answer 4 questions about negotiation class

Hello,below is the professor instructionsThe case and the book are attached as files1. Please read textbook chapters on “Establishing Trust and Building a Relationship” and “Power, Persuasion, and Ethics”. 2. Read the case Fiji vs. FIJI Negotiating Over Water.3. Re-read the case and answer the following 4 questions. (1) In the negotiations between FIJI Water and the Fiji government over the proposed tax increase on water extraction, which party is in a stronger position? Why?(2) In what ways can each party leverage power to force a deal on favorable terms? Provide examples of power-based moves that each party could employ.(3) FIJI Water relies on the Fijian government to access Fijian Water. How can the company build a trusting relationship with a government that has been unstable and is likely to continue being unstable?(4) Suppose that just after the tax increase on water extraction was announced, you were hired to provide professional negotiation advice. What advice would you give to FIJI water? What advice would you give to Fijian government?Thanks,
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REV: AUGUST 25, 2014
FRANCESCA GINO
MICHAEL W. TOFFEL
STEPHANIE VAN SICE
Fiji versus FIJI: Negotiating Over Water
On November 26, 2010, a public fight broke out between FIJI Water, one of the world’s premium
bottled waters, and the government of the Republic of Fiji, the island nation where FIJI Water
extracted and bottled its product. In its annual budget statement that year, the Fijian government had
announced a plan to increase the tax on water extraction from 0.33 Fijian cents to 15 Fijian cents per
liter, a 45-fold increase. The tax increase would only apply to companies extracting at least 3.5 million
liters (925,000 gallons) per month, which meant it applied only to FIJI Water, the only bottler whose
volume exceeded this threshold.
Three days after the tax increase was announced, FIJI Water responded by publicly referring to
the tax as “discriminatory” and announcing that it would immediately close its bottling operations.
The plant’s 400 employees—many of whom openly wept at the announcement—were instructed to
vacate the premises and leave all company property and clothing behind. 1 The company also
announced the suspension of its engineering and support services contracts, and the cessation of its
investments in development projects around Fiji. 2 “We consider the government’s current action as a
takinga of our business,” the company announced in a press release, “and one that sends a clear and
unmistakable message to businesses operating in Fiji or looking to invest there: The country is
increasingly unstable, and is becoming a very risky place in which to invest.”3
FIJI Water had built its brand and reputation on extracting “natural, artesian water” from an
aquifer in Fiji’s “idyllic” and “isolated” Yaqara Valley. As the company stated on its website, “Fiji has
become an icon of beauty, nature, simplicity, and remoteness—and when it comes to drinking water,
‘remoteness’ is a critical blessing.”4
Negotiations were scheduled for November 30 between Fiji’s Prime Minister Bainimarama, Fiji’s
attorney general Aiyaz Sayed-Khaiyum, and two of FIJI Water’s lawyers, Craig Cooper and Marigold
Moody.5 The participants would discuss the proposed tax increase and FIJI Water’s decision to close
down its plant in Fiji.6 As they prepared for the meeting, each side would need to consider what
arguments to make, given their relative bargaining power and the factors of value to the other side
that they could provide or withhold.
a A “taking” refers to obstructing the legal rights of private property owner.
________________________________________________________________________________________________________________
Professors Francesca Gino and Michael W. Toffel and Research Associate Stephanie van Sice prepared this case. This case was developed from
published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of
primary data, or illustrations of effective or ineffective management.
Copyright © 2012, 2013, 2014 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may
not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
This document is authorized for use only by Fahad Alsarhan in MGMT 566 Case Package-SP 2018 taught by Wencang Zhou, Montclair State University from February 2018 to August 2018.
For the exclusive use of F. Alsarhan, 2018.
912-030
Fiji versus FIJI: Negotiating Over Water
The Republic of Fiji
Fiji was a remote island nation in the South Pacific Ocean located more than 3,000 miles from
Hawaii and more than 1,000 miles (2,000 kilometers [km]) from New Zealand (see Exhibit 1 for
maps). It is comprised of an archipelago of more than 332 islands (approximately 110 inhabited),
surrounded by coral reefs and filled with unexploited, lush tropical forests nourished by nearly 3,000
millimeters of rain each year. The country’s population was approximately 880,000; its capital, Suva,
was located on the main island of Viti Levu. 7
Fiji was initially settled around 2000 BCE by immigrants from other South Pacific Islands. Fiji
became a British colony in 1874, and for the ensuing 35 years, Indian immigrants arrived as
indentured laborers to work on sugar plantations, a migration that influenced Fijian’s current ethnic
composition of approximately 55% Indigenous Fijian and 40% Indo-Fijian.8 Fiji gained independence
in 1970. Host to abundant forest, mineral, and marine resources, Fiji was one of the most developed
Pacific island economies, though its average per capita GDP of US$ 3,700 in 2010 still placed it 154th
among 227 countries in the world, and about a third of its population lived below the poverty line. 9
Military Dictatorships
Fiji endured many decades of political instability. Since the era when it was a British colony,
political unrest and racial conflict between the Indigenous Fijian and Indo-Fijian populations had
plagued the country’s political and economic structures, and led to a series of military coups.
After gaining independence in 1970, the country became a democratic state whose party was ruled
by an Indo-Fijian majority. In 1987, however, a military coup d’état reestablished Indigenous Fijian
control of Fiji and led to a large emigration of the Indian population and Fiji’s expulsion from the
Commonwealth of Nations.10 Fiji’s constitution was amended in 1997 to void Indigenous Fijians’
guaranteed legislative majority, and two years later, Fiji held peaceful elections that resulted in the
appointment of Mahendra Chaudhry, the first Indo-Fijian prime minister.
In 2000, however, another coup d’état toppled the Chaudhry administration and placed
Commodore Frank Bainimarama, an Indigenous Fijian naval officer and politician, in executive
power. This cycle of instability repeated the following year when the country held democratic
elections and voted Prime Minister Laisenia Qarase into office. In 2006, yet another coup d’état led to
Bainimarama’s reinstatement as prime minister.
Accusations of Corruption
When Bainimarama reassumed the role of prime minister in 2006, he vowed to fight the racism,
corruption, and wastefulness that had plagued the country’s public sector since its independence. 11 In
the following years, however, his administration was accused of unprecedented levels of financial
mismanagement, tax evasion, bribery, and nepotism, perpetuated by what some viewed as
insufficient checks and balances.12 In 2006, for example, government audit reports revealed that
senior officials in the Forestry Department accepted bribes to allow illegal logging in protected
forests.13 In 2008, the Ministry of Agriculture was similarly accused of participating in a multimilliondollar scam in cooperation with a private wholesaler. 14 Such stories were not limited to the
government’s ministries; Fiji’s top leaders, including Bainimarama and his finance minister, were
alleged to have stolen hundreds of thousands of dollars in public funds for their personal use and
paid themselves annual salaries amounting to about 700,000 Fijian dollars (F$) (roughly US$
2
This document is authorized for use only by Fahad Alsarhan in MGMT 566 Case Package-SP 2018 taught by Wencang Zhou, Montclair State University from February 2018 to August 2018.
For the exclusive use of F. Alsarhan, 2018.
Fiji versus FIJI: Negotiating Over Water
912-030
379,000b).15 Overall, money laundering and tax evasion in Fiji was estimated at F$ 100 million (US$ 54
million) per year.16
The Fijian government was also accused of serious human rights violations. According to the
London-based human rights organization Amnesty International, Fiji’s military-led executive branch
often interfered with the country’s judiciary and repeatedly intimidated journalists and government
critics, violating Fijians’ rights to freedom of expression. Amnesty International also claimed that
Fiji’s government-appointed Human Rights Commission, originally created in 1997 to protect and
promote the rights of Fijians, lacked independence and was rendered ineffective by decrees barring it
from addressing questionable government actions. Violence against women was prevalent, and
perpetrators were rarely punished or fined.17
Economic Struggles
During the decades of political instability associated with the coups d’état, Fiji also struggled
economically.18 Natural disasters such as cyclones and floods crippled the country’s infrastructure,
reducing access to clean water supplies and increasing instances of typhoid and other diseases.
Political and economic instability also plagued agriculture, one of Fiji’s main industries. Sugarcane
processing, established as a privately managed industry in the mid-1800s, was once considered the
backbone of the Fijian economy and accounted for 70% of the country’s export earnings 19 (see Exhibit
2 for sugar output and exports). In 1973, the government consolidated the four largest sugar mills
under a majority state-owned entity called the Fiji Sugar Corporation. In the mid-2000s, however,
Fiji’s sugar industry was severely threatened by an aging farming population, emigration due to
political uncertainty, and, most importantly, a reform in the European Union’s Common Agricultural
Policy to cut the EU’s internal price support for sugar by nearly 40%.20 The measure came into effect
in 2006 and was estimated to erode Fiji’s sugar export prices by over 20%. 21 That year, the Fiji Sugar
Corporation began operating at a loss, which meant the government could no longer rely on the crop
as a stable source of revenue.22
After Bainimarama came to power, Fiji’s economy had become increasingly reliant on tourism to
fund growth.23 Accounting for 34% of GDP in 2011, Fiji’s tourists were, according to Bainimarama, “a
major component of the country’s economic survival going forward.” 24 Such reliance on income from
this sector increased the economy’s vulnerability to internal and external volatility. 25 For example, the
tourism industry was severely damaged by the 1987 and 2006 coups after tourism declined due to
adverse travel advisories. In 2007, for example, contractions in tourism were held partly responsible
for leading the Fijian economy’s downturn, with industry earnings falling by 7.3% as a result of
shorter lengths of stay and discounts by hoteliers and airlines. 26
From 2007 to 2010, the country faced negative GDP growth and double-digit inflation, and the
poverty rate increased from 30% to 60%.27 In addition, reports noted that the government was
funding its day-to-day operations based in part on international loans, including a US$ 50 million
loan from India and a US$ 253 million loan from China, despite its national debt growing to nearly
80% of GDP.28 The government attempted to compensate for lagging state revenues by increasing
taxes on its citizens, and, after a series of bad investment decisions, by reducing pension payments to
senior citizens from 15% to 9%.29 As a result, Fijians had a harder time keeping up with rising food,
electricity, and water prices.
b Conversion rate on November 26, 2010: US$ 1.00 = F$ 1.8488. (Source: exchangerates.org.uk.)
3
This document is authorized for use only by Fahad Alsarhan in MGMT 566 Case Package-SP 2018 taught by Wencang Zhou, Montclair State University from February 2018 to August 2018.
For the exclusive use of F. Alsarhan, 2018.
912-030
Fiji versus FIJI: Negotiating Over Water
International Tensions
Compounding Fiji’s crippling economic situation were sanctions imposed by many of its trading
partners resulting from the 2006 coup. The European Union, for example, denounced Bainimarama’s
violations of human rights and democratic principles by placing import restrictions on major
industries like sugar and garments. Australia and New Zealand also imposed trade and travel
sanctions on the country, while the Asian Development Bank stopped approving new projects in the
country in 2006.30
Fiji’s mounting debt was a continuing source of stress for its government. In early 2010, the
country requested a stand-by arrangement (SBA) with the International Monetary Fund (IMF), a 12to 24-month loan that would provide balance-of-payments support and help finance economic
reforms in order to set the country on a more sustainable path. 31 Before agreeing to the arrangement,
the IMF sent a team, accompanied by representatives of the World Bank and the Asian Development
Bank, to Suva in April 2010 to assess the country’s policies. 32 The IMF subsequently recommended a
host of reform measures, including fiscal consolidation, increasing the value-added tax (VAT),
increasing the yield of excise taxes, developing a framework to reform the sugar industry, adjusting
tariffs in public enterprises such as electricity, and eliminating price controls that deterred private
investment.33
The Fijian government had an ongoing history of clashing with foreign companies and
maintaining tight control over public information. For example, Bainimarama issued a decree in July
2010 requiring all media outlets in Fiji to be 90% owned by Indigenous Fijians residing in Fiji. 34 The
measure primarily affected the 141-year-old Fiji Times newspaper, which was given a non-negotiable
three months to comply or risk closure.35 Fiji Times’ parent company, News Limited, the Australian
branch of Rupert Murdoch’s global News Corporation, responded by calling the move “appalling,”
“outrageous,” and a “terrible blow to the fragile economy of Fiji,” but ultimately sold the newspaper
to Motibhai & Co., one of Fiji’s largest conglomerates, in September 2010.36
FIJI Water
FIJI Water was founded in 1988 in Basalt, Colorado, by David Gilmour, a Canadian businessman
who held investments in hotels, real estate, and gold mining. Gilmour owned an exclusive resort on
Fiji’s island of Wakaya, which hosted celebrity guests such as Bill Gates, Pierce Brosnan, Celine Dion,
and Nicole Kidman. Gilmour’s search for local sources of mineral water for his guests resulted in an
exclusive 99-year deal with the Fijian government in 1990 to tap an aquifer on the Yaqara Range of
Fiji’s Nakauvadra Mountains discovered by government-contracted geologists.37 In 1995, Gilmour
started bottling and selling the water under the brand name FIJI Water.
In 2004, FIJI Water was acquired for a reported US$ 50 million by Roll International Corporation, a
private company based in Los Angeles, California, owned by Beverly Hills “power couple” Stewart
and Lynda Resnick.38 The Resnicks, whose collective net worth totaled around US$ 2 billion, had
already built and acquired a series of companies since the 1970s, including Teleflora (the largest
flower-delivery service in the world), POM Wonderful (marketer of popular pomegranate-based
beverages), Paramount Farms (the world’s largest grower and processor of pistachios and almonds),
and SpringFresh (bottled water sourced in New Zealand).39
4
This document is authorized for use only by Fahad Alsarhan in MGMT 566 Case Package-SP 2018 taught by Wencang Zhou, Montclair State University from February 2018 to August 2018.
For the exclusive use of F. Alsarhan, 2018.
Fiji versus FIJI: Negotiating Over Water
912-030
Operations and Distribution
FIJI Water’s water source was a 17-mile-wide, 400-foot-deep aquifer, which was located below a
volcano and tropical forest on the main Fijian island of Viti Levu, and into which rainfall had been
filtered over centuries. The company boasted that the aquifer’s depth (hundreds of feet underground)
and remote location isolated its water from pollutants like acid rain, herbicides, and pesticides. It also
claimed these factors made its water so pure, healthy, and rich in taste that the water did not require
filtration or chemical treatment before being bottled. FIJI Water’s two-building, 110,000-square-foot
facility produced 50,000 bottles per hour, 24 hours a day, five days a week.40 The company employed
about 400 workers in Fiji and another 100 employees in 10 other countries.41 Workers in the Fijian
plant earned some of the highest salaries in the country; in 2002, FIJI Water plant workers reportedly
earned F$ 3.35c per hour, while counterparts in other plants generally made between F$ 2 and F$ 3
per hour.
FIJI Water was distributed in 40 countries, including the United States, Canada, Australia, Brazil,
China, Hong Kong, Japan, Korea, Russia, Singapore, South Africa, Taiwan, and the United Kingdom.
FIJI Water bottles were sold in four sizes—330 milliliters (ml) (11.2 oz.), 500 ml (16.9 oz.), 1 liter (33.8
oz.), and 1.5 liters (50.7 oz.)—and were distributed through grocery stores, hotels, restaurants, and
gourmet shops, and via home delivery. FIJI Water products sold at a higher price than most of its
competitors. For example, the retail price of FIJI Water in Boston was 129% more than Dasani, 67%
more than Poland Spring, 28% more than Perrier, and 7.5% more than Evian. d
Exclusive Image
FIJI Water was positioned at the intersection of “pop-culture glamour” and progressive politics. 42
To brand FIJI Water as an “affordable luxury,” the Resnicks leveraged and built connections among
the elite in business and Hollywood. For example, they established relationships with chefs of
leading restaurants such as Nobu Matsuhisa, the celebrity chef and restaurateur behind the famous
sushi-based Nobu Restaurants, who advocated dipping lobster sashimi in FIJI Water. The Resnicks
also built relationships with owners of resorts and spas, where bottles were served in signature silver
and gold sleeves.
Such business relationships were often based on personal connections; as Lynda Resnick once
remarked, “I know everyone in the world, every mogul, every movie star.” 43 Celebrities like Whoopi
Goldberg, Vin Diesel, and Jessica Simpson were reported to love FIJI Water. The company also hired
a Hollywood marketing consulting firm to help place its bottles in leading movies and television
shows (including The Sopranos, 24, The View, Brother and Sisters, and Desperate Housewives) and at highprofile events (including the Emmy Awards). FIJI Water also hosted golf tournaments and sailing
regattas, and was featured at music fests and rock concert tours. Thousands of FIJI Water bottles were
handed out at the 2008 Democratic National Convention.
These connections and appearances helped create a sense of exclusivity around FIJI Water, despite
the fact that the water bottles were available for purchase in supermarkets and convenience stores.
According to Martin Roll, a brand consultant, FIJI Water demonstrated that “competent branding can
elevate even the simplest commodity to celebrity status.”44
c The equivalent of F$ 4.22 or US$ 2.35 in 2012.
d Calculations based on prices obtained at Star Market grocery store in Boston, Massachusetts, on June 6, 2011.
5
This document is authorized for use only by Fahad Alsarhan in MGMT 566 Case Package-SP 2018 taught by Wencang Zhou, Montclair State University from February 2018 to August 2018.
For the exclusive use of F. Alsarhan, 2018.
912-030
Fiji versus FIJI: Negotiating Over Water
Environmental Initiatives
Bottled water became controversial during the early 2000s, particularly in 2007 when numerous
environmental groups, including the Rainforest Action Network and Corporate Accountability
International, attacked the industry for selling single-use products they deemed wasteful and
environmentally harmful. FIJI Water was especially vulnerable to growing criticism that globalization
was leading to fo …
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