TOPIC 2:

International procurement process and considerations

1. Needs identification and specification

In most cases the user department identifies the need and forwards to the procurement
department for approval however this should be in the approved procurement plan and budget.
And if it has been approved then the specification can proceed.
A specification is a statement showing the attributes of a product, process or service. When
writing specifications for products or services, the dimensions of quality are used.
Specification refers to a statement which provides a list of characteristics required in an item.
Key considerations are :
 Specification methods
 Prequalification
 Tendering procedure
 Advertisement

2. Sourcing
Sourcing is the process of identifying, selecting and developing suppliers. It is a key purchasing
activity. The aim of sourcing is to find a supplier who will offer the best service at the most
favorable cost. When sourcing, it is vital to know the qualities of a good supplier, the basis on
which a supplier will be judged to be good or bad, the sources of information about suppliers and
the sourcing options available.
In international procurement the one activity which in a sense underlies the realization of all
other objectives of a good purchase decision is the selection of the supplier. Even when an
importer may have done his homework in identifying the "right product" to meet his needs, the
achievement of the importer's objective will ultimately depend on how well his selection of the
supplier has been. The importer must ensure that the supplier is able to provide goods which
conform to the buyer’s standards and specifications.
Considerations are :
 Competitive bidding
 Due diligence e.g supplier visits
 Policy issues in sourcing
 International Sourcing process
 Sourcing options

3. Supplier Evaluation and selection

Supplier evaluation is the assessment of performance of the suppliers on the considerations.
The various reasons for supplier evaluation are : improve supplier performance , assists decision
making regarding when a supplier is retained or removed from the list, provides suppliers with
an incentive for continuous improvement and prevents performance ‘slippage’;assists in
decisions regarding how to distribute the spending for an item among several suppliers to better
manage risk.

Considerations;
 After sales services
 Currency to be used
  Warranties and guaranties
 Compliance- ethics and environmental concern
 Ability to subscribe to international organization like international chamber of
commerce
 Returns policies on goods that are defective
 Law applicable like EU

4. Contracting
The main features of any contract are; Explanation of the deal itself, Payment mechanisms for
the deals and Legal enforcement provision.
The formulation of the contract represents the conclusion of what may have been difficult and
prolonged negotiations. Emerging from the contract is the international sales contract, ultimately
expressed in the export invoice. This represents a major document in the processing of the
imported consignment and all other documents must be aligned with it. This document will
feature the Incoterms chosen and will have an interface with the cargo insurance, transport and
finance arrangements.
Considerations are;
 Incoterms
 Payment methods
 Delivery schedule

5. Contract management
Contract management is the formal process of efficiently managing the creation of a contract,
along with expediting the execution and required analysis of the contract. The systematic
approach of contract management is required to maximize the financial and operational
capabilities and performance of the underlying parties. In addition, contract management is
undertaken to mitigate the risk associated with a contractual agreement. Most transactions go
well beyond national boundaries and cause new challenges in the monitoring, control, and
measurement of contracted services.

Considerations are;
 Project team i.e which team is going to manage the project
 Objectives i.e follow set objectives
 Documentation – everything must be documentation

6. Contract performance evaluation

This means watching or studying the progress (performance) of the contract. It involves
considering the performance results of the contract by comparing these results with the projected
performance reflected by or based on the contract objectives. The monitoring process must
consider the successes and failures in the performance and taking actions to deal with deviations
from the contract objectives.
The Supplier’s performance will, at a minimum, be rated at the conclusion of the work. The
rating are based on ; Quality Control,Timely Performance or on-time delivery, Service, Total
cost, Price , Effectiveness of Management, Compliance with Labor Standards, Compliance with
Safety Standards and Responsiveness

Considerations are;
 Performance indicators like being in international standard organization and European
Union.
 Changing contract terms like reduction or increase prices

NEGATION IN INTERNATIONAL PROCUREMENT

Definition of Negotiation

Negotiation is referred to as “a process of potentially opportunistic interaction by which two or

more parties, with some apparent conflict, seek to do better through jointly decided action than
they could otherwise” Negotiation brings two or more parties together to try to accomplish
mutually beneficial outcomes, while meeting individual goals that may be at odds with the other
negotiating parties' goals.

It can also be defined as a process that occurs when parties are trying to find a mutually
acceptable solution to a complex conflict.

Negotiation is any form of verbal communication, direct or indirect, whereby parties to a conflict
of interest discuss, without resort to arbitration or other judicial processes, the form of any joint
action which they might take to manage dispute between them.

The linkage between the procurement process and negotiation

Negotiation in the purchasing process covers the period from when the first communication is
made between the purchasing buyer and the supplier through to the final signing of the contract.
Negotiation can be as simple as trying to obtain a discount on a case of safety gloves through to
the complexities of major capital purchases.

A purchasing professional must aim to be successful in their negotiations with suppliers to obtain
the best price with the best conditions for every item that is purchased.

Smaller Supplier Base and Long-Term Contracts

The negotiation process has become a more important sector in the supply chain process as
companies look to reduce their expenditure while increasing their purchasing power. This means
that purchasing professionals have to negotiate increasingly better rates with suppliers while
maintaining or increasing quality and service.

In the past, companies had a long list of suppliers who they would purchase different items from
which required purchasing resources to spend limited time on negotiating the lowest prices. The
best solution available was to compare list prices from catalogs and select the vendor based on
that information. The trend over the last decade has been to rationalize the supplier base and
enter into long-term agreements with single-sourcing. This offers companies the ability to
negotiate significantly lower prices for items that they were purchasing from a number of
separate vendors.

Vendors Are Partners

The emphasis in negotiation moved away from lowest price scenario to negotiating with fewer
vendors to obtain the lowest price with the best service, quality, and conditions. The aim of
companies was to reduce overall spending rather than negotiate the lowest price with a large
number of vendors, which did not give the best overall result.

The negotiated long-term contracts with a smaller supplier base have produced more of a partner
relationship between buyer and supplier. The relationship can become less adversary which
benefits buyer and vendor. In a partner type of relationship, the buyer will encourage the vendor
to increase quality and service, and the vendor knows that by doing this the partnership will
continue with a renewed contract with guaranteed sales.

Negotiation or RFQ

Non-government purchasing departments continue to offer a range of prequalified vendors a

request for quotation (RFQ) for items or services that it wishes to purchase. The competitive bid
process can produce a range of bids and conditions that the purchasing department will evaluate
and then award the business. This may or may not involve some form of negotiation.

Most negotiated business will involve items or services that are not necessarily definable by an
RFQ. The purchasing department and the vendor will negotiate more than a price. The
negotiation will usually cover what is to be manufactured or what is the extent of the service to
be provided, the warranty, the transportation services, technical assistance, packaging alternative,
payment plans, etc.

Purchasing items or services of a significant cost will require extended negotiations to arrive at a
final contract.

Purchasing professionals are required to participate in these types of negotiation to ensure their
companies obtain the best price with the most favorable terms, and staff may need to be trained
in negotiation methods as it becomes more commonplace in a difficult economic climate.

Negotiation Objectives

Purchasing staff should enter all negotiations with clearly defined objectives. Without having
objectives the possibility for the purchasing professional to concede on price, quality or service
is significantly raised. The negotiator should enter into discussions with the vendor with precise
objectives that they wish to achieve for their company.

The objective should not be absolute and should allow for some flexibility. However, the
negotiator should also ensure that they do not deviate from the objectives and allow themselves
to negotiate on areas that were not part of the discussion. For example, a negotiator may have
worked with the vendor on their objectives on price and service, but not quality. When the
vendor starts to discuss quality, the negotiator should refrain from any agreement where they are
without a set objective.

Negotiation is an important part of the role of the purchasing professional. It is a skill that is
learned, and training can help purchasing staff in understanding what is needed when negotiating
with vendors.

Objectives of Negotiation (Reasons)

Objectives in negotiating contracts will include one or more of the following;

(a) Certainty

The aim of contract negotiation is firstly to achieve certainty, to record what is being supplied,
when, in what quantities and to what standard, and the consequences of delay or failure to meet
many agreed requirements. Many disputes are caused by the failure of the parties to define, at the
beginning of their relationship exactly what is going to happen. This is very important in the case
of complex projects, where project plans and methodologies will normally be prepared as part of
the contractual documentation.

(b) The best deal

Negotiations should achieve the best deal, it merely points out that both parties to a negotiation
have to understand what they have agreed on. Careful discussion of each element of the deal also
ensures that each party’s objectives are acknowledged and dealt with clearly. In main
negotiations, negotiators should aim for a win-win solution which benefits both parties.

(c) Creation of long term relationships between the parties

For example partnering in industries like aerospace and IT is essential, due to the complexity of
the products and related projects. Such negotiations will focus on the long aspect of the
negotiation so as to create a permanent settlement to the conflict in place.

Other objectives include obtaining the best possible quality, best price and timely delivery.

Content of Negotiation
The content of negotiation comprises of Price, quality/quantity/legal (contractual) and delivery
schedules as major negotiation variables throughout the negotiation process though other
components can be included depending on what is negotiated about.

The price content of negotiation

 Terms of payment

 Price rate per unit

 Types of pricing agreement

 Price analysis and cost breakdown e.g. material costs, labour costs, overhead costs etc

 Quantity discount

 Trade and cash discounts etc.

The contractual content negotiation

 Type of contract e.g. lump sum, cost reimbursable etc.

 Legal charges

 Resolution of conflicts

 Use of subcontractors

 Payment in advance

 Conditions, warranties and guarantees

 Resolution of dispute etc.

The delivery content of negotiation

 Performance management issues

 Delivery/completion time

 Lead-time reductions

 Passing of property

 Damages/compensation for failure to deliver on time.

 Transportation
The international negotiation process

Students are guided through the processes by which actors make decisions, communicate,
develop bargaining strategies and explore compatibilities between different positions, while
attempting to maximize their own interests. Aspects of the negotiating process emphasized
include preconditions and preparations, commitment tactics and concession-making strategies,
and such interferences as cultural differences, personal style, attributions, and stresses.

Stages of the Negotiation Process

Negotiation process falls under 3 2phases i.e. Pre-negotiation stage, which involves planning for
the negotiation through gathering and analysing of information, setting objectives and strategies.
Actual negotiation stage; concerned with the actual process of discussion, further information
collection and analysing and reaching an agreement between parties, while Post negotiation stage
is the final stage that involves the implementation of what parties agreed upon in the negotiation.

Simple model illustrating the 3 phases of negotiation

This is a simple model illustrating the 3 phases involved in a negotiation process. However, the
meeting phase element may not be the case in some negotiations as more than one meeting might
be held depending on the transaction or project. Where the negotiation process requires a more
than one meeting to come to an agreement, the meeting phase can be extended to include;
introduction, discussion and agreement meetings

(a) Pre-Negotiation Phase

Most managers do agree, they would have achieved better results from a negotiation had they
prepared effectively. Note that, the amount of time an organisation or negotiation team takes
preparing will depend on the complexity of the negotiation and its importance to the parties
concerned. In cases of long term relations, it could be argued that preparation is continuous.

Some Aspects in Preparation for Negotiation

 Time – Rackham and Carlisle (1978) agree that it is not the amount of time spent planning
that makes a negotiation successful but rather how it’s used. Therefore managing time is very
important.
 Range – this establishes how far parties in a negotiation process are willing concede before
they disagree or exit the negotiation. A skilled negotiator will consider a wider range for
negotiation that is twice as much for each issue in order to exhaust the available options and
come up with a better deal. This analysis will require a major preparation to explore these
opportunities for both parties.

From the above illustration, assume the seller has a car he is willing to sell at 8million and the
buyer is only willing to buy at 4million. The quoted prices create a gap because neither is the
buyer willing to increase the price at which he is buying nor is the seller willing to reduce the
price at which he is ready to sell. In such a situation, a gap is created and there will be no
negotiation. However, there will be room for negotiation where the seller’s lowest price is
4million and the buyer’s highest price is 8million. The negotiation process will involve the seller
convincing the buyer to take the car at any price higher than 4million while the buyer will
convince the seller to sell at a price below 8million.Thus any deal within the overlapping gap is
good to both parties.

 Differentiating between facts and assumptions – Inability to identify whether the data the
negotiating parties are dealing with is of facts or assumptions will put a negotiator in a
difficult position during the negotiation process. It’s advisable to test the assumptions in the
pre negotiation stage such that new alternatives can be developed beforehand.

 Perception of strength and weaknesses of both parties – it’s common for parties to
understate their strength as they over state those of the other parties while overstating their
weakness and under stating those of the other party. It’s therefore advisable to carry out a
strength and weakness analysis during the preparation phase and also understand that it
 doesn’t refer to the positions held by the parties alone but also one’s ability to influence
control, determine the negotiating skill etc.

 Who is to negotiate – negotiations can be between individual or team representatives. In

case of negotiation between individuals, they should have authority to conclude without
referring to higher authority. They are usually applied during re-buys or modified re-buy
negotiations. Team negotiations are appropriate for complicated, technical, legal and any
other issues involving purchase of capital equipment or new buys. A team comprises of a
spokesman, the recorder and the experts providing technical knowledge during the
negotiation process.

 The venue – it’s always better for the buyer to let the supplier come to their premises for
negotiation due to the advantage of negotiating on home ground e.g. easy access to
information, files for consultation and comfort derived from familiar facilities. The reverse is
possible where the buyer wishes to inspect the supplier facilities or seeking concessions.

 Collecting information – the managers concerned have to make a judgment as to the quality
of information to be collected due to its uniqueness. Considerations to be made include: the
current agreement, delivery, contractual, financial, specification, personal information among
others. This information puts the negotiating parties in position to negotiate for a better deal.

 Setting objectives – it’s important that the parties involved set meaningful objectives in
order for a successful negotiation. Buyers should be clear about what they hope to achieve
but also empathize with likely objectives of the other parties. Note that, the process will have
both cooperative and competitive characteristics, so sensitivity to the goals of other players
by all participants will set the tone of negotiations and contribute to a win-win outcome.

 Strategy and Tactics – the negotiating team should establish beforehand, the overall plan
that will help them achieve the set objectives above. A tactic is a position to be taken at an
appropriate point in the negotiating process. They can be applied on issues like whether to
speak first or allow the other party to open the negotiation, concessions to make should the
need arise, the other parties reaction to a tactic etc.

 Dummy run – it’s of great importance that all the strategies, tactics, ploys and any other
plans are practiced or tested before the actual negotiation. This will help the parties to widen
their thinking and come up with alternatives or the BATNA (Best Alternative To a
Negotiated Agreement) where the opponents think otherwise.

(b) Actual Negotiation/Discussion Stage

Most of the time after pre-negotiation is spent debating i.e. endeavouring to first test our
assumption and find out what the other side wants. There are a number of facts that should be
put into consideration at this point, these include;
 Avoiding arguments and instead proposals should be made to overcome them i.e., suggest
solutions to settle the arguments.

 Proper handling of debates to avoid deadlock deals.

 Avoid destructive debate such as attacking or blaming the other party.

 Suggestion of an agenda if there is none.

 Establishment of a rapport with the other side and then watch how they will want to proceed
with the negotiation.

Bargaining - at this point, we convey the specific terms on which we would settle by looking or
stating our entry and exit points (range). It’s at this stage that the issues of offer and acceptance
are handled. However, failure to agree will see the parties back to the drawing board (pre-
negotiation phase).

Deadlocked negotiation – this occurs where parties see no prospects of further movement or
concessions. Some techniques to overcome deadlocks include;

 Taking a break for each party to refocus.

 Use of humour to lighten up the atmosphere.

 Breaking down an issue into sub-issues for easier understanding.

 Considering the consequences of non-agreement for both parties being represented.

 Obtaining third party assistance

 Agreeing to ‘agree in principle’ – if the parties agree in principle, they also agree on
objectives and this will assist the parties in putting the main huddles in negotiation behind
them.

(c) Post Negotiation

Successful negotiators will work to ensure that what was agreed upon is implemented and at one
point, one can say that ‘no negotiation is complete until what has been agreed upon is enacted’.
This stage has the following guidelines

 Produce a draft reporting honestly on what was agreed in the first agreement and forward it
for comments and agreement by the other party.

 Ensure the commitment of your organisation to making the agreement work.

 Prepare legal contracts in line with the final agreement of the parties.
 Implement the agreement by setting up joint implementation teams and performing your part
of obligation.

 Establish procedures to monitor the implementation process and corrective measures where
the process differs from the original plan.

Negotiation Variables/Aspects international Negotiation

There are several critical variables/aspects that impact on international negotiation:

 Power

 Time

 Information

 Culture

 Perception

 National negotiating style

(a) Power

It is important to make a realistic assessment of the power relationship in any purchasing

negotiation, power involves being able to control or manage the decisions of the other party.
There are many ways in which this can be done, which range from managing their perceptions of
potential loss through to reducing their alternative networks.

Sometimes the balance of power will sit with the buyer, simply because of the size of the
contract and the buying power. Sometimes the balance of power is in the supplier’s favour,
where the buyer is small customer or the supply has an actual monopoly, a geographical
monopoly or a virtual monopoly position in the market.

Being the powerful party in a negotiation is, in itself neutral. It is neither good nor bad, neither
ethical nor unethical, however market power should not be misused to damage, eliminate or
exclude competitors from the market. Misuse of power will often incur costs later in the
relationship.

Organisations can increase their negotiating power by identifying a number of alternative

products / services that could meet their requirements and by having a range of possible
suppliers, thus reducing their dependence on buying a particular item from a particular supplier.

(b) Time
Most people describe negotiation as if it were an event. This implies that is has a definite start
and finish within a fixed time frame. In fact, negotiation is a process rather than an event; the
actual starting point of a negotiation is always long before the start of the formal face to face
negotiation phase. In preparation phase, it is wise to gather as much information as possible both
about the organization’s interests and alternatives and the interests and alternatives of the
supplier. After the formal negotiation phase has finished and an agreement has been reached, it
must be documented, formally agreed, implemented and monitored.

The management of time within the negotiation, slowing the process down and speeding it up
according to the needs of the organizations, is a common tactic. It also helps one party when
situations change in an unexpected direction; taking control of time is often a way of taking
control of the rest of the negotiation.

However it should be noted that, generally, good outcomes in purchasing negotiations cannot be
achieved in tight time frames, it is worth investing the time that is necessary to explore issues,
identify the needs and interests behind expressed positions and develop creative and innovative
solutions of mutual benefit to the negotiation.

(c) Information

Information is at the heart of any negotiation. Adequate attention to gathering information during
the preparation phase of a negotiation can significantly enhance the likelihood of a mutually
satisfactory agreement being reached during the formal phase of the negotiation. During the
formal phase, it is a common strategy for parties to try to conceal their true interests and
priorities. The chance of obtaining accurate information from an experienced negotiator during
an adversarial negotiation is quite low. Information is normally easiest to gather during the
preparation phase before the formal negotiation begins.

The more information you have about the other party’s financial situation, real priorities, needs,
deadlines, costs and organizational pressures, the easier it will be to develop negotiating
proposals which address these issues, and the stronger the negotiating position will be.

There are many sources of information on suppliers and markets. Sources include the media,
libraries, government publications and statistics, product and consumer reports, online services
and professional bodies – and the suppliers themselves, through their literature, their websites
and through their sales force at any exhibitions at which they are displaying their goods or
services. Other interesting sources of information include contact with third parties who are
familiar with the other party, including current and previous customers or even competitors of
the other party, who may be able to give you an insight into industry issues and prevailing
conditions, cost and / or price structures, product availability and design features.

You should never behave in a manner that is unethical or unfair in your attempts to gather
information to use during negotiations. Be aware that the information you receive may not
always be complete or accurate and you should always check information to your own
satisfaction before relying on it. Be sure to keep good notes as you go, as it will be almost
impossible to keep all this information in your head. Written information is easier to share with
other members of your negotiation team, and your notes can be invaluable during the formal
negotiating phase.

Culture

There are numerous definitions of culture in the literature. Kroeber and Kluckhohn (1963), for
instance, have collected more than 160 of them. Despite the fact that some researcher consider
the concept of culture not well defined, most of the definitions, share three key features:

- Culture is a group-level phenomenon – Although each group essentially consists of individuals

and despite the fact that culture is manifested through individuals, culture itself is a phenomenon
that can only be observed once it is shared by the vast majority of the individuals belonging to a
certain group.

- Culture is acquired by individuals from the group they belong to – either through socialization
or acculturation – This implies that culture not only has to be shared by the individuals belonging
to a certain group but also that it has to be preserved in time and transmitted from one generation
to another.

- Culture is a unique set of attributes that subsumes every area of social life – These attributes
can possess intangible or intangible characteristics. The first group, for instance, includes:
meanings, values, beliefs, etc. the second – their expressions such as behaviour patterns and
artifacts.

We define culture as the socially transmitted norms, beliefs, and values influencing the
behaviour of individuals in a given community. This definition possesses all three features listed
above. Generally, there are many kinds of cultures e.g. corporate, family and professional
cultures and each of them can influence negotiating behaviour. It is also important to add that
some cultures exist within countries whereas the others extend across the borders (e.g.
diplomatic culture). Jan’s negotiating behaviour is influenced, for instance, by the way of doing
business in his company, norms and values he was raised in at home as well as by general
management practices taught and pursued in Poland.

Perception

Perception is generally defined as the process of screening, selecting, and interpreting stimuli so
that they gain meaning to the individual. Ideally, each individual has different perception to the
points of discussion during negotiation process.

National Negotiating Style

Negotiators’ culture is expressed in their negotiating style. Generally, negotiating style is defined
as the way persons from different cultures behave in negotiations. This definition implies that:

- There is a strong link between a person’s culture and his negotiating style.

- A negotiating style of a certain person can only be evaluated through an analysis of that
person’s behaviour in several negotiation settings.

Factors affecting negotiation in international procurement

International business negotiations have several factors that make them more complicated than
those conducted among companies in the same country. Differences in legal structures,
cultural norms and religious observances can add to the complexity involved in reaching even
the most routine business agreements. The negotiation tactics that worked when dealing with
Canadian conglomerate may not work as well with a Japanese manufacturer. An understanding
of the factors that affect negotiations across borders, oceans and cultures can help businesses
achieve success on a global scale.

 Communication. Communication is of critical importance in affecting negotiation process

I.e. Language barrier)

 National cultural differences.

 Organizational cultural differences.

Factors That Influence Negotiation and Their Outcomes

 The type of relationship you have or would like to create with the other party. For example,
with collaborative relationships, it’s easier to resolve a conflict since openness saves time
than distributive relationships where there is a high level of competition.

 Personality the personalities of the parties play a big role in negotiations. Your own
personality and style will determine how much you trust the other person, how free you are
with your emotions and how much you want to conceal or reveal your expectations and
intentions in this process. For example, a problem solver negotiator is cooperative,
concerned about the other party’s interests and committed to fairness and efficiency.
Therefore, his approach is to resolve the conflict amicably.

 Time: Taking control of time is often a way of taking control of the rest of the negotiation.
Good outcomes in purchasing negotiations cannot be achieved in tight time frames. It is
worth investing the time that is necessary to explore issues, identify needs and create
innovative solutions of mutual benefit to the negotiation.

 Your position in the market place; your relative power position will influence the
negotiation situation, e.g. if the buyer is the only or one of the few buying firms of a
 particular item, then he has a relatively higher power position to influence the negotiation in
his favour.

 Physical space; sometimes where the negotiation takes place can be important. Are you
negotiating in a space you are uncomfortable and the other is comfortable? Negotiating
space should always be appropriate to both parties.

 The range of options available to you; including the BATNA, you need to know when not
to engage at all and when not to continue to engage in negotiation. For example, it may not
be appropriate for one to enter into negotiation;

a) When you could lose everything you have.

b) When demands made on you are unethical.

c) When you are not prepared to negotiate.

d) When you are not interested in an outcome because you have nothing to gain.

e) When you have no time to negotiate as you would want to.

f) When you do not trust the other party to implement the agreed solution.

g) When waiting will improve your overall position.

 Subjective utilities; people place very different values on elements of a negotiation e.g. you
may place high value on price and the lowest value on quality. It is important to be aware of
your subjective utilities and try to ascertain the other person’s subjective utilities. To find out
what is valued by the other party is one of the key parts of negotiation and should be done in
the preliminary phase.

 Past interaction; if there is a history of conflict to a resolution with this person, there is a
likely hood for this to negatively affect the negotiation due to bias and mistrust among the
parties.

 Information; the more information you have about the other party’s financial situation, real
priority needs, deadlines, costs and organizational pressures, the easier it will be to develop
negotiation proposals which address these issues and the stronger the negotiation will be.

 Skill and experience of the negotiating team or individual will most definitely win the best
deal from a given negotiation process.

Other environmental factors will affect negotiation process are; Legal, political, economic, social
and technological.

Factors That Weaken Negotiation Positions

 Lack of enough preparation time.

 Lack of knowledge with regard to market developments, market position of the suppliers and
your own company’s relative position.

 Lack of knowledge of the suppliers’ cost structure.

 Too little listening and too much talk by the negotiating parties.

 Non or very few alternative sources available – BATNA

 Where there are very few potential suppliers and buyers of a given product or service.

 In cases where demand for a particular item is urgent and cannot be postponed.

 Anxiety to obtain the business.

 When the supplier uses arguments during the negotiation process that were not anticipated by
the buyer.

 Lack of experience.

 The buyer is well known for unfair business dealing and differed payments.

 Few valid arguments to support either parties point of view.

 When both parties contribution to the other is small or insignificant.

 The buyer lacks relevant information about the suppliers’ financial situation, manufacturing
processes and any other relevant information to be considered.