Sakhalin Case Negotiation Process

Sakhalin Case Negotiation Process

Negotiation Process The Workshop case on Sakhalin II sheds a lot of light on the intricacies of operating in Russia as a foreign player. From the Russian side it highlights the shortfalls of the government-in-turmoil trying rather desperately to increase its GDP through foreign injection of funds. These shortfalls are primarily due to the unpredictable and complicated Russian politics and business environment with no clear centre of power. Without the centrally controlled decision making and power changing hands, it becomes difficult and costly for a foreign operator like Shell to navigate through the hierarchies for moving the project along.

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We understand well that Shell had its good reasons for being in Russia despite all the potential conflicts and Shell maintained an overall good approach through-out. Shell had the controlling stake in the Sakhalin II project and started to get large long term contracts early on. I believe Shell was well aware of the future cost escalations (whether it would come from all the corruption money or from things such as environmental issues and lawsuits). With that in mind, the original PSA was meant to help recover its costs before generating any substantial profits for Russia.

Therefore, in negotiating that PSA- Shell had an upper hand and probably a built-in allowance for future conflicts. Shell probably did not expect Gazprom’s involvement as much and they should have considered Gazprom as a key (silent) counterparty to the PSA. And while keeping Gazprom in consideration, Shell needed to always remember the ‘tricky’ relationship between Gazprom and the government. As things turned out, all the environmental violations that Shell was blamed for was perhaps to get Gazprom a better offer in the asset-swap between Sakhalin II and other Russian projects.

At the end of the case, it is not known of how liable Shell would be for the claimed environmental damages. We could assume that once Gazprom gets a large stake in this project- the claims might disappear. At least the government related controlling bodies will be less likely to ‘find-faults’ with their own operator. That might open a pandora’s box with a lot of other Gazprom’s projects. All in all, the project was a win-win for both parties and the negotiations will carry on when natural resources, prestige and large investments are involved.

Russian political influence in the region . Creating a precedent for other foreign investments. Managers executing short-term gains. Agent theory. It’s not a game for the faint-hearted- that’s for sure. Group Processes Analysis and Improvements We were the unlucky group to get the last case to present- having prepared each of the four (and one practice) with a lot of energy and effort. Albeit, the excitement level was a bit down in the crowd when we presented, I wouldn’t say the same about the team when we were preparing it.

I believe that we got better and better as a group with clearly identified strengths (and weaknesses). Therefore, it became a good learning journey not only based on things we learn about the various cases from each other. The learning was also about our own weaknesses and how to improve them: our own strengths and how to offer them for the benefit of the team. For the Jollibee case, we were all discussing together with no clear leader or follower.

We didn’t want to pick a single presenter and give everybody a chance in the practice round. Hence, we came up with some kind of a skit with a dialogue exchange sort of presentation and received good feedback. For the Enron case, even before we started our discussion, one of the members had already done of lot of research about international expansion of restaurants and fast-food competition in global markets for new entrants etc. That proved to be very usefully and we designated her to be our research specialist.

Similar role identification was also clear after our first practice presentation about the presenter’s role. This was not just about reading from the slides certainly but to know the entire issue and build a story around it as we deliver the message. There was certainly some imbalance if you were to measure everyone’s contribution on a scale but sometimes participation is hard to measure and it really felt like the entire group had a lot to contribute. There was no clear leader and we were slightly chasing time. How can you improve?


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