International Business Negotiations

An Overview

Dr Helen Rogers

Business Negotiations

Negotiation is something that everyone does, almost daily

Characteristics Common to All Negotiation Situations

There are two or more parties There is a conflict of interest between them Parties negotiate because they think they can get a better deal than by taking what the other side will give them Parties prefer to search for agreement rather than: Fight openly Capitulate Permanently break off contact Take their dispute to a third party

Characteristics Common to All Negotiation Situations

Parties expect give and take. They expect both sides will modify or give in somewhat on their opening statements or demands Successful negotiation involves: The resolving of tangibles e.g., the price or the terms of agreement The resolution of intangibles underlying psychological motivations

Why Negotiate?

Negotiations occur for one of two reasons:

(1) To create something new that neither party could attain on their own (2) To resolve a problem or conflict between the parties

Four levels of Conflict

1. 2. 3. 4. Intrapersonal conflict (emotions/ values) Interpersonal conflict (e.g. husband/ wife) Intragroup conflict (families/ teams) Intergroup conflict (labour/ management)

Ghauri (2003)

Functions of Conflict (+)

1. 2. 3. 4. 5. 6. Awareness of problems Allows change and adaptation Strengthens relationships (intra-group) Awareness of self and others Encourages psychological development (realistic in selfappraisal) Can be stimulating and fun

Types of Negotiation

1. Distributive bargaining (win/lose) e.g. labour management negotiations vs

2. Integrative negotiation (win/win) e.g. business negotiations

Fisher & Ury (1991) divide the pie, versus larger pie

Framework for International Business Negotiations

Background factors Objectives Environment Third parties Negotiators

Atmosphere Conflict / cooperation Power / dependence Expectations

Ghauri (1996)

Framework for IBN (Ghauri,1996)

Conceptual model of business negotiation process Highlights importance of planning and preparation in successful negotiations Negotiation strategy: overall guideline, indicating direction to take, based on wishes, needs and objectives Negotiation tactics: follow after strategy providing a line of action

Stage 1: Preparation
Identify contents of the deal Create alternatives Put yourself in their shoes Gauge the appropriateness of the message Build up relative power Understand cultural differences

Stage 2: Face-to-Face
Who within the firm should negotiate Expendable person Individual versus team What makes a good negotiator Patience

Stage 3: Post-Negotiation
Clarity of the agreement What is a good outcome? Can no agreement be a good outcome? Are contracts used after signing?

Cultural Factors
Differing definitions of negotiation Differing degrees of protocol Communication processing information, argumentation Views about time Risk taking Balance of group think vs individuality Nature of agreements oral vs written Intervention of lawyers

Ghauri (1991); Lewicki (2003)

Trust in cross - cultural negotiations

Limited number of studies Indications that national culture influences how trust builds among negotiators Trust affects the perceptions re ethical behaviour ( trust level< > use unethical negotiation tactics) A multicultural team increases the chances of a win-win outcome

Elahee et al. (2002)

Getting to Yes - BATNA

1. Separate the people from the problem 2. Dont bargain over positions 3. Insist on objective criteria 4. Develop your best alternative to negotiated agreement (BATNA) the "what" if the negotiation fails often if win-win cant be achieved, going for a no deal could be the best answer.

Fisher & Ury (1991)

Getting to contract - some practical issues to negotiation

Contract award criteria: 10 suggested attributes [Cousins]

Contract award criteria include:
1.
2. 3. 4. 5. 6. 7. 8. 9. 10.

price delivery quality innovation level of technology culture commercial awareness productive flexibility ease of communication current reputation

Note: qualitative nature of some of these

Getting to Contract Stage

Arriving at handshake stage between two or more parties interesting process

Negotiations may take 10 minutes, 10 hours, 10 days or 10 weeks Depending on many factors inc. nature of relationship complexity of order flexibility / room for manoeuvre

Preparation Establish scope - whats in and whats out? Clarify bottom line Justify scope & determine areas of flexibility - good practice Brainstorm what..ifs - encourages creative solutions

Characteristics of Negotiations Initially can be very slow going Why?

- both parties have clear agenda of what they want to achieve from the agreement

All issues debated and each side will not give too much ground A: it is vital that this is included in the spec. B: we cant possibly do all that for this price

Characteristics of Negotiations
Each party: wish list -inc. must-haves &nice-to-haves

With time, deadlines become closer - pressure applied by management on both sides to close the deal

Characteristics of Negotiations

Once the most of the must haves have been achieved, compromises come into play

if you.. then I - discounts will be offered on future deals - longer term collaboration may be discussed

Tactics
time out good cop / bad cop bring in the team bring in the heavyweights - technical experts & senior managers emotional outbursts documentary evidence sometimes e-mails provided as evidence of implied agreement dont always hold around negotiation table

Characteristics of Negotiations

A deal will eventually be struck with a handshake

..followed up by immediate drafting of the contract

Success depends on:

Who has the best team of negotiators some companies take lawyers to all meetings - others keep it informal - based on trust & knowledge of negotiation teams Who has power in the relationship - size of company - importance of deal

Success depends on:

Choice

- availability of goods from another supplier

interchangeably of supply - X has been specified by final customer

Whos need is greater - time constraints detrimental in long term but may be pursued if v. large order - cost excludes other options

Success depends on:

Autonomy of the contract - there is less room to move if part of a large consortium or have to fit into someone elses project schedule

Measuring Negotiation Success

How do you measure success? Reached agreement? Both parties did what was agreed? KPIs reached (%) pre-agreed KPIs written into the contract; used as the basis for measuring progress throughout contract term Number of orders???

Vendor Management
Supplier rating schemes
ABC

Many parties make much work Needs project management Red / amber / green light system

Vendor Rating Systems

What?
Vendor rating is used to measure, evaluate & improve supplier performance to ensure that companies make informed sourcing decisions

How?
1. 2. 3. 4. Objective, regular and systematic evaluation against pre-agreed criteria Benchmark supplier performance against performance of similar suppliers used Measure against fulfilment of specific objectives e.g. contract SLAs Awarded points on a standardised weighted points scale

Two way process:

Useful feedback to suppliers to identify action plans & ways to improve

Contract Reviews
How else should you evaluate progress on during a contract term?

Agree on a schedule of audits - classic project management charts - detail projected against actual progress Arrange review meetings - nominate project managers who monitor progress from both parties

Contract Reviews

3 4

Visits to both company sites

Additional incentives may be set - positive and negative - consistently high delivery reliability may warrant a one off bonus

Use of Written contracts

Contracts are the work of the devil! (Macaulay, 1963) Cost, time, energy/relationship testing to agree them So.why do most companies use them?

1. As a communication tool expectations clearly set out 2. Negotiators wish to reduce perceived uncertainties especially when doing business for the first time 3. Drawing up a contract is the normal thing to do contract symbolises the existence of a deal .In other words, when usefulness is perceived as greater than cost
Roxenhall and Ghauri (2004)

Use of written contracts

An extensive contract is more cumbersome than a simple one Unilaterally vs bilaterally written - depending on the relationship between the parties Boilerplate standard contracts vs bespoke contracts The longer lasting the business deal, the less the contract is used Contracts rarely used except in times of conflict (Tung, Gulbro & Herbig)

Roxenhall and Ghauri (2004)

Readings
Ghauri, P & Usunier, J. (eds), International Business Negotiations, Pergamon Press, 2nd Edn, 2003. Fisher, R & Ury, W., Getting to Yes: Negotiating Agreements without Giving In, Huchison, 1991. Lewicki, R, et al, Essentials of Negotiation, McGraw Hill: International Edition, 2003. Gelfand, M & Brett, J, The Handbook of Negotiation and Culture, Stanford Business Books, 2004.