The complications that Pacific Oil Company confronted as it reopened discussions with Reliant Chemical Company in early 1985
When Pacific Oil Company was first negotiating with Reliant Chemical Company, the demand on product was very high and supply was minimal thus project stable market and good returns for over a long period. However, after negotiation was completed and contracts were sign, another development in the market emerged(Raiffa, H., 1982). Several chemical manufacturing firms were built thus increased the supply of the products into the market. This led to excess products available in the market thus affected the long-term contract sign between Pacific Oil Company and Reliant Chemical Company. The changes in the market dynamics was projected to affect adversely the performance of the Pacific Oil Company if the contract was to be sustained, as a result they opted for re-opening negotiations to factor in the present changes experienced in the market.
The shifting from high demand of VCM products to excessive supply was occasion by immenseimproved in global manufacturing abilities for VCM. During the negotiation process, Pacific Oil Company failed to anticipate for increasing manufacturing capacities due to the emerging manufacturers of VCM in the world. During negotiations Pacific Oil Company relied heavily on the demand of the VCM at that time and projected the supply and demand to remain constant for over a long period of time(Lewicki, R., 1993). As a result, Jean who represented the Pacific Oil Company failed to effectively research on the demands of the Reliant Chemicals Company as well as project precisely what the outcome might be. Additionally, Pacific Oil Company had not organizedsufficiently to address future distresses and did not applied comprehensivearbitration strategy that included best alternative as well as eventuality plan. What come out clearly during the first negotiation was that Pacific Oil Company overlooked the need to formulate the best alternative as well as bottom line in advances. Although both Pacific Oil Company and Reliant Chemical Company wanted to move forward quickly to signing contract, Pacific Oil Company was not cautious about market dynamics(Meerts, P., 1999).Increased manufacturing capacities for VCM in the world also increase market completion, as a result, Pacific Oil Company bow down to the pressure by lowering the prices of VCM.
The strategies and success of Messrs, Fontaine, Gaudin, Hauptmann and Zinnser as mediators in this cases
Fontaine the Marketing VP Europe of Pacific Oil Company &Gaudin of VCM Marketing Manager of Pacific Oil Company
- Both express worries of losing an important customer reliant by over-emphasizing the significance of a long-term business relationship during negotiations. The expressions signal the representative of Reliant Chemical Companies how valuable they were to the Pacific Oil Company. During negotiation, parties should not show the signs of fears or worries of losing a client because the customer might decide to take advantage of the situation and compromise the discussion(Lewicki, R., 1993).
- They easily concede to the influences of the counterparty without thoughtful challenging fundamentalexpectations. The strategy did not work well in their favor since they ended up giving in to the demands of the counterparty thus compromised the future re-opening of the negotiation incase market dynamics shift against the business projections(Lewicki, R., 1993).
- Did not makebenefit of market demand and supplies to pressurize on counterparty: As part of the negotiations, the two should have applied market demand and supplies to put pressure on their counterparty to give in to their demands or settled on a more balanced agreement.
- They did not deliberate on the 24-30 months’ time frame it takes until challengers can supply their products to Reliant. This is the important issue that needed to be addressed at first instance of negotiations without assuming the long-term consequences. The longer time frame is enough to be affected by market dynamics(Lewicki, R., 1993).
- They failed to achieve a compromise regarding the pipeline metering issues: The parties should have engaged in sharing the cost of constructing and metering the pipeline. Since they could not convince Reliant Chemical Company to share cost, they end burdening the Pacific Oil Company with the expense and later affected by the supply and demand in the market.
Hauptmann the senior purchasing manager reliant Europe and Zinnser the regional VP operation reliant Europe
- They began by demanding for amendment of main contract terms such as minimum quality, price and duration and they managed to successfully achieve compromise regarding all three aspects(Raiffa, H., 1982). This is the expression that they both either into the negotiation table when they have researched adequately and projected about the future performance of the market.
- Proficiently turn to most significant points by affirming that only a few trivial issues needs to be deliberated including pipeline metering, meeting competition clauses, favored nations clause and contractual rights to re-sell(Raiffa, H., 1982). It is clear that Hauptmann and Zinnser had realized the weaknesses of counterparty thus entering into the discussion with confidence of achieving their goals without compromising the performance of the business even when faced with future changes.
- Hauptmann and Zinnser control the discussions by determining the order of the point deliberated and set consistent pace and managed to achieve their goals sequentially. It seems they were not ready to concede for anything less than what they were presenting on the table. This could be translated to mean they had nothing to lose and they had projected market accurately before availing themselves for the discussion(Raiffa, H., 1982).
Negotiation Tactics used
- Mandate: They exercise their mandate to fully address issues of concern despite the minimal effect they had on the final outcome.
- Limited Authority: They seek the requisite consent from the corporate headquarters used by both parties
- Sequential process: Hauptmann and Zinnser ensured that they achieve their goals one at a time without compromising the state of the next goal.
- Active engagement: Hauptmann questionthe willingness of Pacific Oil Company to engage in long-term business relationship.
What should Frank Kelsey Commend to Jean Fontaine at the end of the case?
- Do not give approval to re-sell provision: The reason being that Reliant Chemical Company will be buying VCM at a lower cost from Pacific Oil Company thus making more profits while Pacific Oil Company making loses.
- If Reliant continues on re-sell provision suggest to include additional provision that excludes Reliant to re-sell below or above contract price: This is because in the first contract there was clause permitting the re-sell of VCM thus introducing the clause of re-selling with the price they obtained from Pacific Oil Company give options to the POC to expand customer base.
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