By Holly Schroth &

Jackie Ramirez

The Mexico Venture

General Information and Confidential Information for Luis/Luisa Martinez

Workforce USA is a United States firm that sells human capital, financial management and data analytics
software using a cloud based delivery system. The products help companies to manage and utilize their
existing information to streamline operations.

Workforce USA is actively expanding internationally. It recently entered into a joint venture with a small
Mexico-based software reseller and distributor, Nómina Mex. The joint venture, is called Workforce
Internacionales (WI), and is 75% owned by Workforce USA and 25% by Luis/Luisa Martinez, the founder
and president of Nómina Mex. WI sells licenses, training, and other services associated with Workforce
USA’s Spanish language software specifically designed for business operations in Mexico. Workforce USA
proposed the joint venture as a way for it to gain quick access to the Mexican market.

The joint venture has two locations and operates with the following structure:

Workforce Internacionales

Operations Purpose:
Location: Mexico City Sales and training
Staff: President: Luis/Luisa Martinez
Vice President: Jose Miguel Martinez
6 sales people
2 dedicated training people
1 finance manager
1 receptionist

Purpose: Maintain servers, monitor domain

Location: Guadalajara
environment, resolve configuration
Staff: Supervisor: Carlos Doria 5 and connectivity issues, monitor
permanent and 2 temporary security, access problems, operating
employees efficiency; maintain website,
enrollment of customers, manage
user accounts; assure stability and
functionality of the users’ systems;
provide technical support

© 1996-2017 Holly A. Schroth. Distributed by Negotiation and Team Resources (NTR). To request permission to reproduce
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 Mexico– Luis(a) M. Info. - 2

Sales during the first four months of operation were very good. Subscriptions for the software are
licensed at $100 per user per year and often involve a 2-3 year contract. The sales personnel target large
companies aiming for a minimum of 3,000 licenses per company. In addition to selling the subscriptions
to its software, WI typically charges for other services such as training and custom integration of the
systems. Since the format of the product is very new to many Mexican customers, WI has been offering
the training sessions for free to help promote sales. You estimate that foregone training revenues are at
least $20,000 per month.

It is now nine months after the joint venture was formed; there has been a major peso devaluation in
Mexico. Whereas a single $100 license had cost 300 pesos, that same license now costs 900 pesos. 1 Sales
in the second quarter not surprisingly declined. Mexican companies are delaying major purchases to cut
costs and potential customers say they are waiting to see if the peso will rebound, making U.S. based
products more reasonably priced.

WI receives a fixed fee each month from its U.S. parent to help cover expenses. Corporate also pays a
commission based on sales and training dollars. This commission accounts for three quarters of WI’s total
funding, with the fixed fee accounting for the remainder. To encourage WI to sell at list price and not
heavily discount, the commission is paid on revenue, not on licenses sold.

1
For the purpose of this exercise assume $1 US = 9 pesos

© 1996-2017 Holly A. Schroth. Distributed by Negotiation and Team Resources (NTR). To request permission to reproduce
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 Mexico– Luis(a) M. Info. - 3

Confidential Information for

Luis/Luisa Martinez, President of Workforce Internationale

You are 28 years old, have been married for 8 years and have three children ages 7, 5 and 2. You and your
spouse have visited the U.S. twice. The first time was to attend a trade show in Chicago, and the second
time was for a vacation in Los Angeles and San Francisco. You spend much of your time with your family
here in Mexico City. You are a passionate football (soccer) fan.

You worked as an independent sales agent for a mid-sized software company in Mexico while in college.
After graduating you worked for a few years as an account manager for a large software distributor before
starting your own software resale and distribution business, Nómina Mex. You agreed to the joint venture
with Workforce USA in order to grow your business and become the industry leader of cloudbased
software delivery in Mexico. Currently, you sell only CD based software so Workforce USA’s unique cloud-
based subscription service is a step forward for your company. After forming the joint venture, you hired
three additional sales people whom you have paired with your three senior staff members. Contacts are
very important for sales in Mexico, and you and your sales staff have developed a solid and growing base
of contacts over time. The older sales people have most of the leads and they work with the younger sales
staff to close the deals. The younger salespersons write up the major orders and are beginning to close a
few smaller sales on their own.

Your brother, Jose Miguel, gave up his job as a teacher and contributed his life savings to help you make
your capital contribution to start the joint venture. You spend most of your time in the field making
contacts and generating sales leads, and you feel more comfortable doing so knowing that Jose is
managing the day-to-day company operations at the office.

The two trainers on your staff are very important for WI’s success. Once customers understand how to
use the software and see the power of the different application programs, they immediately realize its
value, often requesting additional software products and services. Many of your competitors do not offer
extensive training, so your free training provides you with a major point of differentiation in the market
place.

Your receptionist is also an important member of your team. The receptionist adds an air of
professionalism to the office, which helps set forth a positive impression when clients visit.

The peso devaluation adversely impacted sales and you are aware of being scrutinized more closely. You
had been working with Alan Pettinger, a regional sales manager for Workforce USA, who came down a
few months ago to advise you on sales. Last week you were advised that Alex Morgan had replaced Alan,
and that Morgan would be coming to meet with you. These are the issues that you want to discuss with
Morgan:

Pricing
You know that Workforce USA wants to increase sales in Mexico. Although Workforce USA discourages
selling below list price, you are convinced that you could increase the overall sales volume if you were

© 1996-2017 Holly A. Schroth. Distributed by Negotiation and Team Resources (NTR). To request permission to reproduce
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 Mex ico– Luis(a) M. Info. - 4

allowed to offer a larger discount from the list price. With the devaluation, the cost of a license increased
from 300 pesos to 900 pesos per license, even though the U.S. dollar price remained constant at $100 per
license. Not surprisingly, it is much more difficult to sell these licenses at 900 pesos than at 300 pesos. At
present, Workforce USA will only allow you to discount the subscription licenses at 10% off the list price.

During previous meetings with Alan, you proposed creating a local currency price list for the subscriptions.
Prices would be set in pesos to protect the local business from exchange rate fluctuations. Alan did not
support this idea, so now you want to request that Workforce allow a discount of 25% off the U.S. dollar
list price. You are confident that a lower price would counter the effects of the devaluation, stimulate
demand, and increase sales volume.

Advertising & Promotion

You want to increase advertising and promotional dollars. Alan did not see the need to increase this
expense, but you think it would help drive sales. You have a good sales completion ratio, so you are making
sales on the leads you have; additional advertising and promotional dollars would increase the number of
sales leads. Sales Staff
Alan had suggested that you hire additional sales staff, but you strongly disagree. Training additional staff
members is a lengthy process and you are not convinced that this will increase sales significantly. Labor
laws in Mexico require that you pay 3 months of severance pay to anyone who is terminated after being
employed by the company for a year. It is also traditional for companies to pay a Christmas bonus of
between two weeks and one month of pay. These regulations make hiring full-time employees a very
expensive proposition. You do not want to hire any additional employees. You think that your three
newest sales people are ready to go after more new business on their own, and you would rather spend
money on advertising and promotion to get them sales leads.

Commission Structure & Sales Growth

You would like to change the commission structure. Your main cash funding is the commission your
company receives on sales and training revenues. The commission is based solely on revenues generated
as opposed to the number of license subscriptions sold. Therefore, your commissions are reduced when
you provide training for free and discount the licenses to sell them below list price. For example, at a 30%
commission level and the present currency conversion rate, you make 270 pesos per license. When you
discount the sales price by the maximum of 10%, your commission is reduced to 243 pesos. Keeping the
commission amount steady, regardless of the discount required to make the sale, would really help the
sales force to worry less about commissions and more about closing sales. As an incentive to try to
maintain last year’s unit sales volume and grow the business in these tougher conditions, you would
like to receive an additional 10% in commission for sales generated above last year’s volume.

You feel you are getting squeezed on both ends – lower relative commissions per unit and fewer units
sold. You hope Morgan will be able to offer you some assistance in this area, at least until the peso returns
to more normal levels.

© 1996-2017 Holly A. Schroth. Distributed by Negotiation and Team Resources (NTR). To request permission to reproduce
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 Mexico– Luis(a) M. Info. - 5

Commission Pool
Sales people’s compensation is 50 percent fixed and 50 percent commission. The team in Mexico creates
a commission pool with the sales commissions. The company president, vice-president, sales people and
training personnel each receive 9% of the pool, with the receptionist and finance manager each receiving
5%. This 'commission pool' concept works very well since it rewards teamwork within the organization
and helps all personnel feel that they have a stake in the firm’s success. Local laws require profit sharing
and tie the amount awarded to the operations of the office. Sales people routinely work together on a
sale, so it would be difficult to award commission to one person over another. You do not want to change
the ‘commission pool’ method of paying employees.

Labor in Guadalajara
You are aware that Workforce USA is concerned with the labor expenses at the Guadalajara site. Alex
Morgan recently called Carlos Doria, the supervisor, to discuss the issue. You don't understand why Alex
Morgan did not call you directly since you are responsible for operations and staffing. You are aware there
is an absenteeism problem at the Guadalajara site and had recommended Alan authorize you to give a
small bonus to employees who attend work regularly or to use as a transportation allowance for
employees who have difficulty getting to work. . Unfortunately, he did not approve this expenditure.
Transportation allowances are a common practice in Mexico where transportation is expensive and many
families cannot afford a car. You will recommend transportation allowances or bonuses for attendance
once again.

Other Concerns
You are concerned that the U.S. office continues to quote budget numbers. You don’t know where the
budget figures come from and do not have any input into the budget process. The Norteamericanos (North
Americans) seem to be very focused on measuring the office statistics against these budget figures. They
also focus on sales per person, which is not relevant to the Mexican operation where you have a team
approach. The recent decline in sales should be expected due to the economic downturn and the exchange
rate problems. You feel that Workforce USA should focus more on long term company objectives and
planning instead of making these 'actual to budget' comparisons each month. You are hoping that Alex
Morgan will be more reasonable than Alan Pettinger and will really listen to your recommendations.
Workforce USA doesn’t seem to trust your judgment, which concerns you since trust is so vitally important
to continued relations.

Unless Alex Morgan agrees to change the pricing structure, you are considering backing out of the joint
venture. You have only three months to go to reach the new company's one-year anniversary. The joint
venture agreement states that the U.S. can buy you out at that time, or you can request to be bought out
at a predetermined price. Seguro, a main competitor, has offered you the position of president of its
Mexican subsidiary. Seguro is willing to hire all of your employees and you know they would follow you
rather than work for Workforce USA in your absence. Do not share this information with Alex Morgan at
this time. Although you have a number of specific matters to discuss with Morgan, your decision whether
or not to stay in the joint venture really depends on whether or not Morgan is someone with whom you
will be able to work with going forward.

© 1996-2017 Holly A. Schroth. Distributed by Negotiation and Team Resources (NTR). To request permission to reproduce
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 Mexico – Luis(a) M. Info. - 6

You will evaluate the performance of your “Morgan” at the end of the negotiation.

When negotiating, please adopt the behavior of a person from Mexico City.

• Formality: Greetings should be formal (Señor or Señora Morgan) and you should spend 5 to 10
minutes of time getting to know each other. If Morgan moves straight into business, you will only
give vague answers to questions and not ask any questions yourself.

• Politeness: It is often considered rude or disrespectful in Mexico to openly disagree. Do not disagree
outright with Morgan or say ‘No’. Instead be vague and say 'we can talk about it later', 'we agree that
might be desirable', 'possibly', or 'maybe we should talk about…'

• Respect: You believe you built this business in Mexico and it would be insulting for Morgan to come
in and start telling you how things are done in the U.S. and should be done in Mexico. You would also
be insulted by any slights against your recommendations. If Morgan shows disrespect become quiet,
even stony-faced, and give some sort of non-committal answer about the matter just raised.

• Indirectness: You do not respond well to directives, commands or any other behaviors you view as
arrogant or overbearing. If Morgan acts arrogantly become quiet, even stony-faced, and give some
sort of non-committal answer about the matter just raised.

• Cultural sensitivity: Morgan is new to Mexico and should try to understand your customs and how
business is done in Mexico.

o Only mention Mexican customs/laws or local practices if you are asked about them directly.
Morgan needs to demonstrate an interest in learning about your culture and business situation
and should ask probing questions. Morgan must initiate the conversation

o Morgan must show sensitivity by not discussing U.S. practices prior to asking about business
practices in Mexico. For example, a culturally insensitive Morgan would say, “In America, we fire
people who don’t show up for work. What do you do in Mexico for absenteeism” or “Why do
you need a secretary?” Only give a vague answer if Morgan does not show cultural sensitivity
in his/her questions.

• Family: Family is important and most businesses in Mexico are run by families. Questioning the role
of your brother, his position or salary can be seen as a direct attack on you. You will respond be telling
Morgan sternly that “My brother is VERY important” anytime there is a question about your
brother’s role in the company. The sudden change in your tone of voice is an indirect way of alerting
Morgan not to continue this line of questioning.

© 1996-2017 Holly A. Schroth. Distributed by Negotiation and Team Resources (NTR). To request permission to reproduce
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 Mexico – Luis(a) M. Info. - 7

• Relationships: Business in Mexico is based on personal relationships and trust. One day spent with
Morgan is not enough time to assess the strength of the relationship. You will not sign a contract
with Morgan until Morgan makes a return visit. Inviting Morgan back to Mexico depends on your
evaluation of the meeting (see next page for meeting evaluation).

© 1996-2017 Holly A. Schroth. Distributed by Negotiation and Team Resources (NTR). To request permission to reproduce
contact negotiationandteamresources.com