Case Study 2: IBM and the Indian Government

Since the 1970s, multinational concerns such as IBM have found themselves faced with an
increasingly tougher stance on the part of many emerging nations on the political and economic
fronts. Whereas in 1951 IBM could still be invited to India and received with open arms by
Prime Minister Nehru, twenty years later the wind had changed radically. In the interval, IBM
had succeeded in achieving almost complete control of the Indian computer market. The
Indian government felt this to be a dangerous dependence from the strategic standpoint and
pressed the firm to reduce its 100% ownership to 40%, a holding that still constituted a blocking
minority. IBM was also enjoined to extend its computer design and manufacturing operations in
India for both the domestic and export markets. IBM was highly reluctant to deviate from its
traditional global policy on account of a new attitude on the part of the Indian government.
So the concern changed its position towards India from collaboration to heavy confrontation. The
equity dilution demanded by India could not be countenanced at IBM. However, a similarly rigid
position on the part of the Indian government forced IBM to propose a range of concessions in
the hope of a compromise. But India rejected IBM’s proposals. This led the computer giant to
adopt a position which was as unfortunate as it was surprising for the Indian government: IBM
considered the Indian demands to be a serious threat to its global strategy and renounced its
activities in the subcontinent. When finally there was no longer any hope of compromise, the
concern decided to turn to a policy of avoidance, on 15 November 1977 it announced its
complete withdrawal from India.
(Source: Gladwin & Walter 1980).

1. Imagine yourself your IBM’s top executive in India what negotiations what
could you have done differently?
As IBM’s top executive,I will try to get a foothold in this business. I will agree to whatever a
government wants.first, I should accept India's Foreign Exchange Regulation Act, which
requires most foreign companies to divest 60 percent of the equity of their subsidiaries to local
shareholders by the end of 1977. This is because it is a mandatory law as from my reading of the
case study the Indian government has no intention of cooperating except by selling 60 percent
of the company's stake to local investors.

Or, I will take advantage of the exception provided by the Indian government, which states that
multinational companies are not obligated to sell 60 percent of their share if their products are
exclusively for export.
2. Based on the assigned readings or lectures, what negoations skills you have
used instead of adopting an avoidance strategy?
collaborative negotiation, integrative, win-win negotiation : it's essentially assumed that the pie
can be enlarged by finding things of value to both parties, creating a win-win situation, so that
everyone leaves the table feeling like they've gained something of value.

Collaborative negotiations seek to reveal the true interests of both parties so that there can be
more potential points of agreement. IBM had to expand the value of the negotiation, adding
more to the negotiating table so that both parties could get a big enough piece.

For example, increasing some additional elements, such as contributing to some projects that
care about the environment, infrastructure, or any charitable projects that contribute to
achieving satisfaction and acceptance for indian people.

3. Finally, what lessons did you learn from this case study?
Cooperative negotiations are a fair process through which a win-win outcome is achieved. It also
considers the relationship between the two parties a valuable component and also seeks a fair
agreement that will satisfy both parties. Rather than assuming a flat pie as in competitive
negotiations, IBM should have tried to widen the pie between itself and the Indian government,
accepting the 60 per cent that the government had set aside for domestic investors or accepting
that its products were for export exclusively. This procedure would have created a win-win
situation, in which both sides could leave the table with something of value in their hands.

The withdrawal of IBM from India and the bargaining that occurred between the company and
the Indian government in its response to the Indian terms were influenced by changes in the
global trading environment at the time.
Referaces

Kleinfield, N. R. (1977, November 16). I.B.M to Leave India and Avoid Loss of Control. The

New York Times. https://www.nytimes.com/1977/11/16/archives/ibm-to-leave-india-

and-avoid-loss-of-control-disputes-with-other.html

Donohue, W. A., & Liang, Y. J. (2011). Transformative Linguistic Styles in Divorce Mediation.

Negotiation and Conflict Management Research, 4(3), 200–218.

https://doi.org/10.1111/j.1750-4716.2011.00080.x

Fisher, M. E. (1988). Diffusion from an entrance to an exit. IBM Journal of Research and

Development, 32(1), 76–81. https://doi.org/10.1147/rd.321.0076

Ramu, S. S. (1991). MNCs and India’s New Economic Policy. SSRN Electronic Journal.

https://doi.org/10.2139/ssrn.2171533

http://www.archive.org/details/changingmultinat1332nega