PORTFOLIO PARTS TO BE GRADED

1. Competence: Reading comprehension: students can understand background information, company profiles and a memo as well as comprehend the cultural cues within them Writing: students can write a succinct, cohesive briefing note, giving advice and making suggestions

2. Input: MedLee: In Pursuit of a Healthy Joint Venture adapted from Harvard Universitys Program on Negotiation role play of the same name, by Candace D. Lun under the supervision of Jeswald W. Salacuse

3. What to do: A. Read the task, background information and company profiles B. Make notes on the most important information, and think about which of the negotiation strategies discussed in this course could be applied in this case. C. Write the briefing note as outlined in the task (approx. 800 words). D. Upload your briefing note as a Word document using your name as the file name (e.g. Marta_Schmidt.doc) to the bung.

THE TASK:

You work as personal assistant to Pat Armstrong, the head of International Development at MedDevice, an American medical equipment manufacturer and distributor. Ms Armstrong has asked for your help as she prepares to negotiate a joint venture with Lee Medical, a medical devise distributor based in Thailand. Her first meeting with a representative from Lee Medical is next week, the goal of which is to reach agreement on how decision-making and staffing will be handled at the new company. Read the background information on the following pages and write a briefing note (approx. 800 words) for Pat Armstrong in which you advise her on how she should approach this negotiation as well as warn of potential risks. Your note should include: cultural differences that may create opposing positions on each of the negotiating points suggestions for countering those potential issues suggestions of how she should negotiate each point including appropriate strategies Background Mr. An Lee (owner and President of Lee Medical Supply) and Mr. Ralph Thompson (CEO of MedDevice) met while both men were vacationing with their families at a luxury resort on Phuket Island, an exclusive vacation spot in Thailand. They met over drinks at the pool one evening, and finding that they had much in common in terms of business interests, had several meals together over the next few days. They became fast friends with great respect for each other's intellect, business acumen, and sense of humor. Mr. Lee and Mr. Thompson were intrigued by each other's respective businesses in general and by the complementary nature of their core competencies and needs specifically. MedDevice had cutting-edge technology and products, but no access to distribution channels and the medical customer base in Thailand. Lee Medical Supply possessed a strong distribution network, a well-trained sales force, relationships with most of the major hospitals and doctors in the country, and an intimate knowledge of the protocol, legal issues, and eccentricities of the Thai market. Lee Medical lacked access to some of the newer, more sophisticated technologies like CAT Scanners, MRIs and pacemakers, the demand for which had been increasing exponentially in the increasingly affluent Thai market. Lee and Thompson spent many hours chatting about the potential synergy between their two companies. The vacation ended, but at Mr. Lee's invitation, Mr. Thompson visited Lee Medical Supply in Bangkok before returning to the States. The two solidified their friendship and respect for each other by signing a Memorandum of Understanding to pursue a joint venture between Lee Medical Supply and MedDevice (attached in Exhibit A), the purpose of which was to establish a sales office in Bangkok under the name of MedLee, Ltd. and to develop the market for MedDevice equipment in Thailand and throughout Southeast Asia. Initial capital would be U.S. $2 million. MedDevice would provide 60% of the capital, and Lee Medical Supply, 40%. Mr. Lee and Mr. Thompson are delighted by their new venture. In particular, Mr. Lee was impressed by Mr. Thompson's ability to forge a relationship, while Mr. Thompson was impressed by Mr. Lee's thorough approach to business. Both fully expect to be in business together very soon. They parted, agreeing that they would have their subordinates work out the details of the arrangement in preliminary negotiations. Specifically, they agreed their subordinates should discuss the following issues for the joint venture: Decision-making Staffing Mr. Lee and Mr. Thompson would meet at MedDevice headquarters in three weeks (when Mr. Lee would be in the States on other business) to review the results of the preliminary negotiations.

EXHIBIT A:

Memorandum of Understanding Following our cordial conversations over the last few days, it is in our mutual interest to establish a joint venture to be called MedLee, Ltd. in Thailand to undertake the sale and distribution, in Thailand and Southeast Asia, of high-technology medical equipment manufactured by MedDevice. The initial capitalization of the joint venture will be U.S. $2,000,000, and the initial period of the venture will be five years. MedDevice, Inc. will contribute 60% of the capital and Lee Medical Supply will contribute 40%. We agree that representatives of our two companies will meet within 30 days to negotiate the details of this arrangement.

An Lee Ralph Thompson President CEO

Lee Medical Supply

MedDevice, Inc.

EXHIBIT B:

MedDevice, Inc. Company Profile MedDevice, Inc. is a U.S.-based Fortune 500 company that manufactures high-tech medical equipment and devices like CAT Scanners, MRIs and pacemakers. Currently, MedDevice earns more than 80% of its annual revenue from U.S. sales. Strategic studies indicate that MedDevice's greatest growth potential in the next decade is in developing its Asian and Southeast Asian markets. MedDevice has investigated the possibility of opening a whollyowned branch office in Southeast Asia. However, logistical problems, the complexity of local laws, and the difficulty of breaking into a foreign market that relies heavily on relationships and connections suggests that forming a joint venture may be necessary to gain access to key distribution channels in the region. With over 30,000 employees, MedDevice is known for its organization, precision, and efficiency. A rules-oriented company whose culture has been shaped by the highly regulated nature of the medical equipment industry, MedDevice prides itself on its structured systems, data-driven approach to making decisions and merit-based evaluation of employees. All rules apply to all, and the best ideas and results win out. These are the qualities that have made the company successful. Company strategy is to be the first to market with the most advanced and safest medical technologies. The specific means and timelines for implementing this strategy are codified into a set of company principles. These principles must be followed exactly so that each project that is undertaken is uniform, in terms of the processes that are carried out as well as in the way that its success is evaluated. All projects are given specific goals and objectives, including strict deadlines that must be adhered to. Without constant focus on deadlines, MedDevice would be unable to maintain its ability to be the quickest to market with superior technology. There is a MedDevice Way of doing things, and that is considered to be the right way. A common language is spoken and written across divisions of the company. Standardized processes also help the bureaucracy work efficiently and help with the measurement and evaluation of performance. The organization is large, so some bureaucracy and some hierarchy are necessary. The company, however, is moving away from this and is trying to flatten out layers of the organization to simplify processes. The CEO is concerned that the organization has become so large that upper management is out of touch with the employees. There has been a significant attempt to make the company more egalitarian; there is little differentiation until you reach the highest management levels in terms of offices.

EXHIBIT C:

Lee Medical Supply Company Profile Lee Medical Supply is a family-owned company employing about 30 people, located in Bangkok, Thailand. Lee Medical specializes in the distribution and sales of medical products including operating tables, hospital beds, X-ray machines, ultrasounds, and a variety of disposable medical supplies like bandages and syringes. To date, Lee Medical Supply has focused its business on distributing equipment and supplies for overseas (mostly American and European) companies. Under such distributorship arrangements, Lee Medical purchases supplies and equipment from manufacturers and then sells them in Thailand. Lee Medical profits from the difference between the prices it charges its customers and the wholesale cost it pays its suppliers. Over the years, Lee Medical Supply has experienced steady growth and strong financial results. However, as the demand for high-tech medical technologies has increased in Thailand, Lee Medical has been seeking opportunities to partner with a major U.S. manufacturer. Such a partnership would allow Lee to share in the greater profit margins associated with high-ticket items (as opposed to lowcost items like bandages) and to have some equity in the company's profits (as opposed to acting just as a middleman). Lee Medical Supply is fairly typical of the small, family-run and owned businesses in Thailand and other parts of Southeast Asia. The company was started 30 years ago by An Lee, who remains owner and president. His seniority and experience is well respectedafter all, he built the company from the ground up and has nurtured its development and growth into a profitable venture. What Mr. Lee says generally goes; employees respond, for the most part to both the letter and spirit of his directives. Decisions are made from above and executed with little discussion or dissension by the subordinates. The structure of the office seems loose because there are few official titles; however, employees know where they stand with respect to everyone else at any given point in time. Many of Mr. Lees relatives and close family friends work at Lee Medical Supply. The choice positions are generally reserved for Lee's sons and close male relatives. Indeed, 50% of employees at Lee Medical are either related to Lee or have a long-term association with the Lee family. For example, Mr. Lee's eldest son is Vice President, his nephew is Chief Financial Officer, his cousin is head of Sales, and his daughter is Office Manager. Such is the nature of a family-run business and Mr. Lee feels that the interconnectedness of everyone employed at Lee Medical helps the business because all are working towards the same goal. In addition, Mr. Lee trusts his relatives' motives and loyalty more than he would anyone else. Since there are few people working in similar positions, there is little competition among employees. Standard procedures have evolved over time, but there is no need to formalize them in such a small organization. Suggested changes in procedures may come from employees, but they are implemented only with the approval of Mr. Lee.

EXHIBIT D:

Mr. Thompson's Notes to Pat Armstrong TO: Pat Armstrong, General Manager of International Development FROM: Ralph Thompson, CEO, MedDevice RE: Preliminary Negotiations: MedLee, Ltd. Joint Venture Objective: To set up an international joint venture with Lee Medical Supply, Thailand. The new entity will be called MedLee, Ltd. and will be an international sales office located in Bangkok, Thailand, that will sell and distribute MedDevice brand CAT Scanners, MRIs and pacemakers in Thailand and Southeast Asia. MedDevice will provide 60% of the capital and Lee Medical will provide the remaining 40%. See Memorandum of Understanding. Task for MedDevice Representative: Meet with counterpart at Lee Medical Supply Company to discuss and create a preliminary proposal for MedLee joint venture on the key issues below. What follows are the main issues and my thoughts on each. Issues and Instructions for Preliminary Negotiation Decision making/Control: Major decisions should be taken by the General Manager with majority approval by a Board of Directors to be appointed by Mr. Lee and myself. A Board of Directors consisting of five members: three appointed by MedDevice, and two by Lee Medical (in approximate proportion to the percentage of capital contribution by each company). Staffing I expect the following structure should be sufficient for MedLee, Ltd. for the time being: One General Manager - appointed by MedDevice, since we contribute 60% of capital. It is important to have a MedDevice person head the office for quality control reasons and for knowledge of the medical devices. One Manager - appointed by Lee Medical, to advise and assist the General Manager on issues of local importance, as well as to cultivate local relationships with customers. The manager will be responsible for client interaction and management of the office staff. Four Sales Representatives - three appointed by Lee Medical, and one by MedDevice to execute sales and create distribution channels. Note: Anti-Nepotism Rule: We should enforce our anti-nepotism rule at MedLee, but perhaps we can make an exception to our rule for Mr. Lee's son. I got the impression that Mr. Lee wanted him to be involved in this venture. But we need to avoid a situation in which all of Mr. Lee's relatives end up working at MedLee. This could have the negative effect of creating precedent for our other joint ventures around the world and conflict with MedLee's appearance of fair treatment for all and promotion based on merit, as opposed to connection. The bottom line is that we need to ensure that we have the best quality workers who are fairly evaluated there should be no favoritism at MedLee.