Discussion Board: Government Interests

IG APPENDIX 7.4.1

IDENTIFYING GOVERNMENT’S INTERESTS (STUDENT VERSION)

Jimena Ramirez-Marin

This exercise is designed to help you identify government’s interests in the EuroVegas example in Chapter Seven.

Part 1: Please read the following description:

On February 7, 2011, the Las Vegas Sands Corporation announced it was interested in developing an entertainment complex in Spain, to be called EuroVegas.1 The Sands began negotiating with the two major cities in the country: Barcelona and Madrid.

The foreign direct investment was to be approximately €15,000 million, with the estimate of creating 164,000 jobs directly. Over the three years leading up to this announcement, Las Vegas Sands’ stock was outperforming Apple’s. The Sands Company had recently opened casino complexes in Singapore and Macau, and these emerging markets were reporting strong profits to the corporation. Singapore alone accounted for over 20 percent of the company’s operations.2 This experience with emerging markets piqued the Sands company’s interest in expanding to Europe.

On the other hand, Spain in 2011 was neither an emerging market nor fiscally sound. The construction industry, once huge in Spain, collapsed in 2008 with a devastating consequence for unemployment, which by 2011 had risen and stabilized at approximately 25 percent.3 The Spanish government desperately needed investment in the Madrid area, where there were around six hundred thousand unemployed. Reactivating the collapsed construction industry, which between 2009 and 2010 recorded an annual growth of –2.89 percent,4 was also a major priority of the Spanish government. The entertainment complex would require building four resorts, six casinos, nine theaters, and up to three golf courses.

This is how the negotiations between the Sands corporation and the cities of Madrid and Barcelona unfolded. Both cities wanted the project but each employed a very different strategy to get it. Representatives of the government of Catalonia, the region where Barcelona is located, publicly declared the region to be “out of sync” with the EuroVegas project. One government official, Mr. Recoder, declared, “We are not selling our country, the Las Vegas model is not applicable to Barcelona.” When Sheldon Adelson, CEO of Sands, visited the tallest tower in Barcelona, a source of local pride, he said, “This is not a skyscraper.” Unsurprisingly, the negotiations broke down, and the Sands was quickly dissuaded from siting EuroVegas in Barcelona.5

The reasoning underlying these strategic choices may not be intuitive, but a slightly deeper analysis suggests the Catalonia behaviors were consistent with the theory of honor culture presented in Chapter Two. As the theory indicates, people from honor cultures are interested in developing a reputation for toughness, they are sensitive to insult, and they use direct confrontation when they face situations of conflict of interests. People from honor cultures are likely to use emotional strategies in a competitive environment such as negotiation. The Catalonian government wanted the Sands project, but on its own terms, terms that would protect and promote the unique Catalonian culture and not just construct a Sands Vegas replica in Barcelona.

Although the Madrid government officials also come from the same Spanish honor culture, their actions, taking a more welcoming approach, reflect the warmth and hospitality that honor cultures are also reputed for. The mayor of Madrid, Esperanza Aguirre, held several meetings with Las Vegas Sands representatives, and even invited CEO Adelson to have dinner at her home. She was willing to build a relationship and understand Adelson and the Sands’ interests. Unsurprisingly, the project landed in Madrid.6

Following is a timeline of the negotiation between Las Vegas Sands and the Spanish government.7

Part 2: Prepare answers to the following discussion questions:

1. What were the interests of Las Vegas Sands, and how does the Sands propose to meet those interests? Are there likely to be conflicts of interests within the Sands’ top management team?

2. What were the interests of the Spanish Government? Are there likely to be conflicts of interests within the Spanish government?

3. What information did Las Vegas Sands need to understand to address the government’s interests?

4. What information did the Spanish government need to understand Las Vegas Sands’ interests?

5. What do you think about the negotiation strategy of the representatives of Barcelona?

6. What do you think about the negotiation strategy of the representatives of Madrid? Why was it successful?

NOTES

1. “Las Vegas Sands Plans €15bn Gambling Hub in Spain,” The Telegraph, February 17, 2011. http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8331398/Las-Vegas-Sands-plans-15bn-gambling-hub-in-Spain.html

2. “A Look at Singapore’s Value to Las Vegas Sands,” Forbes, April 3, 2013. http://www.forbes.com/sites/greatspeculations/2013/04/03/a-look-at-singapores-value-to-las-vegas-sands/

3. Eurostat. European Comission Statistics. http://epp.eurostat.ec.europa.eu/statistics_explained/index.php?title=File:Dispersion_of_regional_unemployment_rates,_persons_aged_15%E2%80%9374,_by_NUTS_2_regions,_2008_and_2011_%281%29_%28coefficient_of_variation%29.png&filetimestamp=20130503162404

4. “Research and Markets: Construction Industry in Spain Report—Key Trends and Opportunities, 2013–2016,” Wall Street Journal, July 9, 2013. http://online.wsj.com/article/PR-CO-20130709-908273.html

5. “‘Casting’ por Eurovegas,” El País, April 1, 2012. http://politica.elpais.com/politica/2012/03/31/actualidad/1333218919_661161.html

6. “El efecto Adelson,” El País, March 8, 2013. http://elpais.com/elpais/2013/03/08/gente/1362771089_636844.html

7. “Las fechas de la negociación de Eurovegas,” Cadena Ser, September 8, 2012.

http://www.cadenaser.com/espana/articulo/fechas-negociacion-eurovegas/csrcsrpor/20120908csrcsrnac_2/Tes