Maiyouqian Gongsi ( )* in Tianjin, China is a company that specializes in intermodal transportation. This means transferring containers, reefers and other large items between various forms of transportationship to rail, rail to truck, etc. In order to do this, Maiyouqian has created a state-of-the-art shipping facility at the Port of Tianjin, China. Recently, American Operators Inc. (AOI)* in San Diego, CA, a manufacturer of large cranes, received notice of the intent of Maiyouqian to purchase a specially designed crane system for its facilities in Tianjin. Maiyouqian provided the specifications and asked for a bid. Arthur Thurber, the CEO of AOI had never done business with China before, but this offer looked too tasty to ignore. If AOI won the bid, the project would be one of the biggest jobs the company had ever had, and could literally change their position in the market. If they got this job, AOI could become one of the big guys in the business, and demonstrate that it could do large "one off" projectsthose especially designed for a single customer. That, after all is where the real profit is, not in the standard jobs with lots of competitors. Thurber was initially skeptical about working with a company in China. However, after checking out Maiyouqian with James Huang Jiangua, a local business consultant, Thurber felt fairly comfortable in at least talking to Maiyouqian, so he scheduled a trip to see their facility in Tianjin. Thurber arrived in Tianjin and was greeted by the Maiyouqian management as if he were royalty. Thurber discovered that Maiyouqian is a state owned enterprise (SOE), wholly owned by the Province. He drew some comfort from knowing the Chinese Government would be behind the business. The day after he arrived, he was shown through the facility. The area was a bit shabby, but for a shipping facility, it was not out of line. There seemed to be hundreds of workers there, and everybody was busy. That evening Pang Taowen, the facility manager, and several of his staff, invited Thurber to a "banquet." It was quite a sight. There were round tables with many of the Maiyouqian staff in a room lavishly decorated in gold and red. Beautiful waitresses in colorful, long silk dresses served the meal...and what a meal it was! There were 12 courses of exotic foods, and lots of baijiu (rice wine) to go along with it. Thurber had read about how important it is to go along with local customs, and before the meal was finished he was quite inebriatedas was everybody else in the room. The evening was memorable to say the least. The next day, negotiations got down to business. Although he was an experienced negotiator, Thurber had never done anything quite like this before. Each point seemed to be like pulling teeth, and just when he was ready to give up, Pang made some significant concessions. And, even after he got agreement, the negotiators from Maiyouqian seemed to double back and start over again. It was grueling. Finally, late in the afternoon, they reached a final agreement.

Initially Thurber wanted to negotiate "progression payments." AOI's engineers estimated that it would take about 18 months to complete construction of the crane system. That meant financing would be an issue. The agreed price for the crane system was to be $21 million, and it was customary in this industry for clients to share the cost of financing on a project like this. Thurber wanted to negotiate a customary deal: upon signing, when the project was half complete, at when construction was finished, and the remainder upon receipt of the system. Pang would not go along with this. He informed Thurber that under Chinese law, progression payments were illegal and therefore banned. Pang was sympathetic to the finance problem however, and admitted that the lack of progression payments would result in increased costs for AOI. He agreed to supplementary payments to cover the additional financing charges. In addition, he agreed to a confirmed, irrevocable letter of credit, drawn on the Bank of China for the full amount, to be paid upon final delivery. Pang had one more request. He noted that the risk was not only on AOI's side of the deal. As part of the agreement, he wanted to be able to inspect the equipment before it was shipped. He agreed to strict standards for production, to protect AOI from him arbitrarily changing his mind after the crane was finished, and even agreed to have an independent engineer of AOI's choosing accompany him to make the final determination. This was critical to AOI, since there is no other potential buyer for this specially designed system. If Pang refused shipment, there would be no other buyers. But, Pang said he would feel more comfortable if he were guaranteed the right to actually see the crane before it was shipped and insisted on this provision. This seemed reasonable to Thurber, since he was confident he could provide the quality needed. According to a recommendation from legal counsel, Thurber demanded that there be a dispute resolution clause included in the contract. This clause called for international arbitration in case of a dispute. Should problems occur, Pang initially wanted arbitration to take place in Beijing. Thurber disagreed and argued for Oslo. They finally set Singapore as the place for dispute settlement. The rules of the Treaty of New York on arbitration were agreed upon by both parties. The deal was signed, and Thurber returned to San Diego with a contract in his pocket. With this contract in hand, he went to his bank to negotiate an $18 million line of credit, with a 16-month windowa bit over the estimated cost of production. Thurber immediately started to hire new staff, and production began. *The names of the companies have been changed, but the case is real. Issues to be considered (among others):

1. Would you have signed this deal? Why or why not?

2. If anything, what would you change? Specifically, what would you have NOT agreed to, and what would you have added?

3. If the company could start over, what would you recommend they do before beginning these negotiations?