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Scenario background

This week’s scenario, in my opinion, resembles a lot of what goes on in business today in regards to negotiations. Negotiators have to be prepared and willing to push the edge of the envelope. Negotiations are the same whether you are negotiating over the price of a loaf of bread or a multi-million dollar contract. The only difference is there is more at stake in the multi-million dollar contract. Therefore, you better be prepared and expect the unexpected. He who is prepared the best is almost assured to come away with the best outcome.

The scenario this week had to do with a United States based company that had offices and facilities in another country. They were basically separated in regards to making their own decisions and running the overseas business with autonomy using the U.S. offices for counsel or advice. The Pacific Oil Company was founded in 1902 and expanded rapidly through the 1920s and 30s. The company took on another large expansion in the 1940s and 50s acquiring holdings in North Africa and the Middle East. Pacific grew to one of the largest and best-known worldwide producers of industrial petrochemicals. One of its main chemical lines is Vinyl Chloride Monomer (VCM). VCM is the main ingredient to Polyvinyl Chloride (PVC).

In 1979 Pacific oil established a major contract with the Reliant Corp. to supply Reliant with VCM. Reliant produces PVC products. The contract is a four-year contract and Pacific constructed a pipeline from Antwerp, France to Abbeville, France directly connecting Pacific’s facility to Reliant’s facility. The contract was fairly standard and the only real challenge was the fact that it was only a four-year contract which meant it was going to have to be renegotiated at some point. In Late 1982 the contract was renegotiated and a new four-year contract was signed extending the partnership of the two companies out to 1987.

In 1984 the supply of VCM starts increasing and is projected...