British Dairies Limited (BDL) is one of the leading manufacturers and suppliers of complete milk plants. At

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Question:

British Dairies Limited (BDL) is one of the leading manufacturers and suppliers of complete milk plants. At present, BDL is negotiating to sell a milk plant to Saudi Arabia. Earlier, 10 years ago, it has sold a small plant to Kuwait. That is the only experience BDL has had in that part of the world. Two other competitors; Danish Dairies A/S from Denmark and Global Dairies Ltd from the USA, are also negotiating to get the project. These two firms always compete with BDL in international projects. BDL came into contact with the Saudis at an exhibition in München. The buying firm, Jeddah Food Industries Ltd. (JFI) is a private concern owned by a powerful group related to the royal family.

The group owns several other industries and also a bank. The background of the project is an explicit ambition of the Saudi authorities to become self-sufficient in basic food industries. At present, around 70% of country's needs for dairy products are imported from Europe (specifically the Netherlands, Denmark and Switzerland). There are two dominating industrial groups in Saudi and JFI is one of these. The other group is already running a milk plant in Riyadh which they bought from the Danish firm.

The project group from BDL has visited Saudi Arabia a number of times and discussed the offer for the project with the buyer. In these meetings, people from both sides met and discussed technical specifications and other terms for the project. BDL has been invited to visit Saudi Arabia for final negotiations. Most of the technical details and some other terms have been agreed upon and all parties are quite optimistic about an agreement.

NEGOTIATION TEAMS

BDL

Peter Plan Vice President responsible for the Milk Plant division. Earlier, he was working as Marketing Manager and has enough experience of international projects of this type. He was also involved in negotiations for the project in Kuwait, as a team member.

Sam Skeptic is an engineer and has prepared all the technical specifications several times together with the buyer's representative, Alex, the buyer's consultant.

Nicky Control is a relatively young MBA from LBS who has been working with BDL for the last three years. This project is the largest so far and the first one with an international dimension. Nicky is very ambitious and has been working intensively with the offer.

James Thesaurus is an interpreter from a communication consulting firm from London. He has extensive experience of working with Arab countries and has been helping different British and Irish firms in Saudi Arabia (His wife is from Egypt).

JEDDA FOOD INDUSTRIES LTD

Sheikh Rahim is the President and owner of JFI. He is also the leader of the negotiation team. He is around 50 and has studied law at Oxford. He owns several industries and is very rich and influential. He controls most of his industries himself and is therefore, a very busy person.

Mohammed Mustafa is an engineer and is expected to be the first Managing Director of the proposed Milk plant. He is 45 years old and has been studying in Europe and the USA. He has a solid background in technical side of the food industry.

Alex Moneypenny (a relative of Mrs Moneypenny, secretary to James Bond's Boss, M), is Vice President of Sahara Consulting Group in Jeddah, a British Saudi consulting firm, which specializes in projects between Saudis and western firms. Moneypenny was responsible for the project feasibility study, carried out for JFI.

Faisal Mahmood is Secretary of State for the Department of Industries. He takes part in the negotiations for all big projects between Saudi's and western firms and is responsible for questions on taxes, custom duties, residence permits and other government rules and regulations.

THE PRESENT SITUATION

This is BDL's first project in Saudi Arabia, and there are good chances that if they get this project, it will be possible to get more projects in Saudi. At its head office in Manchester, BDL has recently invested in new machinery and equipment and its capacity has thus been enhanced. BDL offered the project at a price of € 350 million with the following terms of payment and guarantee peri of 12 months.

20% at contract signing
30% when installations start
30% after first prove run
20% 3 months after the first prove run
Danish Dairies A/S has earlier delivered a project to Saudi to another party in Riyadh which is functioning very well. Alex Moneypenny has disclosed to Sam Skeptic, (perhaps with the consent of Sheikh Rahim) that the price offered by the Danish firm, for the same project, is much lower. However, he also said that BDL's technical solution is perhaps considered a bit better. BDL does not know much about the American offer. However, they know that Moneypenny has all the information on them. There is a rumour that the Americans have very good contacts with some local important people, so called "Middlemen" and that they are working on Sheikh Rahim and the government representative Faisal Mahmood.

CONFIDENTIAL INFORMATION ONLY FOR JFI

1) The Danish offer is 12% cheaper than BDL's, but in BDL's offer there are better possibilities of further increase in the capacity and future development. The consultant, Moneypenny, is positive to BDL's offer. Sheikh Rahim wants to have the best plant, better than his competitors in Riyadh.

2) JFI is planning to demand a considerable concession on price from BDL. If this concession is allowed, then BDL's offer will be considered to be very attractive. JFI wants to have around 7% concession on the price.

3) Regarding the terms of payment, JFI wants to retain 10% of the price as a security under the guarantee period (i.e. 12 months). JFI therefore wants to divide the last installment in two parts and is prepared to offer the following terms of payments:

• 20% at the time of signing of the contract.

• 30% at the start of installation

• 30% at the time of first prove run

• 10% 3 months after successful prove run

• 10% after guarantee period (12 months/from handover) is over.

4) The Americans have offered the following terms of payment:

20% at signing of contract
20% when installation starts
20% after first prove run
20% 3 months after first prove run
20% after expiry of the guarantee period (12 months)

5) Time is of critical importance and JFI wants to have the plant up and running in 6 months or as soon as possible.

6) JFI has full confidence in the consultant, Moneypenny, and they follow his advice. However, they cannot go against the representative from the government, Faisal Mahmood, who is, it seems, inclined towards the Americans.

7) Sheikh Rahim is a very authoritative and dominant person, and as the owner of JFI, he takes all the decisions. The members of the negotiation team therefore have great respect for him.

Task:

A clear strategy on the issues in conflict with arguments and justifications of 'why' your team wants to negotiate what you propose.
Explain how your team would try to achieve their strategy through negotiations.
Focus on negotiation tactics in this part.