For exercise #2, please answer the following discussion questions:

1. What’s your role in this exercise?
2. Have you made a deal in this exercise? Are you happy with the outcome? Why or why not?
3. What do you know about the preferences of the other party? How did you find out?
4. Should your goal be to maximize the size of the pie (total profit of El-Tek) or maximize your share of the pie that is distributed?
5. What were the critical factors that affected the negotiation situation and outcomes in Exercise #2 and what can you say about these factors in general?
6. What did you learn about yourself from this experience?

We did not make deal since opponent did not want to collaborate and wouldn’t divide evenly for both companies to be profitable.

Example of assignment

What’s your role in this exercise?

I was the buyer on behalf of Magnetic.

Have you made a deal in this exercise? Are you happy with the outcome? Why or why not?

No, we didn’t. I don’t think my opponent fully understood the exercise because the first price she threw in the conversation was $150 M transfer price because, according to her, that was the figure Audio would make if the division decides to keep the technology for itself. But according to my sheet, that number is $55 M. I was prepared to offer her 9% of our profits, on top of the profits Audio would make along with a 30% discount on the product if Audio purchases it directly from Magnetic. This calculation would bring the total to $55 M for Audio; but the moment she said she wanted $150, $100 M transfer price, I knew the conversation was over for me. It felt like I was wasting my time.

What do you know about the preferences of the other party? How did you find out?

I didn’t know her preferences. I certainly wasn’t expecting someone to ask for $150 M transfer price; therefore, anything I thought I knew or suspected was false.

Should your goal be to maximize the size of the pie (total profit of El-Tek) or maximize your share of the pie that is distributed?

At the end of the day, I think it boils down to sharing the profits with the motherboard; in this case, that is el-Tek. I currently work for a company that is branch of a bigger company and I really doubt that if the big company asks to transfer a product, we would negotiate a price where we would be put motherboard in the red financially speaking. Between parent companies, I believe there is an unspoken rule that you are not out to get them with it comes to profits.

What were the critical factors that affected the negotiation situation and outcomes in Exercise #2 and what can you say about these factors in general?

The number issue and factor was the transfer price. It was an outrageous amount of money. According to my sheet, if we agreed on deal #3 with a $150 M transfer price, Magnetic would be $20 M in the red.

What did you learn about yourself from this experience?

That I stick to what I believe is right. I knew what we were looking for and coming from the same type of corporate structure as El-Tek, you think about the company as a whole, not just for the benefit of a branch.

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