TheOmegaFilmsLtd Case

Background

After its rapid transition from a centrally planned economy, which started in 1989, Hungary now hasafunctioningmarketeconomy.Becauseofthelackofinternalcapital,foreigninvestmenthas been crucial for economic growth. Hungarians had great expectations of foreign companies investing inHungary.They hoped for capitalinvestment toboostthe economy, creating newjob opportunities and ethical business, but sometimes they were let down and ended up as second- rate partners in business transactions. Many of the investors have been Austrian, which derives from the common historical background of thetwo countries. The Austro-Hungarian Empire was dismantled in 1918 but economic and cultural relations survived. If a multinational company has an Austrian division, it is the Austrian division that establishes a Hungarian subsidiary. So many Austrian businessmen have come to do business in Hungary that we could say there is an AustrianbusinesscommunityinBudapest.DuetoculturalsimilaritiesinAustriaandHungaryitis rare to find female managers in the top management of companies in either countries. Women are usually in the middle management and report to male supervisors. Female managers may have difficulties when trying to negotiate with male managers on an equal basis.

BauLtd.

BauLtd. isanimportantsubsidiaryofanAustrianconcerninHungary,whichoperatesinthe construction industry. The CEO is Mr. Abel, an Austrian citizen.

Most of the work is done by Hungarian subcontractors, but the construction manager is always anAustrianengineer.BauLtd.isthebiggestcompanyinHungaryintheroadconstructionmarket and the third in the construction industry. The annual meeting of the company is held in the autumn.In1999Mr.Abelshowedavideofilmatthemeeting.Itwasentitled"RoadsinHungary" anditinformedtheshareholdersabouttheconstructionoperationsofBauLtd.inHungary.Itwas agreatsuccess.AsmallHungariancompanyhiredbytheHolmPR-Agencymadethevideofilm. TheownerandchairmanoftheagencyisanAustriancitizen,Mr.Holm,agoodfriendofMr.Abel: they served together in the Austrian Army.

HolmPR-Agency

The Holm PR-Agency is a small company, whose chairman and owner is Mr. Holm. He is 60 yearsold.Heknowsthedecision-makersofeveryAustriansubsidiaryinBudapest.Heisatypical "man-with-connections"meeting hisclientsin hotels, restaurantsandpubs. Hedoes notneedto compete for new contracts because he knows the decision makers personally. His personal persuasionskillsarehismostimportantasset.Theagencyisalwaysinafinancialquagmire.Mr. Holm hopes for a big business deal: he plans to organize the greatest world operetta festival at Lake Balaton, or a project marketing Hungarian cities inAustria, but he has staff that is neither competent nor creative. The ten employees keep changing because they are not paid regularly. Mr. Holm does not speak Hungarian, but he understands a little bit.

OmegaFilmsLtd.

OmegaFilmsLtd.isasmallvideofilmstudiowherethreefull-timepeopleandsixteenfreelancers work together.Themainprofile of thestudiois shooting documentaries, but theyneedmoneyto financethisactivity.Onepossiblewayistomakevideosforindustrialcompanies.Thestudiohas its own equipment bought on credit, and it has some liquidity problems because of payment problems with its clients. The company's CEO is Mrs. Papp, who is thirty years old. She speaks GermansosheistheonewhokeepsincontactwithMr.Holm.TheheadofthestudioisMr.Rk, who is forty years old. He can only speak Hungarian.

TheInteraction

The latest project of Bau Ltd. was the construction of an exclusive office Building in Budapest, called R-99 Office Building. It was part of the radical change of company strategy from road constructiontotheconstructionofofficebuildings.Mr.Abelwantedavideodocumentationofthe wholeprocessfromthelayingofthefoundationstotheinauguration.HegavethejobtoMr.Holm, butheinsistedonOmegaFilmsLtd.assubcontractor.Mr.Holmmadeadealwiththestudio:The pricewouldbe250,000HUFpershootingday,paidquarterly,and2,800,000HUFforeditingthe film, paid after delivery of the finished product. Mr. Holm's profit would be 1,350,000 HUF. On November, 1 .1999 Omega Films Ltd. invoiced Mr. Holm (2,500,000 HUF + sales tax) for production of the film "Roads in Hungary." The settlement date was November 15, 1999 but Mr. Holm did not settle the payment. He admitted having received the sum from Bau Ltd., but said that he had some problems with his taxes and would pay two weeks later. This promise was repeated every two weeks. Omega-Film studio started shooting the new film "R-99 Office Building" at the end of November in spite of the outstanding invoice. Not doing so would have meantthatOmegagaveupthejob.OmegaFilmsLtd.hadtodealwithadifficultsituationasthey had to pay the sales tax portion of the invoice, and also had to pay business taxes and local tax advancesbyDecember20.TheinvoiceforthefirstfilmwassettledattheendofFebruary,2000. Theshootingofthesecondfilm,"R-99OfficeBuilding"continued.Mr.Holmnevercheckedonthe workoftheteam;nobodyfromtheagencywaspresentattheshooting,orhelpedtoorganizethe work.Thefirstinvoice,dueonMarch152000,wassenttoMr.HolminFebruary,2000.TheHolm PR-Agency accepted the invoice of 1,500,000 HUF (including sales tax) and promised to pay when Bau Ltd. transferred the money.

April5,2000.

Mr. Holm phoned Mrs. Papp to tell her that Bau Ltd. did not accept the invoice, because it was too high. He objected that on some shooting days theteam had worked only a few hours on the site.Mrs.PapppromisedtomakealistofthehoursofshootingperdayandsheaskedMr.Holm

to go to the studio with Mr. Abel in order to see the master copy. She told him that they could accountforthenumberofdaysandtheamountoftimetheteamwasshootingcheckingthetime codes. Mr. Holm said he would visit the studio with Mr. Abel the following Wednesday.

April11,2000.

Mr. Holm cancelled the meeting by phone. He apologized, saying that Mr. Abel was on holiday and could not come. He invited Mrs. Pappfor dinner. Hesaid that Mr. Abel had promisedto pay him after returning home. He would transfer the money to Mr. Holm on the following Thursday and Mr. Holm would settle the invoice immediately. Mr. Abel asked for a reduction in price and limitedthenumberofshootingdays.Mr.Holmneededanewquot.May2,2000.Mrs.Pappfaxed a new quot of twelve shooting days for a cost of 2,500,000 HUF. She phoned Mr. Holm saying that they would continue the work only after the settlement of the invoice. She sent an official letter requesting payment.

May20,2000.

Mr. Holm invited Mrs. Papp for lunch at Gundel's, one of the best restaurants in Budapest. He explained to her that hehad problems with his company. He had a lot of liabilities and he had to increasehiscompany'scapitalstockbecauseofthenewregulationsinHungary.Headmittedhe hadreceivedthesumfromBauLtd.AlthoughhecouldnotsettletheinvoiceheaskedMrs.Papp foranestimatefor anewfilm. HehadmettheCEO ofanAustriancompanytrainingdogsforthe blind, and he wanted a video film building the company image. Mrs. Papp promised to produce an estimate and she sent it to Mr. Holm, but he did not answer.

June20, 2000.

AsMr.Holmhadnotpaid,Mrs.Pappsenthimaletterreiteratingtherequestforpaymentandshe stopped the filming.

October10,2000.

Mr. Holm invited Mrs. Pappforlunch atGundel'sbut sherefused his invitation and askedhimto gotoameeting inthestudio.Mr. Rk,theheadof thestudio,andMr. Bir,thevisualsmanager, werepresentatthemeeting.Mrs.Papptranslatedthewholemeetingforthetwoco-workers.Mr. Holm talked about the serious situation of his agency. He wanted to market a new Austrian energy-drink in Hungary. When a truck with the samples of the energy-drink arrived he did not knowtheHungariancustomsregulationsandwassurprisedthathehadtopaythedutyandsales tax, in the sum of 4,000,000 HUF. He said that he wanted to send the whole consignment back. Thenhewouldgethismoneybackandhewouldpaythematonce.Butheaskedthemtocontinue the work as the topping-out ceremony of the R-99 Office Building was scheduled forOctober 25 and it would be essential to film this part of the building construction. He promised to pay at the endofOctober.Mr.Rkexplainedthattheyhadhadtopaythefreelancersworkingforthestudio so they had suffered serious losses. Mr. Holm argued that if they did not finish the film, it would beafinancialdisasterforallof them. Mr. Rkagreedtofilmtheceremony. Aftertheceremonyit came to light that Mr. Holm had bought a new luxury vehicle, an Audi Quattro.

Analysis the interpersonal, emotional and cultural factors in negotiations based on the case study.