GROWING GLOBALLY $$ MAC $($Seller$)$

Negotiation Issue: Resolve Multiple Contract Terms

Negotiators: Represent Big Aircraft Company $($BAC$)($Buyer$)$ or Major Aerospace

Corporation $($MAC$)($Seller$)$

Scenario: BAC is a South American aircraft manufacturer.

BAC has selected MAC$$s ESI entertainment system for its new $100$

passenger regional aircraft. BAC has been impressed by the system$$s

technical capability. For MAC, this is a highly strategic sale. It is part of a

global growth strategy for the company.

The parties have settled most terms of the sales, but differ on several items:

$(1)$ The payment terms. MAC believes that exporting goods to another

country and then waiting for payment is risky. It$$s insisting on a $50\%$

advance payment with order and the balance prior to shipment. BAC

wants payment terms of $90$ days after delivery.

$(2)$ The shipping terms. MAC is willing to agree to terms of CIP Sao Paolo

International Airport $($INCOTERMS $2020).$ BAC prefers terms of DDP

Sao Paolo International Airport $($INCOTERMS $2020).$

$(3)$ Exclusivity. MAC wants to ensure that BAC will purchase

entertainment systems exclusively from it$.$ It may not change sources

later in the program. BAC wants the ability to purchase from an

alternate source, to ensure that it will never be short of entertainment

systems for installation in its aircraft.

$(4)$ Term of the contract. MAC wants a $25-$year commitment from BAC.

BAC is only willing to commit to ten $(10)$ years.

$(5)$ Early termination. BAC wants the ability to terminate the contract if it

is dissatisfied with MAC$$s performance,

$(6)$ Quantity Guarantee. MAC is concerned about the market for the new

aircraft. It wants a guarantee from BAC that it will purchase at least

$10,000$ Entertainment systems.

$1.$ Your team represents MAC.

$2.$ MAC is a new player in the international marketplace. While there is sufficient margin in

its price to cover the costs of shipping and insurance to Sao Paolo, ensuring that its goods

are cleared for import in Brazil will be costly$.$ Brazilian import documentation is complex

and must be prepared in Portuguese, notarized and then consularized. Its margin will be

further eroded by these costs and the costs of import duties and customs broker fees.

$3.$ You have received your negotiation clearance from your management and they are willing

to agree to the following:

$(1)$ The payment terms. $50\%$ advance payment prior to shipment. The

balance paid within $45$ days after delivery.

$(2)$ The shipping terms. If it is successful in securing the payment terms,

MAC is willing to agree to terms of DAP Sao Paolo International Airport

$($INCOTERMS $2020).$

$(3)$ Exclusivity. Contingent on getting a quantity guarantee of at least

$7,500$ entertainment systems, MAC will accept exclusivity for the first

$10,000$ entertainment systems.

$(4)$ Term of the contract. MAC will accept a $10-$year commitment from

BAC, with options for two one$-$year periods.

$(5)$ Early termination. MAC can accept granting BAC the right to

terminate the contract if it is dissatisfied with MAC$$s performance,

$(6)$ Quantity Guarantee. MAC is concerned about the market for the new

aircraft. It wants a guarantee from BAC that it will purchase at least

$7,500$ Entertainment systems.

$4.$ Your instructions should not be shared with any BAC negotiating team.