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. Intrapersonal conflict (emotions/ values)

2. Interpersonal conflict (e.g. husband/ wife)

3. Intragroup conflict (families/ teams)

4. Intergroup conflict (labour/ management)

Ghauri (2003)
Functions of Conflict (+)

1. Awareness of problems
2. Allows change and adaptation
3. Strengthens relationships (intra-group)
4. Awareness of self and others
5. Encourages psychological development (realistic in self-
appraisal)
6. 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. price
2. delivery
3. quality
4. innovation
5. level of technology
6. culture
7. commercial awareness
8. productive flexibility
9. ease of communication
10. 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. Objective, regular and systematic evaluation against pre-agreed criteria
2. Benchmark supplier performance against performance of similar suppliers used
3. Measure against fulfilment of specific objectives e.g. contract SLAs
4. 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?

1 Agree on a schedule of audits

- classic project management charts
- detail projected against actual progress

2 Arrange review meetings

- nominate project managers who monitor progress from
both parties
Contract Reviews

3 Visits to both company sites

4 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

9 Ghauri, P & Usunier, J. (eds), International Business

Negotiations, Pergamon Press, 2nd Edn, 2003.

9 Fisher, R & Ury, W., Getting to Yes: Negotiating Agreements

without Giving In, Huchison, 1991.

9 Lewicki, R, et al, Essentials of Negotiation, McGraw Hill:

International Edition, 2003.

9 Gelfand, M & Brett, J, The Handbook of Negotiation and

Culture, Stanford Business Books, 2004.