McDollar's in Motherland.(Instructor's Note)

Barkacs, Linda L. ; Barkacs, Craig B.

CASE DESCRIPTION

The purpose of this case is to provide an international negotiation exercise, derived from a specific setting adapted from a real situation, that tests the ability of students to overcome narrow thinking and cultural obstacles and structure an integrative and mutually beneficial agreement. The case is appropriate for junior or senior undergraduate students or first year graduate students, depending upon the depth with which the instructor wishes to explore the case and the instructor's comfort level with the issues included in the case. The negotiation exercise is designed to take about two hours (including the debrief), although more time may be spent on it. The case requires that students devote approximately one hour to preparation of the case, but this time can be spent outside class if necessary.

CASE SYNOPSIS

This case is based in a very general way on the circumstances surrounding McDonald's efforts to begin operations in the former Soviet Union. As George Cohen, the McDonald's executive charged with trying to gain a foothold in the Soviet Union, stated:

We learned to treat frustration and delay like natures force of gravity. Remember, this was the height of the Cold War. It was 1976. Brezhnev was in power. It was the "Evil Empire." It was Karl Marx in one corner and Adam Smith in another corner, squaring off. There was no happiness, everything was gloomy. And here we were, wading in. We, the epitome of capitalism, mother and apple pie, were trying to get into the Soviet Union during the height of the Cold War (Moon and Herman, 1982).

This negotiation exercise is set in the fictitious nation of Motherland. Motherland certainly resembles Russia, but the use of the country's name directly in the case is avoided to reduce student tendencies to stereotype real people and to avoid potential errors introduced by students who have knowledge of Russian culture. Thus, Motherlandian culture is intended bear some similarity to Russian culture (and in fact may be portrayed, for purposes of this exercise, as what some may regard as stereotypical Russian culture--fairly or not--on steroids!), but Motherlandian culture can only be truly explained by the materials in this exercise.

The negotiation helps students learn to negotiate in a more integrative fashion. Because the exercise is not scored quantitatively based on outcomes, the situation can lead to the use of creative collaboration in an unexpected venue. The Cohen quote above illustrates a common perception of Cold War relations with Russia before the fall of the Soviet Union. The marriage of McDollar's, which is the metaphoric embodiment of capitalism, to a struggling post-communist state seems counter-intuitive by its very nature. The odd-couple dynamic in this negotiation exercise, however, actually creates possibilities that can be beneficial to both parties. In the case of McDonald's, these possibilities were beneficial to both parties. Thus, this negotiation puts students in an adversarial mind set, which they must work beyond to reap the collective benefits of an agreement. We hope that the students will be drawn toward this understanding through analyses of their own best alternative to a negotiated agreement (BATNA) because both sides lose if the parties fail to reach an agreement.

In addition to testing students' understanding of BATNAs, the McDollar's negotiation challenges students to decide between two drastic extremes. On the one hand, they will be tempted by profit motives and corporate advancement. On the other, they have the chance to promote social welfare among an impoverished people. This is an internal conflict that those on the McDollar's side of the negotiation are especially likely to encounter because, as Americans, it is remarkably easy and culturally predictable to lapse into greed-driven competition. This universal tension between public good and private gain is played out at both the individual level and the broader societal level in this negotiation exercise, given the situational conflict between communism and capitalism, collectivism and individualism, and every other difference between Soviet and U.S. culture. This case is built on a bargaining position template developed by Barkacs and Barkacs (2004).

INSTRUCTORS' NOTES

This negotiation is best done as a team versus team simulation between members of the Motherlandian Government and members of McDollar's corporate Motherlandian board. As it is an international negotiation with the American team engaging in conversation with individuals of a radically different culture, they should be knowledgeable about Motherlandian society and business practices. There will undoubtedly be some uncomfortable periods during the simulation as both sides get accustomed to the other side's culture. Students should be well aware of the Motherlandian cultural practices and superstitions that are listed on the provided cultural sheets.

When the students begin to get into negotiation issues, there are a number of issues that each side may approach in an integrative manner. Let's look at each issue to see the possibilities.

Issue 1--Menu Changes:

Menu consistency is the cornerstone of the McDollar's dining experience, and is crucial to Dunn and his/her board. While Kasiminov may prefer that some slight changes be made or food selections added, this issue is not all that important to the Motherlandian government. This issue was basically created as ammunition for the Motherlandian side to give as a concession to the American side. A win-lose situation would be

if both sides solely accepted one menu or the other; the American menu or the Motherlandian menu. Students have the opportunity to be creative in menu changes so that both sides can be pleased.

Issue 2--Local Sourcing:

This is one of the issues that offers the most possibilities for an integrative deal. It is incredibly important to Kasiminov that all of the capital and infrastructure improvements are made to his/her country in order to benefit his people. Likewise, sourcing locally can be very beneficial to Dunn in the long run. Dunn, however, will have to see past the hurdle of the high start-up costs associated with this.

In the actual case, all of these improvements were in fact made, with a cost of around $45 million American dollars (which included roads, the McComplex, and farmer education, etc.), all which have been incredibly effective. Students can also be very creative here in the ways in which they choose to train farmers and construct infrastructure. The American briefing warns Dunn that Jay Brock will be angered by delays, but he has already incurred fourteen years of waiting; Jay Brock is not about to lose this deal over simple start-up costs, which he probably expects.

In actuality, corporate McDonald's flew in European supply specialists including a Dutch cucumber specialist for making pickles, a German meat expert, and their European potato supplier. The benefits of local sourcing kept costs low and consistency and quality high for McDonald's in the long run, maintaining the excellence of their products. Likewise, the farmer training and infrastructure built Russian farms around Moscow not only into steady suppliers for McDonald's, but into incredibly profitable business which helped to feed the starving masses (which is mutually-beneficial pie expansion).

Issue 3--Hire Locally:

This is an important issue for both sides, but one that we do not feel should be difficult to resolve. Kasiminov obviously desires Motherlandian employees and management to boost his economy, and Dunn will want to maintain autonomy with American managers. The training costs are thrown out as a red herring, but truly are largely insignificant. An optimal outcome for both sides would be to train well educated locals at Hamburger University, with McDollar's picking up the tab, which will be a small expense when tacked on to the McComplex costs. The issue of financing the training can be used by the American side as a potential bargaining fodder for other, more important issues. In reality, all Russian employees were used, and made up the most amazingly competent and over-educated staff of any McDonald's in the world (e.g., McDonald's employed a top-level rocket scientist to run the Dunn).

Issue 4--Ownership

This issue is non-negotiable for Kasiminov and the Motherlandian side. They will not be able to take lower than 51% ownership, and would like more. This will be a strong conflict. We have included this issue so that the Americans will actually feel all of the sacrifices that are sometimes necessary to avoid a terrible BATNA. In reality, the Russians and the city of Moscow ended up owning 51% of the ownership of the venture; in 1998, however, McDonald's had renegotiated their stake back up to around 80% ownership.

Issue 5--Location:

It will be easy and clear to both sides that location one, in Pushpin Square, is the best area to locate the venture for both parties. It will be expensive for the Americans to obtain the site, but well worth it; it will be a good site for the Motherlandians as well, but much more difficult to acquire by Kasiminov. The Minister of Commerce, however, will be able to use this as leverage to get more out of the American side on other issues; if he is able to obtain the real-estate.

Issue 6--Currency:

Using Rubles only is a substantial risk to the Americans with the fears of devaluation and the impossibility of repatriation. So they will and should do everything in their power to fight for dual lines and dual use of Rubles and hard currency. On the other hand, Kasiminov will be a staunch supporter of Rubles only for the McDollar's venture, as will the general Motherlandian populace, who will be the main customers. This is a very important issue, and it is somewhat of a lose-lose situation for the American side. But as long as the company can operate self-sufficiently with Motherland (which forcefully implicates the need for the McComplex), repatriation will not be necessary and choosing Rubles only will show good faith on the part of the Americans, which will gain the respect of Kasiminov and the Motherlandian commoners. In reality, McDonald's Russia accepted Rubles only, which gained them the respect of the Russian people, but was faced with economic crisis with the devaluation of 1998.

Cultural Issue--A Cultural Trap for U.S. (McDollar) Negotiators.

Herb Cohen's book, You Can Negotiate Anything, contains a chapter titled "Winning at all costs ... Soviet style," which lists and describes six particularly hard bargaining--and incredibly unproductive--negotiating techniques.

The summary version of those techniques has been adapted and included in the negotiation packet for U.S. (McDollar) negotiators. The expectation is that McDollar negotiators will stereotype their counterparts and wrongly impute to them Soviet style negotiating techniques. The reason this is false attribution on the part of U.S. (McDollar) negotiators is because Motherlandian negotiators are being given the same information, except they are explicitly told that the Soviet style is by no means necessarily the Motherlandian style and, in fact, because of the horrible Motherlandian BATNA (no deal, economic stagnation or decline) Motherlandians should be particularly motivated to bargain in good faith (as they are explicitly told to do) in order to strike a deal.

The intentionally constructed irony in this exercise is that on issues on which Motherlandian negotiators may state they have no authority, for example not being able to pay for McComplex or not being able to go below 51% ownership, the truth is they really do have no authority--and their role information packet says exactly that. U.S. (McDollar) negotiators, however, are likely to convince themselves that any reference to "authority" by the Motherlandian negotiators is nothing but a Soviet style tactic and they may wrongly become cynical and distrustful, i.e., a self-fulfilling prophecy will take place. Some of the Motherlandian positions may strike U.S. (McDollar) negotiators as extreme, but they really are not extreme given the weak state in which Motherland finds itself.

If the parties lose sight of their BATNAs, become too competitive, and forget where they are in the negotiation process--it's been going on for fourteen years--they will reach an impasse, which both parties should understand is a disaster. Given that we have the real world case to fall back on during the debrief, it can credibly be explained that in the real world McDonald's satisfied almost all of the Soviets' needs not because the U.S. was weak during the negotiations, but because McDonald's fully understood that accommodating legitimate Soviet needs was the only way the deal could work--and, as history has borne out, the agreement was a success in the real world for both sides.

NEGOTIATION TERMS (FOR INSTRUCTOR'S USE IN DEBRIEF)

BARGAINING ZONE: The bargaining zone is also known as the "settlement zone."

BATNA: A negotiator must determine his/her Best Alternative to a Negotiated Agreement. This is so important that it has been made into an acronym. A BATNA is the point at which a negotiator is prepared to walk away from the negotiation table. A negotiator should be willing to accept any set of terms superior to their BATNA. Moreover, a negotiator should reject any set of terms that are worse than their BATNA (Fisher, et al. (1991), Thompson, 2001).

EXPANDING THE PIE: Expanding the pie is a method used to create integrative agreements through the use of integrative negotiation. It is the opposite of Pie Slicing, also known as Distributive Negotiation or Fixed Pie Negotiation, a faulty perception that the parties' interests are completely opposed. Expanding the pie means identifying trade-offs and avoiding compromise (Thompson, 2001).

INTEGRATIVE NEGOTIATION: Integrative negotiation is also known as "win-win" negotiation. Common misperceptions are that win-win negotiation means compromise, an even split, feeling good or building relationships. What win-win really means is that both parties are better off than if there were no agreement. The very best integrative outcome--an optimal agreement--means all creative opportunities are exploited and no resources are left on the table. (Thompson, 2001).

AUTHORS' NOTE

This case was inspired by and is a modification and expansion of a case entitled "McDollars in Mother Russka," a case originated by former University of San Diego undergraduate students Nicholas M. DeWeese and Zachary G. Puca. The case is based loosely based on the actual case study of McDonald's in Russia and was structured based on the bargaining template (Smart Growth for St. James) produced by Linda L. Barkacs and Craig B. Barkacs.

REFERENCES

Barkacs, C. and L. Barkacs (2004). "Smart Growth for St. James," University of San Diego Working Paper.

Bosrock, M. (2005). "Russia: The People," College Journal from The Wall Street Journal, <http://www.collegejournal.com/countryprofiles/countryprofiles/ russia.html>

Cohen, Herb (1980). You Can Negotiate Anything. New York: L. Stuart.

Fisher, R., W. Ury, & B. Patton (1991). Getting to Yes: Negotiating Agreement Without Giving In. Second Edition. New York: Penguin.

Moon, Y. and K. Herman (1982). McDonald's Russia: Managing a Crisis. Cambridge, MA: Harvard Business School Press.

Saratov (2005). "Business Etiquette," Saratov, March 5. <http://www.geocities.com/WallStreet/7138/text_8.htm> Thompson, L. (2004). Mind and Heart of the Negotiator. Third Edition. Upper Saddle River, NJ: Prentice Hall.

Linda L. Barkacs, University of San Diego

Craig B. Barkacs, University of San Diego