Property Acquisition and Negotiation Styles an Asian Case Study

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Table of Contents 1. Property Acquisition and Negotiation Styles: An Asian Case Study................................................................ 1 2. Bibliography...................................................................................................................................................... 10

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Property Acquisition and Negotiation Styles: An Asian Case Study ..

Author: Lim, Lan Yuan. ..

Publication info: Real Estate Finance 15. 1 (Spring 1998): 72-78. ..

ProQuest document link ..

Abstract: A case study is presented that emphasizes the need to understand the underlying interests of parties and to apply the appropriate strategies. In their negotiations, both parties benefited from the deal. The strategies adopted by them helped achieve a good outcome. SC's main concern was to dispose of SunCorp Tower at a good price. However, it was in urgent need for funds. SC would therefore have to adopt a strategy that did not weaken its bargaining position. The stalling tactic helped. Applying typical Japanese styles of negotiation, such as team decision making and the need to seek head office approval has assisted SC's case in putting up a good front of not being seen to be anxious to sell. CC also adopted an appropriate approach to the negotiation. CC used a competitive strategy demanding very high initial concessions and then held firm to its stand. Because of its interest to acquire a prime property such as the SunCorp Tower, CC also worked to satisfy both SC and its own needs by accommodating SC's requirements at the close of the negotiation. ..

Full Text: A National Association of Realtors' study (NAR [1990]) suggested that the real estate market was becoming global. Nearly a decade later there are few doubters that increased institutional ownership has highly influenced the global trend. Interest in global indexing of real estate returns is symptomatic of this trend as discussed within this same issue by Eicholtz et al. on the new "GPR 250 Property Share" index. Globalization of real estate markets is following the globalization of the securities market. With greater diversification and sophistication in the market, real estate deals are now more complex and difficult to handle. Good negotiating skills have become an essential tool for a successful investment. For overseas investments, one needs to adapt domestic negotiating skills in order to succeed in a multicultural global environment. International negotiations require a proper understanding of local business conditions and cultural factors. Over the past three decades there have been many different theoretical approaches to the study of negotiation. These different approaches often reflect the academic discipline of the researchers. For instance, economists have concentrated on game theory, labor negotiations, and trade disputes (Rapoport [1970], Luce and Raiffa [1957]). Austin Jaffe discussed game theory in a leasing context in the Summer [1997] issue of this journal. Lawyers have centered their work on the various alternative dispute-resolution processes to litigation (Gifford [1989], Bacow and Wheeler [1984]). Others have used a decision-making perspective to negotiation (Lax and Sebenius [1986], Raiffa [1982]). In real estate, most work on negotiation has focused on improving sales techniques, closing tactics, and marketing skills. Real estate negotiation is a relatively recent phenomenon in terms of it being perceived as both a disciplined art and a science that can be studied and researched. There is little consensus on the most effective negotiation approach when dealing in real estate, or when to pursue a competitive or an accommodating stance. The type of negotiation approach or strategy likely to yield the most favorable outcome is an important question to a real estate negotiator. The purpose of this article is to examine, through a case study, some of the factors that will affect the success of an acquisition type of negotiation and the impact of cultural differences in negotiating. Cultural sensitivity will become more important as portfolios become more global. Strategies and Tactics of Negotiation A number of factors influence successful negotiations, defined as a consummated transaction. These include 07 May 2012

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personality, style, strategies, tactics, cultural orientation, and the nature of issues in contention and relationships between parties. Among these, strategies and tactics, defined further on, stand out as important factors. A negotiation strategy is the broad plan or technique used to obtain the outcome desired from the negotiation and the resultant agreement. It refers to the overall game plan that negotiators employ to accomplish their goals. Tactics generally are considered the components of the strategy. They are the communicative behaviors that operationalize strategies in the bargaining process. Most negotiations involve mixed-motive or multiple-issue conflicts in which the parties have both co-operative and competitive interests. The co-operative and competitive interests of the parties give rise to two distinctive processes of conflict resolution. Walton and Mckersie [1965] have termed the processes "integrative bargaining" and "distributive bargaining," while Deutsch [1973] terms them "cooperative" and "competitive" processes. Associated with these different processes are distinctive strategies and tactics of dealing with conflict. A competitive strategy is characterized by a party's effort to maximize gains and minimise losses within a "winlose" or "self-gain" orientation. Negotiators using a competitive strategy typically set targets for preferred settlements, establish resistance points for no agreement, and bargain to optimize self payoffs. Competitive strategies therefore center on exaggerating and concealing information, avoiding or minimizing concessions, and holding-firm on positions (Lewicki et al. [1987]). These strategies are often used in real estate situations such as the sale of a property in which the issue is primarily economic and the goals of the buyer and seller are diametrically opposed. Since they are dealing with each other in a one-off situation and interdependence is shortlived, negotiators often engage in competitive bargaining to gain success. In contrast, a negotiator using a co-operative strategy aims to reconcile the interests of both parties, reach joint benefits, or attain "win-win" goals through open information exchange and joint decision-making (Pruitt [1986]). Advocates of integrative bargaining must be innovative and creative and aim to cultivate trust and find common interests. In real estate situations like negotiations over tenancy terms, integrative bargaining would therefore be a better approach because both the landlord and tenant share common interests and responsibilities in a future relationship. The effectiveness of either strategy depends on the circumstances and nature of the dispute, and the personality of the parties involved. It should be noted that a negotiator can change a strategy during a single negotiation. A negotiation process is therefore often viewed in terms of stages, turning points, crises, and activities (Druckman [1986]). Impact of Culture Culture is of great relevance for understanding cross-border negotiations. Several authors claim that cultural ignorance is a principal cause of cross-border negotiation breakdowns (Bochner [1981], Cohen [1991], Moran and Stripp [1991]). Culture refers to habits, prejudices, behaviors and manners of given people at given periods of development. It comprises a unique set of attributes relating to an aspect of social life that is acquired through acculturation or socialization by individuals in that society. Within a particular culture or society, cultural norms in dealing with disagreements and conflicts often develop. Culture per se, should not be an important consideration in a negotiation process in the sense that we specifically design a process to accommodate one culture over another. However, accommodating the cultural habits of others is important in social relationships, and is in fact a matter of good etiquette. Culture is therefore one component a negotiator should be aware of, along with all the other personality and procedural influences that are part of the dynamics of any interaction process.

When dealing with a bargaining situation, it is important that a negotiator understands the parties, Approach to Negotiation 07 May 2012

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Understand the interests of both parties. List issues in conflict to be negotiated. Obtain relevant documents and facts. Determine level of authority to negotiate. Summarize strong and weak points of both sides. Use objective criteria for evaluation. Create possible solutions. Prioritize agenda for discussion. Use appropriate style and strategies. Plan stages in negotiation process. background that is often derived from their ethnicity and socioeconomic status. All negotiators, whatever the context they are in, are coping not with only their own, but the other party's attitudes and behavior. Certain situations require the negotiator's understanding and sensitivity to these cultural and other underlying factors. The Americans and the Japanese, for instance, exhibit very different negotiating characteristics (Lewis [1996]). Facts of an Illustrative Case The application of the various strategies and tactics is illustrated in the following case. This case involves the sale of an office block in Raffles Place, within the financial district of Singapore, between the seller, a Japanese conglomerate, SunCorp (SC) and the purchaser, a local group, CityCorporation (CC). The negotiation lasted nearly five months. The prime office block was eventually sold for $270 million.

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SC completed its flagship office development, SunCorp Tower in Raffles Place, in 1989. Since then, it has housed its retail and trading operations within the same building, occupying 15% of the office space. For years, the Grade A office building has been yielding good rental income for the Japanese group. In December 1996, SC experienced serious financial difficulties and incurred huge debts in Tokyo. Its top management decided to liquidate its asset in Singapore to help repay the group's debts. The property was estimated to worth $300 million then. Meanwhile, Singapore's cash-rich trading giant CC had recently reviewed its corporate plan and set a new directive, to invest in prime properties. It was specifically keen on quality office blocks in Raffles Place that could boost its corporate image, as well as providing good income flow and potential for longterm capital appreciation. Through SC's agent in January 1997, CC made an offer of $265 million. This bid was the highest ever received by the group when it discreetly put SunCorp Tower on the market. SC came back with a counter offer of $330 million. In response, CC proposed two alternatives. It would improve its offer to $330 million, on condition that the sale would be completed in thirty months, and progressive payments were made over this period. Alternatively, it would improve its original offer of $265 million to $270 million, with a completion period of six months for all cash payments. SC did not respond to the counter offer until two months later and requested a face-to-face meeting with CC. SC Tokyo's senior officer Mr. Watanabe flew in to Singapore. It was the first time SC got to meet the prospective purchaser, CC, in person. At the end of the intensive one-week negotiation, both parties agreed on the following major terms: 1. CC had to improve its offer to $280 million, with an up-front cash deposit of 15%, and a sale completion period of sixteen months. 2. In addition, CC agreed to indemnify SC up to 15% of any taxes that might arise from the sale. 3. CC had to agree on a leaseback period of thirtysix months for SC-related subsidiaries; the rental payable to be negotiated based on at least 10% below-market rates. An agreement was signed on a one-month exclusive negotiation period during which both parties were required to seek their respective head office's approval on the terms. In early April, Mr. Watanabe returned to Singapore for a second round of negotiations. CC remained firm on its revised offer of $280 million, with progressive payments to be paid over sixteen months. The cash-strapped SC saw this as a major problem, plagued by financial woes in Tokyo, the immediate need for funds became an important issue. Mr. Watanabe requested that the completion period be shortened to six months. CC agreed, but in exchange got a $10 million reduction in the price to $270 million. The final terms of the agreement are as follows: Regarding the sale of SunCorp Tower, 1. CC to pay non-refundable option money of $2 million; 2. Upon the execution of the Sale and Purchase Agreement, CC would pay an additional sum of money, to make up the remaining sum of the 15% deposit money; 3. The deposit money would be released to SC pending completion of the sale, but SC would pay CC interest for the amount released, at an interest rate of 4.5% per annum; 4. Both parties would use their best endeavours to enter into an "Option to Purchase" agreement by the end of July 1997, and to execute the Sale and Purchase Agreement by the end of September 1997; 5. CC would be granted an eight-week option period to conduct a thorough investigation on the property; and 6. CC would bear up to a maximum of S$15 million of SC's sale-related tax. Regarding the leaseback of 15% office space, 1. SC would undertake immediately not to issue new leases on the property; 07 May 2012

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2. CC retained the right to negotiate and enter into new leases pending the actual handing over of the property; and 3. SC-related subsidiaries currently occupying the premises will enjoy a thirty-six-month leaseback period at a preferential rental rate (at least 10% below market) to be negotiated. Analysis of the Case This section looks at the factors that contributed to the success of the negotiation. The interests of both parties and their strengths and weaknesses, the approaches and strategies adopted, and the cultural issues are discussed. Interests of Parties SC's main concern was to dispose of SunCorp Tower at a good price and to quickly obtain cash payment to help settle Tokyo's debts. A large upfront deposit and a short payment period would therefore be of interest to SC. SC was also keen to retain some presence in the SunCorp Tower. On the other hand, CC was concerned about purchasing a prime property at a reasonable price. Strengths and Weaknesses of Both Sides SC had a valuable prime office block that was in demand by CC. However, SC had an urgent need to dispose of the property for cash. While CC was interested in the SunCorp Tower, it was not in a hurry to purchase. As freehold interests, prime office blocks such as the SunCorp Tower were not easily available in the market, and CC would, of course, wish to secure such an investment if the conditions are suitable. On balance, SC started off the negotiation in a weaker bargaining position. Approaches and Strategies. In this case, it was in both parties' interests to reach an agreement. A successful sale would benefit CC as it satisfied its objective of acquiring a prime property to build-up a quality portfolio of properties. SC, on the other hand, would be able to cash-out the investment and help pay off its debt commitment in Tokyo. The strategies adopted by SC reflect the cultural orientation of the Japanese. SC, unsure of what to expect from CC, initiated with a high asking price of $330 million, using a competitive approach typical of Japanese engaging in international negotiations (Graham and Sano [1989]). However, in the status-conscious Japanese culture, the "buyer is often regarded as king," that is, the seller is usually expected to do as much as possible to meet a buyer's wishes. This pro-buyer bargaining stance encouraged SC to consider reasonable concessions when required. The Japanese place a high degree of importance on developing long-term relationships through which trust grows. The initial asking price was slowly adjusted downwards to an eventual $270 million. On the other hand, CC employed different strategies at different stages of the negotiation. CC adopted a competitive strategy at the beginning as it was in a strong bargaining position being in a cashrich situation. It was in no hurry and could afford to show it to SC. CC, however, softened its approach later at the close of the negotiation. This approach is useful as it helped to secure more benefits. While CC would have liked to take advantage of SC's weak position, in its search for a joint solution, it acceded to a shorter completion period and agreed to releasing the 15% deposit money to SC pending completion of the sale. In return, it received a price reduction of $10 million and received interest on the amount of deposit money released, applying the concept of "logrolling," (Lewicki and Litterer [1985]). Cultural issues In this sales negotiation, the understanding of the Japanese culture plays an important part in concluding the deal. The following typical Japanese negotiating characteristics (Lewis [1996]) are clearly evident: Japanese normally negotiate in teams and their decisions are eventually made by consensus. The Japanese share authority and responsibility through what they call the "ringi seido," or consensus in decisionmaking. This is evident from the SC group that negotiated with CC. There were at least four members at each negotiation. However strong the team, the Japanese team will have to refer back to the head office. Therefore, no decision could be made at the first meeting and probably not even at the second. This was precisely the case in this 07 May 2012

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negotiation. It is only at the third meeting that some concrete proposals were made by SC. Once decisions were made, however, there is little flexibility for change. The Japanese negotiators often bring their company's positions to the table with little authority to change them. Japanese negotiators are invariably polite, good listeners, and work towards understanding others' problems. This is clearly seen at every stage of the negotiations. They go to great lengths to preserve harmony throughout the negotiations. They strive to bring the two negotiating parties closer together. It should be noted, however, that the Japanese are cautious, skilled in stalling tactics, and unlikely to be rushed. They need time to reach their consensus. SC did not go back to CC's initial offer until two months later, taking the opportunity to stall the negotiation. This has helped to soften CC's tough stance. Once the Japanese company has made its decision, the negotiating team then expects quick action. An interesting feature of the Japanese negotiating style is that they tend to be very cautious and thorough in their decision-making. Their willingness and ability to tolerate risk appears relatively low. In addition, as a highly contextual culture, Japanese negotiators tend to be reluctant to answer any question with a negative response. Context can be defined as situational and cultural factors affecting communication, including the nature of relationships, the environment, the roles of the parties, and non-verbal communication (Griffin and Daggatt [1990]). The greater the contextual portion of communication in any given culture, the more difficult it will be for one to convey or receive a message. Another contextual problem arises in revealing the reality behind the situation. The Japanese make a distinction between "honne" and "tatemae. " "Honne" refers to the substance or real or inner truth of an issue, and "tatemae" is the public, diplomatic truth or official position. The Japanese will avoid voicing their true feelings or "honne" in order to preserve harmony. In view of this highly contextual culture, it was important for CC to make sure that it understood the true underlying interest of SC. In this respect CC managed to appreciate the real needs of SC when structuring the deal. Conclusion This case emphasizes the need to understand the underlying interests of parties and to apply the appropriate strategies. In this negotiation both parties benefited from the deal. The strategies adopted by them helped achieve a good outcome. SC's main concern was to dispose of SunCorp Tower at a good price. However, it was in urgent need for funds. SC would therefore have to adopt a strategy that did not weaken its bargaining position. The stalling tactic helped. Applying typical Japanese's styles of negotiation such as team decisionmaking and the need to seek head office approval has assisted SC's case in putting up a good front of not being seen to be anxious to sell. Similarly, CC also adopted an appropriate approach to the negotiation. Like any buy-sell situation, CC used a competitive strategy demanding very high initial concessions and then held firm to its stand. Because of its interest, however, to acquire a prime property such as the SunCorp Tower, CC also worked to satisfy both SC and its own needs by accommodating SC's requirements at the close of the negotiation. CC realized that the ground floor of SunCorp Tower, which had been SC's retail space since it started operations in Singapore eight years ago, was an important asset to SC. The goodwill earned through the years was something SC would not want to forgo, if possible. A sale involving a change of ownership would mean that SC might not be able to operate in its flagship building anymore. In order to satisfy SC and its related subsidiaries, CC worked to help SC to retain an interest in SunCorp Tower. Hence, the leaseback arrangement (at preferential rental rates) for SC was packaged as part of the sale agreement. In addition, CC appreciated SC's urgent need for funds and while taking advantage of this fact, structured the deal to obtain mutual benefits. SC, being Japanese, attached great importance to long-term relationships and showed tremendous caution and seriousness when preparing for the negotiation. This was clearly displayed by SC's request for a face-to-face meeting with CC's chief negotiator, when it decided that it was ready to engage in serious negotiations with the 07 May 2012

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buyer. This served the important purpose of getting to know the opponent and having the opportunity to ascertain CC's intentions and level of interest. This case highlights the importance of selecting an appropriate strategy at different stages of the negotiation. It also stresses the need to understand major cross-cultural differences in negotiating that might maximize the position of the decision-maker. With an increasing trend towards global portfolios, appreciating the cultural sensitivities of the negotiating parties needs to be emphasized. References References Bacow, Lawrence S., and Michael Wheeler. "Environmental Dispute Resolution." New York: Plenum Press, 1984. Bocher, S., ed. The Mediating Person: Bridges Between Cultures, Boston: GK Hall, 1989. Cohen, S. Negotiating Across Cultures: Communication Obstacles in International Diplomacy, Washington DC: Institute of Peace Press, 1991. Deutsch, M. The Resolution of Conflict, Constructive and Processes, New Haven &London: Yale University Press, References 1973. Druckman, D. "Stages, Turning Points and Crises."Journal of Conflict Resolution, 30, 2 (1986), pp. 327-360. Gifford, Donald G. Legal Negotiation - Theory and Application, St. Paul, Minnesota: West Publishing, 1989. Graham, J.L., and Y. Sano. Smart Bargaining, United States: Harper Business, 1989. Griffin, TJ., and W.R. Daggatt. The Global NegotiatorBuilding Strong Business Relationships Anywhere in the World, United States: Harper Business, 1990. Lax, David A., and James K. Sebenius. The Manager as Negotiator - Bargaining for Cooperation and Competitive Gain, New York: The Free Press, 1986. References Lewicki RJ., and J.A. Litterer. Negotiation, Homewood, IL: Irwin, 1985. Lewicki, RJ., S.E. Weiss, and D. Lewin. "Models of Conflict, Negotiation and Conflict Interaction: A review and synthesis." Working Paper No. 87102, Graduate School of Business Administration, Ohio State University, 1987. Lewis, R.D. When Cultures Collide-Managing Successfully Across Cultures, London: Nicholas Brealey Publishing, 1996. Luce, R Duncan, and Howard Raiffa. Games and Decisions, New York: John Wiley, 1957. References Moran, R, and W. Stripp. Successful International Business Negotiations, Houston: Gulf, 1991. "Foreign Investment in US Real Estate - Current Trends and Historical Perspective." National Association of Realtors, 1990. Pruitt, D.G. "Achieving Integrative Agreements in Negotiation." In R.K. White, ed., Psychology and the Prevention of Nuclear War, New York: University Press, 1986, pp. 463-478. References Raiffa, Howard. The Art and Science of Negotiation, Massachusetts: Harvard University Press, 1982. Rapoport, Anatol. N-Person Game Theory: Concepts and Applications, Ann Arbor: University of Michigan 07 May 2012

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Press, 1970. Walton, R, and R.A. Mckersie. Behavioural Theory of Labour Negotiations, an Analysis of a Social Interaction System, New York: McGraw-Hill, 1965. AuthorAffiliation Lim Lan Yuan is professor of building and estate management at the National University of Singapore. ..

Subject: Studies; Negotiations; Acquisitions&mergers; Divestiture; Commercial real estate; ..

Location: Asia ..

Classification: 9130: Experimental/theoretical treatment, 8360: Real estate industry, 2330: Acquisitions&mergers, 2310: Planning, 9179: Asia&the Pacific ..

Publication title: Real Estate Finance ..

Volume: 15 ..

Issue: 1 ..

Pages: 72-78 ..

Number of pages: 7 ..

Publication year: 1998 ..

Publication date: Spring 1998 ..

Year: 1998 ..

Publisher: Aspen Publishers, Inc. ..

Place of publication: New York ..

Country of publication: United States ..

Journal subject: Real Estate ..

ISSN: 0748318X ..

Source type: Trade Journals ..

Language of publication: English ..

Document type: PERIODICAL ..

Accession number: 01634469, 00669632 ..

ProQuest document ID: 223060133 ..

Document URL: http://search.proquest.com/docview/223060133?accountid=15859 ..

Copyright: Copyright Institutional Investor Systems, Inc. Spring 1998 ..

Last updated: 2010-06-09 ..

Database: ProQuest Central

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Bibliography Citation style: APA 6th - American Psychological Association, 6th Edition Lim, L. Y. (1998). Property acquisition and negotiation styles: An asian case study. Real Estate Finance, 15(1), 72-78. Retrieved from http://search.proquest.com/docview/223060133?accountid=15859

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