A Brief Background of the Deal
A relatively recent business deal chosen for this role-play and analysis is a project partnership or non-equity strategic alliance for a specific solution between Cronos Group and Ginkgo Bioworks in 2018. The former is “a geographically diversified and vertically integrated cannabis group” from the United States (US), and the latter is “the organism company;” both are publicly traded business entities (Cronos Group Inc., 2018, para. 1). The rapidly growing marijuana industries and markets in the North American economic region during the 10s are most likely the reason behind this entrepreneurial collaboration decision (Grand View Research, 2020). These were probably driven by gradually disappearing social stigma and negative stereotypes around cannabinoid products and new applications of marijuana in the medical field (Grand View Research, 2020). The health care sectors dealing with chronic pain and psychological disorders have proven to be the most interested and effective in incorporating cannabis into their medical practices and processes.
Contrary to the high-tech scientific and industrial fields in which the two companies are involved, the terms of their contract are relatively simple. According to one side, “Ginkgo will work with Cronos Group on research and development of microorganisms capable of producing certain target cannabinoids in a scalable and highly efficient manner” (Cronos Group Inc., 2018, para. 9). Their partner is committed to funding certain expenses related to research and development as well as foundry costs, subject to Ginkgo reaching the agreed milestones, and these are expected to be between 21 and 23 million US dollars (Cronos Group Inc., 2018). Moreover, “Cronos Group will issue up to approximately 14.7 million common shares in the aggregate,” but only if the set goals are completed (Cronos Group Inc., 2018, para. 9). For Gingko, this business deal will result in about one hundred million US dollars if all developments are successfully achieved (Cronos Group Inc., 2018). The ultimate benefit for Cronos Group will be to receive exclusive rights to all target cannabinoids invented during the partnership.
2021 news release from the Cronos Group states that the partnership is progressing as planned and productive. Both parties “announced the achievement of the first target productivity milestone in their partnership” (Cronos Group and Ginkgo Bioworks, 2021, para. 1). As of 2022, there have been no big announcements from either organization, and one should expect them around one to two years from now, judging by the current frequency of their new releases.
Negotiation Tactics Provided by an Interviewee
An interview was conducted with an individual outside the entrepreneurial field to get their perspective about negotiation tactics the North American companies should have used during the setting of their partnerships and which should be applied further. The interviewee offered a business negotiating approach for Cronos Group, such as setting clear deadlines for each milestone. It seemed to them that it took Gingko too long for the first productive results, and the partnership could turn into a long-term financial burden for the Cronos Group. It is noteworthy that vertical asymmetric alliances, as such being discussed in this report, are often short-term ones as they eventually become monetary burdensome for larger companies (Yu et al., 2019). As for the Canadian partner, the interviewee advised that initial business negotiations should be done from a position of strength and not allow the other side to set the condition for receiving funding and profits only if the milestones were reached. Their rationale was that it was Gingko who had the scientific and technological resources, and it was they who should establish the contract terms.
Pre-Negotiation Phase
A necessary clarification is that readers should consider Cronos Group as a negotiation consultant’s client in this report and the recipient of recommendations, advice, and strategies for better and more confident bargaining and negotiation, which will be described below. There are several critical decisions and predictions that Cronos Group made right and correctly during the preparation and initial stages. The establishment of agreement terms regarding which business entity will be able to use future unique cannabinoid products and biotechnologies or, simply put, “the exclusive right to use and commercialize” is one of them (Cronos Group Inc., 2018, para. 10). The bottom line is that partnerships such as those between the Cronos Group and Gingko statistically “anticipate higher knowledge misappropriation risks” (Colombo & Piva, 2019, p. 107). It was the right move in strategically and monetarily for the buying party to focus on intellectual property rights and make it the top priority from the start.
The other two intelligent decisions by Cronos Group include financing the partner by achieving certain research and production milestones and setting the term that all research processes will be done according to US law. This approach to funding is both cost-efficient and time-effective as it prevents partnership fraud and motivates the other party to meet their business obligations faster. Partnership fraud is a typical manifestation of opportunistic behavior that occurs more frequently in international transactions than in domestic ones due to cross-cultural and regulatory differences (Jia et al., 2020). Making development processes compliant with US legal norms and rules will make introducing future unique cannabinoid products in major marijuana markets easier and faster.
Recommendations on Enhancing Bargaining Power
There are ways in which the Cronos Group can enhance its negotiating power, the first method is considered fundamental in the art of bargaining, and the second is relatively novel. Additional opportunities are always an advantage in any dialogue whose purpose is to reach a business agreement. Cronos Group is advised to find “the Best Alternative to a Negotiated Agreement (BATNA)” before next negotiating with Gingko in case any aspect of their non-equity strategic alliance does not suit them anymore (Dobreva, 2021, p. 144). For example, these could be too long timings of research and development processes. Another tactic that will help the Cronos Group create an imbalance of power in their favor at the negotiating table with their partner is the designation of interface managers or increasing their number (Hartmann, 2018). They are contractual experts involved in all interactions associated with strategic collaborations. They can provide such critical information as subtle nuances and details of the agreement that can turn an equal partner into a dependent one.
Post-Negotiation Phase
Post-negotiation is the stage that begins after the initial bargaining procedures are completed, and the original agreement is made. The post-negotiation phase involves constant minor financial and legal interactions and frequent conversations between partners caused by the need to fulfill mutual obligations and their results. Cronos Group can make the post-agreement stage safer and faster for itself by implementing contract-monitoring practices. Experts say that it can increase Gingko’s productivity as such measures lead to performance growth by about six percent (Egide & Gamariel, 2021). “Contract administration and management” are other practices that Cronos Group should implement in parallel with the research and development processes of Gingko (Egide & Gamariel, 2021, p. 774). These are critical to ensuring a non-stop production process for Gingko and problem-free achievement of contractual milestones.
Post-Negotiation Action Plan
- The signing of an initial non-equity strategic alliance agreement with Ginkgo Bioworks.
- Planning and creating a contract governance strategy to minimize knowledge misappropriation risks and improve the partner’s overall performance (Jia et al., 2020).
- Implementation of contract-monitoring measures that will allow Cronos Group to receive information regarding the cultivation of unique cannabinoids and evaluate the partner’s productivity.
- Implementation by Cronos Group of contract administration and management measures to provide Gingko with monetary resources and fulfill its section on contractual obligations, but only after the first goal is completed.
- Modification and adjustment of the supervising procedures listed above following Gingko’s performance indicators and the initial agreement terms.
- Seeking alternative partners if the way in which the initial milestones were achieved is unsatisfactory for Cronos Group.
Evaluating Recommendations
Assessing non-professional and more competent perspectives is always a rewarding process, as it reveals previously unseen thematic nuances for both parties. The measures proposed by the interviewees, namely the setting of deadlines and negotiation from a position of strength, can be considered aggressive bargaining. These could provide a definitive advantage in talks but could result in conflicts between partners and the termination of an agreement. This approach to bargaining is less risky, but the passivity it implies could put Gingko in a position of leadership that drives business dialogue. In conclusion, my interviewee is a proponent of action in business negotiations, while I prefer counteraction.
References
Colombo, M. G., & Piva, E. (2019). Knowledge misappropriation risks and contractual complexity in entrepreneurial ventures’ non-equity alliances. Small Business Economics, 53(1), 107-127. Web.
Cronos Group and Ginkgo Bioworks announce achievement of equity milestone in partnership to produce cultured cannabinoids. (2021). Cronos Group. Web.
Cronos Group Inc. (2018). Cronos Group and Ginkgo Bioworks announce a landmark partnership to produce cultured cannabinoids. Cision PR Newswire. Web.
Dobreva, H. (2021). Reframing best alternatives to negotiated agreements in representative negotiations in sports.Strategies for Policy in Science and Education, 29(4), 144-152. Web.
Egide, R., & Gamariel, M. (2021). Effects of contract negotiation, contract monitoring and relationship management on construction projects performance. A case of water treatment plants for Wasac. Social Science Learning Education Journal, 6(12), 771-780.
Grand View Research. (2018). North America legal marijuana market size, share & trends analysis report by product type (flower, oil), by marijuana type (adult, medical), by medical use (chronic pain, mental disorders, cancer), by region, and segment forecasts, 2020 – 2027. Web.
Hartmann, A. M. (2019). Negotiating for strategic alliances. In M. A. Khan & N. Ebner (Eds.), The Palgrave handbook of cross-cultural business negotiation (pp. 53-70). Palgrave Macmillan.
Jia, Y., Wang, T., Xiao, K., & Guo, C. (2020). How to reduce opportunism through contractual governance in the cross-cultural supply chain context: Evidence from Chinese exporters.Industrial Marketing Management, 91, 323-337. Web.
Yu, B., Xu, H., & Dong, F. (2019). Vertical vs. horizontal: How strategic alliance type influence firm performance? Sustainability, 11(23), 1-14.