australia Mining Global (AMG) company and Jakarta Iron Limited (JIL) with experts of International Negotiation Expert (INE) company representing the offer of the Australia Mining Global company. Only the Chief Operating Officer of Australia Mining Global company was present at the table of the negotiations. No agreement or discussion had been done between the Chief Operating Officer of Australian Mining Global company and the leading expert of International Negotiation Expert company with regard to how the negotiation should be progressed with the officials of Jakarta Iron Limited. Additionally, Australia Mining Global has employed Mark Olav, who was the Chief Financial Officer for Jakarta Iron Limited in the year 2015. Although it is considered a malpractice to use any individual who held a position in the other company to give information about the internal matters of the company, in this particular scenario, Mark Olav had been the Chief Financial Officer for Jakarta Iron Limited in the year 2015. Five years have passed since Mark Olav had retired from the position and since the matter was with regard to acquisition of shares, it may be assumed that the internal matters that were known to Mark were no longer of any value.
  • Australia Mining Global had the upper hand with regard to the negotiation when the plan was started out by the Chief Operating Officer. Jakarta Iron Limited was an undervalued mining company, which meant the acquisition of shares could have been done at a nominal price a little higher than the market price of the shares of the company. The negotiation plan maintained by Australia Mining Global prior to the negotiations was that it would acquire 67% of the shares of Jakarta Iron Limited, which would amount to a total of 167,500,000 shares. The valuation of the shares of the company in the then market had been valued at $1.40 per share and Australia Global Mining had set a target of $1.54 per share for acquisition. Additionally, Australia Mining Global also intended to boost the acquisition offer by proposing to retain the entire current management and operation teams of Jakarta Iron Limited for at least a period of 2 years and they would also increase compensation plan for the top management authorities of Jakarta Iron Limited by 20% to encourage that cooperation after the acquisition was announced. This plan would have been successful and gone through resulting in the successful acquisition of Jakarta iron limited if it had been implemented and executed in a proper manner.

Section Two:

  • The negotiations did not end well as the implementation and execution of the plan for acquisition of shares was not discussed and laid out in a proper manner. The discussion that took place between the teams of representatives of the two companies where haphazard and it was not done in a professional manner. The negotiation resulted in in Jakarta Iron Limited refusing to accept the deal proposed by Australia Mining Global. In the business culture followed in Indonesia, businessman belief that successful business can be done only by harbouring good relations and harmony in the exchanges between the parties. Jakarta Iron Limited also accused Australia Mining Global of malpractice as they had employed Mark Olav (prior financial officer of Jakarta Iron Limited) to assist them in the negotiation proceedings. The felt that Mark Olav would have given them sensitive and insider information with regard to the company, which would have given the Australia Mining Global an upper hand in the negotiation for acquisition of shares. The outcome of the negotiation was very clear as Jakarta Iron Limited refused to accept the offer of Australia Mining Global, but the surprise came to light when it was revealed that Mark Olav owned a substantial number of shares of Jakarta Iron Limited. From the way things proceeded, it can be understood that the sole factor which led to the failure of the negotiation was the fact that Australia Mining Global had employed Mark Olav for assistance in the negotiation deal.

Section Three:

  • The manner in which the negotiation proceeded; it was clear that The International Negotiation Experts members had not studied the Indonesian culture of negotiation before the came forward to make the deal. The first day of the negotiation was unproductive according to the Australian citizens as they were unaware of the culture followed by Indonesian people which provides that the parties may make small talk and ask questions about families and regular life in their hometown. The Indonesian people believe that such conversations help both the parties to gain each other’s trust and build a relation which is very important for future business purposes.

Negotiations with Indonesian parties are companies can be slow as they believe that relation building information gathering and bargaining along with the pressure of making a final decision take considered considerable time. The act of the postponing the meetings for whole week maybe understood as either the members representing Jakarta Iron Limited were considering alternatives or the fact that they were not interested in doing business with Australia Mining Global at all.

The major mistakes with regard to business culture is followed in Indonesia as committed by Alex and the International Negotiation Experts members were that- the topic of business deals is always brought up by the elders of the Indonesian party. Alex proceeding with the opening bid of the negotiation may have been considered as root by the representatives of Jakarta Iron Limited. Subsequently, the second mistake committed by Alex was to propose a second bidding offer without waiting for a counter offer even after being told that the elders of the negotiation team were analysing the first offer made by the Australia Mining Global. This may have been taken as a sign of disrespect to the elders and could have hurt the emotional feelings of the negotiation team members of Jakarta iron limited.

The negotiation deal could have been a success, but it failed as the information with regard to Mark Olav being a part of the negotiation proceedings came to the knowledge of the members of the negotiation team of Jakarta Iron Limited. The practices of deception are frowned upon in the Indonesian business culture.

These are a few of the very basic negotiation and business culture is followed by Indonesian people.

  • The members of International Negotiation Expert and Alex did not know of the cultures followed by the Indonesian population and committed a few acts during the negotiation which might have offended the other party. Alex along with the members of International Negotiation Expert should have studied the cultural and business policies followed in Indonesia and should have strictly abided by it. The language spoken in Indonesia is the Bahasa Indonesia language, which has been derived from the Malay language. The specialised team that was put together by Alex did not contain any expert who spoke the Bahasa language. experts who could fluently speak Sinhala and Filipino were included in the team and it was assumed that business culture in Philippines and Sri Lanka would be similar to the business culture of Indonesia and it should make the process of the negotiation smooth. The fact that the members of Jakarta Iron Limited came to know of the involvement of their Ex-Chief Financial Officer- Mark Olav, resonates that some individual from the team of Australia Mining Global must have given the information to them. This information was the deal breaker in the negotiation proceedings as the final offer of the Australian Mining Global had been accepted by the opposite party but then it was rejected when they came to know about the situation with Mark Olav.

Section Four:

  • In this particular situation, Australia Mining Global is the principal and International Negotiation Expert is the agent, who has been employed to represent the principal and enter into a negotiation deal with Jakarta Iron Limited on behalf of the principal. However, no communication was maintained between the principal and the agent and no specific plan or instructions with regard to how the negotiation was to be dealt with was given by the principal to the agent. Also, the due procedure had not been followed while engaging International Negotiation Experts as the agent to represent Australian Mining Global in the negotiation deal. The appointment of the company as agent had been based solely on the fact that the lead expert of the company- Alex was an old friend of the authority who was appointing the agent company to represent Australia Mining Global in the negotiation deal as they had passed out from the same business school and were batchmates.
  • The compensation package that was proposed by Australia Mining Global to International Negotiation Expert on the basis of the per share price in which the acquisition and negotiation deal would be finalised definitely played a huge role in the negotiations stands taken by the members of International Negotiation Experts. The lowest price to be given per share which would result in the maximum compensation for the company in the acquisition deal was bid in the first chance by Alex- the lead expert of the company. The representative of the principal company- Australia Mining Global felt that this price was too low and there was no chance that Jakarta Iron Limited would agree to the price for or acquisition of the shares of their company. Several bids later, when the negotiation deal was almost lost, the agent company bid a price where no compensatory reward would be received by them. The deal was agreed to by both parties but later rejected on separate grounds.
  • The proposed incentive scheme of Australia mining global to incentivize International Negotiation Experts to shake hands on and finalise the best deal which would provide them with incentives should have been set out within the range of $1.40-$1.50, as $1.40 was the current market value of the shares of Jakarta Iron Limited and they would not have allowed acquisition of 67% of their shares below the current market price. The target price of Australia Mining Global was $1.54, which was giving minimum incentive to the International Negotiation Experts. To make sure that the maximum amount the experts will be comfortable to bid for, the range of incentive should have been limited to $1.50 so that a sure shot deal could have been entered into within the price of $1.54. Since the actual range was much broader, the final agreement was concluded at the price of $1.67, which is much higher than the target price set by the Australian mining global company.

Section Five:

  • The main ethical factors that could have affected the negotiation processes as well as the outcome are as follows:
    • Mark Olav was made a part of the negotiations- He was an ex-official of the company whose shares were being acquired. This is considered non ethical, not only in Indonesia but in business transactions all over the world. Ex-employees and officials have to enter into a contract of secrecy, where they are not allowed to divulge sensitive information of the company even after they retire and are no longer a part of the company. Additionally, this fact was hidden from the knowledge of the Jakarta Iron Limited company members who were negotiating with the team members of Australia Mining Global for the exchange of shares of the company. Including the ex-official of the company in the transaction was itself a non-ethical act, which was only enhanced when the truth was hidden from the members of the Jakarta Iron Limited.
    • Being from a company which deals with international negotiations, Alex should have included within his team- to deal with this particular negotiation, experts who can speak the local language and are well aware of the cultures followed in Indonesian business. Alex did not include any expert who could speak the local language but assumed that the business cultures and attitudes that are prevalent in Philippines and Sri Lanka would be similar to that of the business culture in Indonesia. This assumption was proved wrong as the business cultures in Indonesia are drastically different from those followed in Sri Lanka and Philippines.

Section Six:

Concluding the report, there were major lapses on the part of Australia Mining Global due to which the acquisition negotiation did not go through and members of the Jakarta Iron Limited refused to accept the offer of Australia Mining Global to acquire 67% of the shares even though they were willing to pay a price of $1.67 per share compared to the market value of $1.40 per share. Indonesian business cultures hold harmony and ethics in high value and believe that relations between parties have to be cultured to make successful business transactions. In this particular dealing, basic business cultural believes of Indonesia when not followed by the team of experts who had been appointed for negotiating the deal, and that resulted in in the failure of the deal between the two parties. Minor lapses on the part of Australia mining global also lend a helping hand to the failure of the transaction as a whole. The team of experts selected for the dealing and negotiation did not know the local language, which made communication between the parties a major issue. Lack of preparation and knowledge, along with unethical practices ultimately resulted in the failure of the negotiation deal.

References for Corruption in International Business

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