Petrobras in Ecuador (A) Negotiation Strategy / MBA Resources

Introduction to Negotiation Strategy

Negotiation Strategy solution for Petrobras in Ecuador (A) case study

At Oak Spring University, we provide corporate level professional Negotiation Strategy and other business case study solution. Petrobras in Ecuador (A) case study is a Harvard Business School (HBR) case study written by Aldo Musacchio, Lena G. Goldberg, Ricardo Reisen de Pinho. The Petrobras in Ecuador (A) (referred as “Petrobras Ecuador's” from here on) case study provides evaluation & decision scenario in field of Leadership & Managing People. It also touches upon business topics such as - negotiation strategy, negotiation framework, Corporate governance, International business, Negotiations, Policy.

Negotiation strategy solution for case study Petrobras in Ecuador (A) ” provides a comprehensive framework to analyse all issues at hand and reach a unambiguous negotiated agreement. At Oak Spring University, we provide comprehensive negotiation strategies that have proven their worth both in the academic sphere and corporate world.

BATNA in Negotiation Strategy

Three questions every negotiator should ask before entering into a negotiation process-

What’s my BATNA (Best Alternative To a Negotiated Agreement) – my walkaway option if the deal fails?

What are my most important interests, in ranked order?

What is the other side’s BATNA, and what are his interests?

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Case Description of Petrobras in Ecuador (A) Case Study

On October 18, 2007, Ecuador's President Rafael Correa announced his intention to migrate Petrobras' existing participation contracts to exploit oil reserves in Ecuador's Blocks 18 and 31 to servicing agreements under which Petrobras would be paid a production fee and reimbursed for investment costs but all recovered oil would belong to the government. Correa also announced a dramatic increase in corporate taxes and changes to other contracts to which Petrobras was a party. All foreign oil companies operating In Ecuador would be similarly affected and any company refusing to "renegotiate" its contracts would face a 100% tax on profits. How should Petrobras respond to Ecuador's riding roughshod over its contracts? Should Petrobras take the Ecuadorian government to arbitration? Or would it be better to pursue a negotiated solution similar to that reached in Bolivia a year earlier? How should Petrobras balance its fiduciary duties to and the best Interests of its shareholders with the interests of the Brazilian government? How should it communicate with its various constituencies?

Case Authors : Aldo Musacchio, Lena G. Goldberg, Ricardo Reisen de Pinho

Topic : Leadership & Managing People

Related Areas : Corporate governance, International business, Negotiations, Policy

Seven Elemental Tools of Negotiation that can be used in Petrobras in Ecuador (A) solution

1. Satisfies everyone’s core interests (yours and theirs)

By interests, we do not mean the preconceived demands or positions that you or the other party may have, but rather the underlying needs, aims, fears, and concerns that shape what you want. Negotiation is more than getting what you want. It is not winning at all cost. Number of times Win-Win is better option that outright winning or getting what you want.

2. Is the best of many options

Options are the solutions you generate that could meet your and your counterpart’s interests . Often people come to negotiations with very fixed ideas and things they want to achieve. This strategy leaves unexplored options which might be even better than the one that one party wanted to achieve. So always try to provide as many options as possible during the negotiation process. The best outcome should be out of many options rather than few options.

3. Meets legitimate, fair standards

When soft bargainers meet hard bargainers there is always the danger of soft bargainers ceding more than what is necessary. To avoid this scenario you should always focus on legitimate standards or expectations. Standards are often external and objective measures to assess the fairness such as rules and regulations, financial values & resources , market prices etc. If the negotiated agreement is going beyond the industry norms or established standards of fairness then it is prudent to get out of the negotiation.

4. Is better than your alternatives or BATNA

Every negotiators going into the negotiations should always work out the “what if” scenario. The negotiating parties in the “Petrobras in Ecuador (A)” has three to four plausible scenarios. The negotiating protagonist needs to have clear idea of – what will happen if the negotiations fail. To put it in the negotiating literature – BATNA - Best Alternative to a Negotiated Agreement. If the negotiated agreement is not better than BATNA then there is no point in accepting the negotiated solution.

5. Is comprised of clear, realistic commitments

One of the biggest problems in implementing the negotiated agreements in corporate world is – the ambiguity in the negotiated agreement. Sometimes the negotiated agreements are not realistic or various parties interpret the outcomes based on their understanding of the situation. It is critical to do negotiations as water tight as possible so that there is less scope for ambiguity.

6. Is the result of effective communication?

Many negotiators make the mistake of focusing only on the substance of the negotiation (interests, options, standards, and so on). How you communicate about that substance, however, can make all the difference. The language you use and the way that you build understanding, jointly solve problems, and together determine the process of the negotiation with your counterpart make your negotiation more efficient, yield clear agreements that each party understands, and help you build better relationships.

7. Managing relationship with counterparty

Another critical factor in the success of your negotiation is how you manage your relationship with your counterpart. According to “Aldo Musacchio, Lena G. Goldberg, Ricardo Reisen de Pinho”, the protagonist may want to establish a new connection or repair a damaged one; in any case, you want to build a strong working relationship built on mutual respect, well-established trust, and a side-by-side problem- solving approach.

Different types of negotiators – what is your style of negotiation

According to Harvard Business Review , there are three types of negotiators – Hard Bargainers, Soft Bargainers, and Principled Bargainers.

Hard Bargainers – These people see negotiations as an activity that they need to win. They are less focused less on the real objectives of the negotiations but more on winning. In the “Petrobras in Ecuador (A) ”, do you think a hard bargaining strategy will deliver desired results? Hard bargainers are easy to negotiate with as they often have a very predictable strategy

Soft Bargainers – These people are focused on relationship rather than hard outcomes of the negotiations. It doesn’t mean they are pushovers. These negotiators often scribe to long term relationship rather than immediate bargain.

Principled Bargainers – As explained in the seven elemental tools of negotiations above, these negotiators are more concern about the standards and norms of fairness. They often have inclusive approach to negotiations and like to work on numerous solutions that can improve the BATNA of both parties.

Open lines of communication between parties in the case study “Petrobras in Ecuador (A)” can make for an effective negotiation strategy and will make it easier to negotiate with this party the next time as well.

NPV Analysis of Petrobras in Ecuador (A)

References & Further Readings

Aldo Musacchio, Lena G. Goldberg, Ricardo Reisen de Pinho (2018), "Petrobras in Ecuador (A) Harvard Business Review Case Study. Published by HBR Publications.

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