European Airlines Negotiations with Asian Airlines, Negotiations between Virgin Australia and Singapore Airlines - Case Study Example

Negotiations Name Class Unit Executive summary This report is based on a given scenario in relation to past negotiation. The report will analyse the both cases in details. It begins with defining the scope for the negotiations in the first case where the airline aims at collaborating in maintenance systems. This is followed by a discussion on the factors that have to be taken into account and quality of the alternatives. The report discusses the negotiations scripts for both European and Asian airlines. Other options that those described in the scenario are well discussed in the report. The scenario shows that there is need to have well-structured negotiations where both parties collaborates for mutual interests. It shows the need for making concessions during negotiations. For the second part, the report has researched on the negotiation contents between Virgin Australia and Singapore Airlines on their joint venture. It is clear that this is a successful joint venture negotiation. The comparison with the first case shows major differences and several similarities. Looking at both cases, the first negotiation should have been done differently through ensuring flexibility, patience and avoiding hard line stands. The second negotiations were a success and were carried out in the best way possible. Table of Contents Executive summary 2 Table of Contents 3 Introduction 4 Negotiations 4 Scope of the negotiation 4 Factors needed to be taken into account, the quality of the alternatives and their practical implications 4 Negotiation script for each negotiation party 5 Other options than those described in the scenario 6 Lessons learned from this past negotiation 6 Strategic analysis of the “end game”-critical analysis of the negotiation contents, reasons and arguments for the final “no go” decision 7 Negotiation contents between Virgin Airlines and Singapore Airlines on their recent joint venture, similarities and the differences between the two cases 8 Strategic analysis on the Virgin Airlines and Singapore Airlines Joint Venture 9 Comparison between the two cases and the effectiveness of their strategies and their processes 10 Reflection 10 Conclusion 11 References 12 Introduction Negotiations forms a critical part of the business success in a globalised world. Business negotiations occur when the business realises that they cannot attain their goals without cooperating with others (Inkpen & Currall, 2004). Successful negotiations include the ability to have proper preparation and effective communication skills. It also involves the ability to control emotions and close deals (Shell, 2006). This report is based on two cases on airlines negotiations. The first case involves European airlines negotiations with Asian airlines on forming a joint venture. The negotiation in the first case failed to take off. The second case involves negotiation between Virgin Australia and Singapore Airlines which is a success. The essay will discuss and analyse both cases. In addition, there will be comparison between the two cases and analysis of alternatives to the negotiation strategies used. Negotiations Scope of the negotiation The scope of negotiations is based on the European and Asian airlines seeking to gain market position in the growing Chinese market. This was based in a context where the airline industry was trying to recover from 9/11, SARS outbreak and the uncertainty in the Middle East. Looking for opportunities to rationalise and grow through alliances was one of the major industry responses. The negotiations were aimed at coming up with a joint venture based on cooperation between the two airlines. This is especially in cooperation based on the maintenance facilities where the airlines saw a real potential. Factors needed to be taken into account, the quality of the alternatives and their practical implications The two airlines entering into a negotiation comes from varying background. Thus, working on a joint maintenance systems was going to be a major challenge. The maintenance of an aircraft is upheld using complex and rigorous systems which are based on the airline operations. This is a factor that needs to be taken into account for the negotiations to be successful. Failure to account for this aspect led to each of the company developing their proposal based on their systems. Negotiation structures needs to be clear and well detailed to include all aspects (Shell, 2006). It led to a situation where there was very little commonality on the developed proposal. Another factor that needed to be taken into account is teamwork. The negotiating teams were supposed to work together in coming up with the joint proposal. This was a highly complex task and required collaboration to come up with a working proposal (Fortgang, Lax & Sebenius, 2003). Failure to work as a team led to development of two different proposals. This led to tensions and difficulties since none of the sides wanted to concede. It becomes hard to come up with a common solution when the negotiation teams fail to work together (Yan & Gray, 2002). Another factor is the conflict style. When engaging in a negotiation, a party should have an inclination to collaborate rather than compete. This helps in reducing conflicts in a negotiation and shows the willingness to come up with a mutual beneficial agreement. The alternative to this is a competing based conflict style where it is hard to come up with a mutual agreement (Fortgang, Lax & Sebenius, 2003). In this case, both parties conflict style was based on competition and no party was ready to make a concession. Each side defended their proposal instead of discussing them. This made it hard to have any progress in the negotiations. Negotiation script for each negotiation party For a successful joint venture, there is need for fairness. Using a too hard a bargain acts as self-defeating for the parties involved (Fortgang, Lax & Sebenius, 2003). A joint venture may fail if the parties are working to balance their goals which are in direct competition. A joint venture script must be conducted in a fair and mutual respect environment where all parties are respected for their contributions and ambitions. For the European airline, their script should include scope, goals, form, jurisdiction, negotiating for practical joint maintenance, procedures for establishing values for the assets. Through the script, it would be possible to discuss how the business will be carried out. This will include the exclusions that would have been retained by the partners. Secondly, it will be important to state the goals and objectives clearly. This will ensure that the partners agree on the strategic objectives and the budget plan. The discussion on the form of the joint venture will help in determining the type of new entity. This includes whether it will be a new entity or contractual in nature (Yan & Gray, 2002). The script should contain the practicalities on the joint maintenance system. This is due to fact that this was a major area of contention. Each of the airlines has their own systems which limits the commonalities. This is an area where the airlines have to agree on for the negotiations to be successful. For the Asian airline, the script should be the same with the European airlines. This is due to fact that both airlines face the same challenge. The joint venture is meant to help them enter into the Chinese market utilising common maintenance system. The venture is meant to enhance their capabilities in maintenance facilities through joint ventures (Czipura & Jolly, 2007). Other options than those described in the scenario Apart from the options described in the scenario, other options include using Best Alternative to a Negotiated Agreement (BATNA) and restarting the negotiation process. Through use of BATNA, it would have been possible to make a better decision by knowing what the alternatives were. This would have helped the European and Asian airlines negotiations from accepting offers that were unfavourable for them. This would have enhanced their negotiating power since they would have been aware of their alternatives. Having same BATNA implies that both firms would reach to an agreement. This would also have saved the transaction costs for the whole process (Lewicki et al., 2011). Restarting the negotiation meant that both airlines would go to first step. This would have involved a better and structured negotiation. Despite this, the option may have possible due to time constraints and the costs involved. Lessons learned from this past negotiation From the negotiation between the European and Asian airlines, several lessons can be learnt. First, a negotiation will fail if not negotiated towards attaining both parties’ goals. A joint venture is supposed to be carried out in a manner that it brings mutual respect and fairness (Fortgang, Lax & Sebenius, 2003). In these negotiations, it is evident that the both teams had their own reservations which competing. The European airline wanted the Asian airline to use their maintenance systems while the Asian airlines wanted to maintain theirs which led to initial disagreements. Another lesson learnt is the need for patience during negotiations. This is active patience where both parties are willing to push negotiations forward in a steady and creative manner. This involves the ability to consider the other side point of view and understanding their constraints (Lewicki et al., 2011). This type of joint venture included two cultures and systems meeting together hence the need to understand both sides. The initial conflict arose due to fact that both sides failed to look at each of the proposals. They were not able to reconcile their different perspectives. When a joint venture fails to look at these characteristics, it may not get off the ground (Yan & Gray, 2002). This is evidenced by the first disagreement between the parties which led to collapse of the talks. Fairness is critical in success of any joint venture. When one side feels that they are disfranchised by the agreement, they may fail to agree to it (Emsley & Kidon, 2007). In this case, the Asian airline made a major concession on the maintenance systems. This led to Asian company feeling that they were not yet ready to enter into agreement despite reaching a decision. There were internal concerns being raised by the Asian team based on working with European systems. Lastly, a successful joint venture negotiation is based on a clear and comprehensive discussion of all issues (Buchel, 2003). The negotiations in this case failed to be comprehensive which led to them being grounded. As evidenced in the case, there were no proper discussions on financial aspects. This led to collapse of the deal based on European company perspectives on the end game. A proper negotiation is supposed to be comprehensive before both parties make a decision to proceed (Lewicki et al., 2011). Strategic analysis of the “end game”-critical analysis of the negotiation contents, reasons and arguments for the final “no go” decision The negotiations in this case involved strategic cooperation through a joint venture between the two airlines especially in regards to the provision of their maintenance facilities. Through the negotiation teams, both companies aimed at coming up with cooperative approach as they approach the Chinese market. The “end game” was aimed at a win-win situation for both airlines. The initial disagreement was caused by lack of mutual beneficial decision on maintenance systems. The “end game” was attained through the second round of negotiations. The second round of agreement occurred through use of a third party who utilised shuttle diplomacy. The third party was Asian hence had a better understanding of the Asian team culture which might have initiated the second talks. A progress in the negotiation talks would not have been achieved without one of the parties making a concession. It is important to make concessions when in negotiations based on mutual benefit (Yan & Gray, 2002). In this case, the Asian team made a major concession to work with the European company proposal. This was bound to lead to issues and concerns with the technical and engineering teams from the Asian airline. The differences were resolved using joint and unilateral problem solving. At the “end game”, it is clear that both teams had not come up with fine details on profit sharing agreements. The European team was aware of the concerns that were being expressed internally within the Asian airline. This is what triggered their decisions not to conclude the agreement. In addition, the European airline analysed the “end game” and realised that it had to increase their initial investment or make concessions on its share of expected profit in the joint venture agreement. This led to the joint venture being grounded and a no go decision was made by the European airline CEO. Negotiation contents between Virgin Airlines and Singapore Airlines on their recent joint venture, similarities and the differences between the two cases The negotiation between Virgin Airlines and Singapore Airlines were based on code sharing on each other domestic flights, offering reciprocal frequent flyer program, coordinate between schedules and engage in joint sales, marketing and distribution. Through the negotiated agreement, Singapore Airlines passengers were able to use extensive global network of Virgin Australia which included the Australian and pacific destinations. Virgin Australia was able to access 70 more destinations based on Singapore Airlines network. Moreover, Singapore Airline customers were given access to 30 additional destinations from the Virgin Australia. The arrangement made it possible for the members from Singapore Airlines to redeem their miles using the virgin Australia flights. This was also possible for the Virgin Australia customers. Through an application to the Australian Competition and Consumer Commission (ACCC), it was expected that the airlines would be able to have deep and integrated alliance capable of offering seamless service offerings (Virgin Australia, 2016). From the two cases, there are several similarities. First, both cases involve negotiation between airlines aiming at responding to market changes (Czipura & Jolly, 2007). For the first case, the airlines aimed at addressing the market challenges. They wanted to have a better access to Chinese market. This is also evident in the case between Singapore Airlines and Virgin Australia networks. Secondly, both airlines have competing interests during the negotiations. In the first case, the European airline wanted the Asian airline to take their maintenance system while the Asian airline wanted the European airline to adopt theirs. This is a situation that can be seen in the Singapore airlines and Virgin Australia. While Virgin Australia and Singapore airline made an agreement, they had to concede on the competing interests (Virgin Australia, 2016). Making concessions is a major part of making negotiations as seen in both cases. It is hard to come up with the final decision in a negotiation without having to make a concession (Yan & Gray, 2002). The main differences between the two negotiations is the fact that Virgin Australia and Singapore airlines had smooth negotiation process compared to the first case between European and Asian Airline. The first case involved a lot of obstacles which led to stalling of the negotiation process. There was lack of fairness to both parties where every party drove a hard bargain. It is clear that the first negotiation was not negotiated towards attaining a balanced goal between parties. This is unlike the negotiation between Singapore Airlines and Virgin Australia (Virgin Australia, 2016). When a negotiation is based on direct competition as in the first case, there are high chances of failure (Hall, 1993). The first negotiation lacked patience. This is an active patience where negotiations are pushed forward in a creative and steady manner. This is unlike negotiation between Singapore Airlines and Virgin Airlines which were active and creative (Virgin Australia, 2016). The first case involves a negotiation process where the participants were not very willing to reconcile their differences. Lastly, while the first negotiation process failed, the second negotiations between Virgin Airlines and Singapore Airlines were a success. This is due to fact that the negotiation process was well structured and meant to ensure mutual benefit. When negotiations are poorly structured, it is hard to succeed (Hall, 1993). Strategic analysis on the Virgin Airlines and Singapore Airlines Joint Venture The joint venture between Virgin airlines and Singapore Airlines will offer passengers from both airlines a lot of options to travel around the world. The main focus is on seamless global travel through enhanced domestic and international flights (Czipura & Jolly, 2007). This is a strategic move that will strengthen both Virgin Airlines and Singapore Airlines networks. It will also help both Airlines as they get ready for future growth (Virgin Australia, 2016). The alliance between the two airlines fills strategic gaps between the networks enabling them access the Asian market. It is also evident that this will lead to ability for the passengers to have better connections and competitive pricing (Iatrou & Oretti, 2016). Through the negotiations, it is evident that the airlines will work together in aligning their flight products to ensure seamless travel for their customers. It is evident that the alliance is a key input to Virgin Australia as they seek to attract more business and corporate customers. This will make the airline to be in a better competitive position. Both airlines benefits from an increase in virtual international networks. This is because there is an increase access to the combined markets (Czipura & Jolly, 2007). Negotiation strategy employed is well structured. This is due to fact that both partners are able to have mutual benefit from the outcome. This is a joint venture that is aimed at attaining success for both partners through cost minimisation and profit maximisation (Virgin Australia, 2016). Comparison between the two cases and the effectiveness of their strategies and their processes The comparison between the two cases shows that Virgin Australia and Singapore Airline had a better negotiation strategy than the first case. The first case shows two partners who takes a hard-line stand and not ready to compromise. The European airline is not ready to listen to the proposal from the Asian airline which leads to collapse of first negotiation fails. The negotiations were only successful after the Asian airline makes a major concession to accept European airline standards. The negotiation strategy used in this case is not well structured which led to failure (Yan & Gray, 2002). In the second case, the strategy used is well structured aimed at ensuring mutual benefit for virgin Australia and Singapore airlines. The strategy involves listening to both partners and making concessions where necessary. There are no hard stands taken which ensures that the negotiations are smooth (Virgin Australia, 2016). Reflection If I were carrying out negotiations in the first case, I would have ensured that all partners are given equal respect. This involves listening to the input from both sides and making concessions. I would have used a flexible approach which would have led to the best possible outcome. To attain success, I would have ensured that there is flexibility, fairness and patience which are vital for a successful negotiation. For the second case, the negotiations were carried out using the best strategy. This is why the airlines were able to come up with a conclusive deal. Despite this, I would have been a more cooperative competitor. This is through sharing information and brainstorming to come up with more competitive offer. I would have ensured that the agreement was based on future success for both firms as in the case. Moreover, joint ventures are a part of the globalisation strategy which would have been more enhanced through sharing of maintenance facilities (Czipura & Jolly, 2007). Conclusion In conclusion, this report is based on negotiations. The first case involves failed negotiations between a European and Asian airlines as they sought joint venture. The airlines aimed at cooperating based on provision of maintenance facilities. Despite the efforts to have success in the negotiations, the airlines were not able to come up with a joint venture. This is due to poor negotiation strategy as evidenced in this case. In the second case, it was possible for Virgin Australia and Singapore Airlines to have successful negotiations which were conclusive. Both partners used well-structured negotiations based on mutual interests and cooperation to come up with the final decision. References Buchel, B. (2003). Managing partner relations in joint ventures. MIT Sloan Management Review, 44(4), 91-95. Czipura, C., & Jolly, D. R. (2007). Global airline alliances: sparking profitability for a troubled industry. Journal of business Strategy, 28(2), 57-64. Emsley, D., & Kidon, F. (2007). The relationship between trust and control in international joint ventures: Evidence from the airline industry. Contemporary Accounting Research, 24(3), 829-858. Fortgang, R. S., Lax, D. A., & Sebenius, J. K. (2003). Negotiating the spirit of the deal. Harvard Business Review, 81(2), 66-79. Hall, L. (Ed.). (1993). Negotiation: Strategies for mutual gain. Newbury Park: Sage. Iatrou, K., & Oretti, M. (2016). Airline choices for the future: from alliances to mergers. Burlington, VT : Routledge. Inkpen, A. C., & Currall, S. C. (2004). The coevolution of trust, control, and learning in joint ventures. Organization science, 15(5), 586-599. Lewicki, R. J., Saunders, D. M., Minton, J. W., Roy, J., & Lewicki, N. (2011). Essentials of negotiation. Boston, MA: McGraw-Hill/Irwin. Shell, G. R. (2006). Bargaining for advantage: Negotiation strategies for reasonable people. New York: Penguin. Virgin Australia (2016). Singapore Airlines and Virgin Australia unveil long-term partnership | Virgin Australia. Virgin Australia. Retrieved 13 April 2017, from https://www.virginaustralia.com/au/en/about- us/media/2011/VB_SINGAPORE_AIRLINES_PARTNERS/ Yan, A., & Gray, B. (2002). Negotiating control and achieving performance in international joint ventures: A conceptual model. Journal of International Management, 7(4), 295- 315. Read More