For a good overview of the transaction, read this news article first: How France sank Japan's $40 billion Australian submarine dream.
To Japan, it seemed like a handshake, no-bid deal that was in the bag. So what went wrong?
When doing a deal, time is a very important detail. Parties to quick deals, typically those which conclude within a few weeks, often ignore time as an important factor. Even in quick deals, the passage of time can allow unintended variables to come into play -- What if the subject of the deal, such as a building, is destroyed? What if the law changes in the meantime? What if the seller finds someone who can make a better deal, and wants to figure out a way to back out? Longer deals, which take months or even over a year to conclude, will be subject to even more influence by the power of time. Threatening to enforce a contemplated deadline is one common way for either party to assert influence. And, as in the case of Japan, dithering and failing to act when time has created new threats and opportunities shows that time can never be disregarded as an important factor. To me, at least, nothing is ever final until all documents are fully executed.
2. People. "Everything changes, nothing stands still." - Heraclitus
People are always involved in deals; the crucial decision-making persons may change themselves, or be changed to someone else, or simply become unavailable during critical moments. Japan found out the hard way. Japan realized too late that their best friend in a Prime Minister, who basically guaranteed Japan a deal, suddenly became victim to shifting political winds. A new leader meant that new threats and opportunities must be thoroughly evaluated. But Japan rested upon what it considered to be a done deal, yet found out the hard way that it was anything but. What Japan encountered was a change of the person, but what about a change in the person? What if a buyer suddenly feels buyer's regret, even before they have bought the goods? What if a party to a transaction is affected by an external factor, such as financial pressure or governmental scrutiny, and has additional demands? What if a party's personal dignity overrides any financial incentive -- everyone may have a price, but what if that price suddenly and dramatically increases? To ignore the human factor is to compromise the ability to negotiate and get a deal done.
3. Competition. "With competition, everyone has to try harder." - Hon. Harold H. Greene, of Bell System breakup fame
Japan assumed that it had a no-bid contract (ignoring #2). But with changes in Time and People factors, it suddenly faced competitors. Japan even had plenty of advance warning in terms of understanding its competitors' strategy -- a lot of its competitors' actions were conducted out in the open, and had it managed a better ground game, it could have fully figured out how its competitors were threatening its position and appropriate countermeasures. For example, France, which eventually won over Japan, played up heavily wartime cooperation between Australia and France; France also exploited the military-industrial revolving door by hiring a top-level Australian military official who had recently resigned. Even if Japan lacks good wartime feelings (considering World War II) and failed to hire good insider talent, in hindsight, Japan could have still have tried to aim for competitive parity by having a united, concerted negotiating team with decision-making authority to begin with, and then taking concrete steps to reinforce goodwill assurances which France was actively eroding. By failing to respond in time and in measure to France's overtures, Japan lost out on a huge opportunity. Japan's lessons can be applied to any deal as well. Sellers are competing for buyers' money, and buyers are competing to get the deal done against other prospective buyers. Therefore, it is always important to accurately gauge the needs of the party one is directly dealing with, and then to figure out whether there are any other potential suitors for the deal, what other potential offers and terms may be, how to counter other prospective parties' offers while still keeping an eye on the bottom line, and run a tight negotiation based on these understandings.
Image: A Japanese Soryu-class submarine, which was what Japan was probably going to sell to Australia had it won the contract. Photo courtesy U.S. Navy.