Bwa Indonesia Bwa Was Faced

BWA Indonesia BWA was faced with costly delays in a construction project in Indonesia. The firm's manager on the scene, Jared Campbell, attempted to alleviate the problem through negotiation but could only achieve a proposed $1 million dollar payment, one-fifth of the cost of the delay. BWA management then decided to take a more direct approach to negotiations, and the result was no payment, and further costly delays. These were only alleviated when Jared went to the customer during a time of atonement, and repaired the relationship.

There are several key issues with respect to this case. The first is with respect to negotiating style. As with many cultures, Indonesians do not negotiate in the same manner that Western firms do. The approach to business in that culture is very different. In the West, a contract is viewed as a binding agreement. Terms are agreed to and all parties are expected to uphold the terms of the agreement. If one party fails to do so, some form of remedy must be paid.

In Indonesia, business relationships are seen as extensions of personal relationships. Contracts provide the framework for the business, but adherence to the specific terms is not considered a requirement. It is understood in Indonesian business culture that the situation may change, and therefore contracts are not considered to be binding. The business relationship between the parties depends on the quality of the personal relationship, in part because the rule of law is weak.

The reason Jared's initial negotiations yielded an offer from Madjid is that he dealt with the issue in terms of the relationship. The reason that Malcolm failed is that he did not respect the relationship. He only respected the contract, to which Madjid took personal offense. The personal relationship had been devalued, which to Madjid devalued the business relationship as well. The second key issue is that of bargaining position. Both sides felt as though they had strength of bargaining position.

For BWA, this strength was drawn from the formal contract. They felt that the terms of the contract had been violated and therefore they had full right to demand the entire compensation. In reality, NEC had a stronger bargaining position. The events took place in Indonesia, where the rule of law is relatively weak. This means that in local court, it would be difficult to obtain the ability to enforce specific components of the contract. Thus, whereas BWA thought they had strong formal authority, they in fact had none.

The third key issue was with respect to levels of authority. Being unfamiliar with the business environment in Indonesia, Jared sent a local partner to deal with the issue. In this case, however, the local partner did not have the formal authority that Jared had. The low offer for compensation likely derived from the fact that Jared did not make the case to Madjid himself. To Madjid, this was a signal that the issue was not of significant importance.

The fourth key issue is with respect to understanding the opponent's position. This is more a fundamental of negotiating than an intercultural issue, but it is one that BWA failed to consider. Part of the resistance on the part of NEC management was that they could not pay the $5 million requested. BWA, Malcolm in particular, failed to understand that it would not recover the full $5 million because NEC simply did not have it. As a result, they needed to formulate a request to NEC that the Indonesian company could meet.

Recommendations If I was Jared, I would have approached the situation differently. With respect to NEC, I would have dealt with them more directly. It would have been a good idea to get guidance from Anwar, but to approach Madjid directly rather than through an intermediary. This would have signaled to Madjid that the issue was of grave concern. Furthermore, it would have strengthened the relationship between the two parties, especially in light of the fact that the two parties were coming together to solve a problem.

Jared was armed with the information from Anwar about NEC's financial status. If I was Jared, I would have used that information better. Jared was comfortable in accepting a $1 million remedy, but he could have pressed for more. He knew he would not attain the $5 million and therefore seemed happy to take any offer. Rather, he could have leveraged the relationship to get a better figure. With respect to home office, Jared should have been more direct with them.

He did not inform them in a timely manner about the situation. He only came to them after it appeared he was going to be unsuccessful. This spurred Malcolm to feel that his direct involvement was the only way to resolve the situation. As a result, the situation was made worse. Malcolm may have had formal authority, but he was not a part of the relationship with Madjid and therefore his involvement set a negative tone for the negotiations.

Not only should Jared have spoken with home office earlier, but he should not have spoken to Malcolm. Jared's boss did not have adequate knowledge of Indonesian culture or business practices to become involved. Jared had spoken prior to departure with advisors experienced in international business. He should have taken the situation to them for advice. This not only would have avoided Malcolm's involvement, but allowed to either achieve a better outcome or at least to understand that the $1 million offer was the best outcome. Advise to a U.S.

Company Seeking to Expand to Indonesia The Indonesian market is one of the most difficult in eastern Asia. Though tempting because of its size, it is fraught with difficulty. Any U.S. firm looking to expand operations into Indonesia should undertake significant research into the differences between U.S. business culture and Indonesian business culture. These differences take many dimensions. The role and strength of the legal system is one major difference that needs to be understood.

Had BWA understood this difference better, they would have been able to find a better outcome than they did. The role of relationships in business culture is also very different. Furthermore, it is recommended that U.S. firms understand some of the religious and historical differences. Indonesia is primarily Muslim, which means U.S. firms will need to understand the implications of dealing with a Muslim culture. Moreover, the archipelago has a history that includes both colonialism and dictatorship.

Colonialism will inevitably color the way in which locals deal with Westerners. When the country signed the Cochran-Subardjo Agreement in 1952, for example, the backlash forced Subardjo to resign (Negotiations.com, 2009). Dictatorship, under Suharto, colors the way in which Indonesians view formal authority and authority.