Understanding Business Negotiations Through The Lens of Kautilya's Theory of Governance

Project Report MBA (IB) PT (2009-12) ¦ PSYCHOLOGY FOR MANAGERS
“That which is to be realized by negotiation entails little

loss of men”. – Kautilya (Arthashastra)
Understanding Business Negotiations

through the lens of
Kautilya’s Theory of Governance
20th January, 2010
GROUP MEMBERS
Kalpana Naidu Beesabathuni [Roll No. 18]
Rajesh Kumar Garg [Roll No. 30]
Ravi Ganesh [Roll No. 33]
Sameer Sharma [Roll No. 41]
Saurabh Agarwala [Roll No. 44]
Siddharth Sikka [Roll No. 48]
Souvik Pal [Roll No. 51]
Table of Contents
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Business Negotiations and Psychology............................................................................................3

What are business negotiations?...................................................................................................4
Psychology, Mental Models and Business Negotiations.........................................................5
The Four Stages in Business Negotiation.......................................................................................6
Preparation............................................................................................................................................6
Exchanging Information....................................................................................................................7
Bargaining..............................................................................................................................................7
Closing and Commitment.................................................................................................................7
The Basic Elements of Negotiation...................................................................................................8
Process, Behaviour and Substance...............................................................................................8
Competitiveness versus Cooperativeness..................................................................................9
Kautilya’s Theory and Business Negotiation................................................................................10
Kautilya’s Theory...............................................................................................................................10
Classifying Various Negotiation Tactics.....................................................................................12
Devising the Negotiation Strategy..............................................................................................14
Multi-Party Negotiations: Critical Differences.............................................................................15
Cross Cultural Negotiations...............................................................................................................16
Complexities of Negotiating Across Cultures...........................................................................16
Four Dimensions of Differences...................................................................................................17
Ethics in Negotiations..........................................................................................................................19
Importance of Ethics in Negotiation...........................................................................................19
Ensuring Ethical Negotiations.......................................................................................................20
References...............................................................................................................................................21
Business Negotiations and Psychology
“Negotiation is a process involving two or more people of either equal or unequal

power meeting to discuss shared and/or opposed interests in relation to a
particular area of mutual concern.”
Negotiations are a part and parcel of life. Everybody negotiates, whether at home, at college,
at work or at a grocery store. The study of negotiations has not sprung out of the blue in this
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decade or the previous one. Kautilya proposed the theory of governance in Arthashastra
nearly two thousand and four hundred years ago, which has withstood the test of time.
Negotiations have been and still remain a significant social activity and a means for dealing
with human relationships and resolving conflict.
As a process, negotiation has three dimensions. First, negotiation is an educational process:

it enlightens the other side about your team's concerns, perceptions and aspirations. Second,
negotiation is a problem-solving process: inevitably the parties involved have different
perspectives that must be reconciled if there is to be progress. Third, negotiation is an
interdependent process: workable and sustainable progress depends on building a
cooperative relationship with the other side. In general, negotiating a workable balance
among competing interests requires a combination of direct and indirect diplomacy,
discussion and consultation, compromise and concession, and above all, flexibility.
Moreover, negotiation is about «conflict». In negotiation, conflict tends to be a product of the

different interests held by the parties in relation to the area under discussion. The nature of
the conflict is conditioned by the substantive, psychological and procedural requirements of
both sides: respectively, the minimum objective, emotional needs, and resolution and
implementation procedures requiring satisfaction for there to be an agreement. The conflict
therefore need not be destructive: it can be used to promote communication and discussion
which allows the parties to redefine old, unworkable, or to establish new, relationships.
Furthermore, the nature of conflict changes over time which allows new opportunities for
discussion and reconciliation. In general it is important to understand the nature of the
conflict and to legitimize it in the negotiating process.
Finally, negotiation is about power. Power is the capacity to realize a desired outcome, or to
change the stance of another party. Negotiation inevitably involves parties with different
capabilities and resources. The ability to utilize these differences in an effective exercise of
power will depend on the political, economic and social context surrounding the negotiations.
The exercise of power manifests itself in the words and phrases used in the final agreement.
It is therefore a contingent phenomenon subject to the particularities of the situation and the
abilities of the parties involved to function in the given negotiating environment. As a result,
in a contest of wills it is not inevitable that the party with greater resources and influence will
always realize its objectives. In general, negotiating a workable solution among competing
interests requires an understanding of the power dynamics at work because these will set the
parameters in which an agreement will be realized.
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What are business negotiations?
Business is nothing but negotiation. Businesses have to negotiate to buy, to sell, to conclude
contracts with suppliers, to fix staff salaries and so on. Businesses also have to negotiate with
regulators, banks, insurances etc. It means that a life as a business professional involves
extensive negotiations on a daily basis with people who are defending their own interests.
Negotiations are obligatory when businesses are preparing new contracts. As businesses
prepare and sign a lot of contracts with buyers, sellers, bankers, and staff, a large part of
time is dedicated to business negotiations.
Negotiations can be viewed in various perspectives:
1. Dispute Resolution Perspective: Negotiation is a dialogue intended to resolve

disputes and produce an agreement upon courses of action
2. Solution Provider Perspective: Negotiation is a means to bargain solutions for

individual or collective advantage, or to craft outcomes to satisfy various interests.
3. Need Satisfaction Perspective: Negotiation is a process used to satisfy one’s needs

when the control is in someone else’s hands.
4. Relationship Change Perspective: Negotiation happens when people exchange

ideas with the intention of changing relationships and confer for agreement
In cases where there is no information asymmetry and there are only divergent interests and
no common interests, negotiation is often a waste of time. Likewise, if there are only
common interests and no divergent interests, one can directly arrive at an agreement and a
real negotiation becomes redundant. However, existence of purely divergent interests or
common interests is rare in business, and even when they exist, there is information
asymmetry, which eventually leads to negotiations.
Psychology, Mental Models and Business Negotiations
Psychology is the study of human and animal behavior, mental processes including learning
and memory, and mental functions including intelligence, thought and language.
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A negotiator needs to study information not just on culture and anthropology, but also
aspects of human behavior and motivation because in any complex negotiation it is necessary
to understand the person or organization with whom we are dealing.
Research has proved that negotiation outcomes can be analyzed as a problem-solving activity
in which behavior is influenced by negotiators’ mental models. Different negotiation outcomes
thus, depend on different mental models of the situation. Negotiators’ mental models lie
along a continuum that ranges from purely fixed-pie to purely integrative.
Purely integrative mental models reflect a belief that negotiation situations offer
opportunities for joint gain through resource ‘creation’. This often requires trading issues for
which the negotiators have different preferences so that each negotiator obtains more of
what is more important to him or her.
Purely fixed-pie mental models reflect a belief that negotiations do not offer opportunities
for joint gains, and that gains for one party necessitate losses for the other party. Fixed-pie
mental models focus more on the resource-claiming aspect of negotiation, and less on
resource creation. Fixed-pie mental models tend to be inaccurate, because most negotiations
have opportunities for resource creation. Negotiators with purely fixed-pie mental models are
usually reluctant to share information about their preferences, and make more demands and
concessions.
This document attempts to present a process led approach to business negotiation

as opposed to an outcome led approach a la mental models. While it is believed that
both approaches do converge, the former approach allows us to elaborate on the
psychological aspects.
The Four Stages in Business Negotiation
The complexity of the negotiating process varies according to the size and complexity of the
proposed deal as well as the attitudes adopted by the parties involved. Nearly all negotiations
are characterized by four stages - preparation, exchanging information, bargaining and
closing & commitment. In large scale negotiations each of these phases are normally tackled
sequentially. However, in smaller scale negotiations it is quite common for these phases to
merge - possibly into a single unstructured process.
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Preparation
Better negotiation is possible only after thorough preparation. Preparation includes

researching standards and principles by which negotiating parties may reach common
ground. Preparation includes knowledge of own values on the issue being negotiated as well
as knowledge of the perceived needs and values of the other parties involved in the
discussion. It is important to be aware of one’s own bargaining style as well as that of the
other party.
Exchanging Information
This is the single most important stage of negotiation. Successful negotiators ask twice the
number of questions and spend over twice the amount of time acquiring and clarifying
information than did average negotiators. Many observational studies since 1978 have
confirmed the importance of these basic communications skills in effective negotiation. Henry
Ford gave advice on such communication: "If there is any one secret of success" he said, "it
lies in the ability to get the other person's point of view and see things from that person's
angle as well as from your own.
Bargaining
Bargaining is the stage that most people associate with negotiation. However, this stage
alone is NOT negotiating. It begins with an exchange of terms, an opening of the discussion
of a "deal". This stage has to be delayed as long as reasonable, but needs to be recognized
when it begins. Both parties are also more likely to be pleased with their final transaction if
they come to the discussion with their very best case scenario in mind. The best bargaining
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will result in all parties feeling as though they have acquired value and lost little or none. This
happens when the negotiators spend sufficient time prior to the bargaining stage to discover
common ground on values and mutual benefit in exchanging properties or ideas.
Closing and Commitment
When various options have been fully explored, weighted by each party, and often adjusted,
closing may occur. We obtain true commitment from the other party when the alternatives
are not as attractive as following through on the deal. In an effective negotiation, both
parties will come to this point of best possible combination of terms in a similar time frame.
Robert Frost said, "Good fences make good neighbors." A strong and visible closing and
definition of terms facilitates an ongoing, trustworthy relationship. One might say of
bargaining, "a good contract makes a good bargain-and a potential long term relationship
that will continue to benefit both parties. In the Unites States, a symbolic handshake signifies
a verbal agreement. Signing a contract or memorandum of understanding or placing funds in
escrow shows good faith and intention to follow through on the agreement. A public
announcement such as a press release or presentation at an important meeting gives
credence to the plan.
The Basic Elements of Negotiation

Process, Behaviour and Substance
There are many different ways of segmenting negotiation to gain a greater understanding of
the essential components or elements. One view of negotiation involves decomposing it into
three basic elements: process, behavior and substance.
1. Process: Process refers to how the parties negotiate - the context of the negotiations,
the parties involved in the negotiations, the tactics used by the parties, and the
sequence and stages in which all of these play out.
2. Behaviour: Behavior refers to the relationships among these parties, the

communication between them and the styles they adopt.
3. Substance: Substance refers to what the parties negotiate over: the agenda, the
issues, the stance taken by the parties, the options, and the agreements reached at
the end.
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A “Process” can be subdivided into strategic and operational. “Strategic” refers to a broad
approach to a negotiation by the parties e.g. Compete, Avoid etc. Such an approach is
heavily dependent on “Behaviour”, which is a measure of the criticality of the relationship
between the parties. “Operational” process refers to the actual negotiation tactic
In our subsequent sections of our report, we shall discuss how the various “Operational
Tactics” can be viewed through the lens of Kautilya’s Theory of Governance and classified as
“Saam”, “Daam”, “Dand” or “Bhed”.
For example: A “Strategic Process” can be “Aggression to Compete” and an “Operational

Process” or a “Tactic” can be”Dand” or “Pressurize”.
Competitiveness versus Cooperativeness
The Thomas-Killman Conflict Mode Instrument or the TKI is a questionnaire designed to

measure how a person handles inter-personal conflict. This is expressed using two
dimensions and five modes. The TKI was developed in the early 70’s by Kenneth W Thomas
and Ralph H Kilmann. It was originally developed as a research tool and has grown into a
wonderful training tool.
The two dimensions are:
1. Assertiveness: The degree to which a person tries to satisfy his / her own concerns
when faced with a conflict.
2. Cooperativeness: The degree to which you a person tries to satisfy the other
person’s concerns when faced with a conflict.
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The five conflict resolution modes are:
1. Compete: This mode is considered to be very assertive and very uncooperative.

Sometimes the term power-oriented is associated with this mode. This can be an
individual who pursues their beliefs at another person’s expense, using whatever
power is appropriate to win his or her position. Although there might be some
negative connotations to the way this mode is described, there are absolutely times
when it is the best and most effective way to resolve a conflict.
2. Accommodate: The exact opposite of competing, accommodating is unassertive and

highly cooperative. A person might neglect his / her own concerns to satisfy the
concerns of another person. This could be self-sacrificing, but it can also represent
selfless generosity or charity or obeying orders when you would prefer not to.
3. Avoid: This is unassertive and uncooperative. A person is not pursuing his / her own
concerns and also not pursuing the concerns of the other person nor is he / she
addressing the conflict. This might be for diplomatic reasons or in anticipation of a
better time or perhaps, withdrawing from a threatening situation.
4. Collaborate: – This is assertive and cooperative and it is the opposite of avoiding. A

person attempts to work with the other person to find a solution that satisfies both of
their concerns. Together they study the issue and identify their underlying concerns.
Mutual understanding of needs and perspectives is facilitated so that a creative
solution becomes feasible.
5. Compromise: The middle ground in terms of assertiveness and cooperativeness.

Both the parties find a mutual solution that is partially satisfactory. A person gives up
more than you would when you are in competitive mode, but less than in an
accommodating mode. The issue is addressed more directly than avoiding but not as
much attention is given as is done while collaborating.
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Kautilya’s Theory and Business Negotiation

Kautilya’s Theory
Two thousand four hundred years ago, Kautilya compiled the Arthashastra and with it he
proved to be a kingmaker as he enabled the inception of the Gupta dynasty. Arthashastra has
endured the test of time and it has since withstood the test of credibility.
Quoting from the Arthashastra: “That which is to be realised by negotiation (mantrasáddhya)

entails little loss of men”. This statement very well underscores the significance of
negotiation process.
Negotiation (Saam), bribery (Daam), causing dissension (Bhed), and open attack (Dand) are
forms of stratagem (upáya).
1. Saam: Saam is the art of counselling - the preliminary round of discussion. Most of
the problems in life arise on account of lack of communication. Once we sit down
across the table and discuss things straight, many issues can be resolved. This is of
five kinds:—
a. Praising the other person (Gunasankírthana)
b. Narration of Mutual Relationship (Sambandhópakhyána)
c. Pointing out Mutual Benefit (Parasparópakárasamdarsanam)
d. Showing Vast Future Prospects (Ayátipradarsanam)
e. Identity of Interests (Atmópanidhánam)
2. Daam (Upapradána): Daam is the offering of gifts – ‘If you do this I will give you
that.’ Incentives, promotions, a good vacation, raise in pay etc. are offered by various
companies today to motivate employees towards better productivity.
3. Bhed: Bheda or separation is the policy of causing fears and suspicion and sowing
dissension. ‘Divide and rule’ is a very practical and effective way of handling certain
difficult situations. In the Indian context the phrase ‘divide and rule’ has gathered a
very negative meaning because of its association with the policy adopted by the
British to subjugate India. However, the policy of ‘divide and rule’ can be used
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creatively for the welfare of the very people concerned.
4. Dand: The negotiator has to sometimes take corrective action. He has to start using
punishment. This has to be implemented to continue to retain control. The punishment
can be severe or mild, depending on the situation.
This stratagem is used by Kautilya in various disciplines like the running of a state, making a
plan for warfare, passing judgments over criminals etc.
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Classifying Various Negotiation Tactics
The various operational processes or in other words the various negotiation tactics can be
broadly summarized into “Saam”, Daam”, “Bhed” and “Dand”. Some of the tactics are
described below:
Saam
Negotiation Tactic Description

Cards on the table State your case, clearly and completely.
Change the negotiator New person can reset the rules.
Dry well Show you've nothing left to exchange.
Empty pockets Say you can't afford it, don't have it, etc.
Fair criteria Set decision criteria such that is perceived as fair.
Fragmentation Breaking big things into lots of little things.
Hire an expert Get an expert negotiator or subject expert on your team.
Lawyer Use survey results, facts, logic, leading question.
Overwhelm Cover them in requests or information.
Daam

Brooklyn optician Price or negotiate each item.
Changing standards Change the benchmarks of good and bad.
Credentials Show how clever you are.
Escalating demand the more you get the more you require.
Fame Appeal to their need for esteem from others.
Funny money Financial games, percentages, increments, etc.
Highball Sellers--start high and you can always go down.
Linking Connect benefit and cost, strong and weak.
Log-rolling Concede on low-priority items.
Lowball Buyers--start low and you can always go up.
Nibbling Constant addition of small requirements.
Phasing Offer to phase in/out the unpleasant bits.
Slicing Break one deal down into multiple smaller deals.
Split the difference Offer to agree on a half-way position.
Trial balloon Suggest a final solution and see if they bite.
Wince Repeat price loudly, then silence.
Bhed

Auction Set sellers or buyers against one another.
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Biased choice Offering choices that already include your biases.

Bluff Assert things that are not true.
Check the facts Bring up new information you have found.
Control the agenda And hence what is discussed.
Delays Buying time and building tension.
Divide and conquer Get them arguing with one another.
Doomsday Paint an overly black picture.
Double agent Get one of their people on your side.
Empty promises Make promises that you know you will not keep.
Faking Letting them believe something about you that is not true.
Flattery Make them look good and then ask for concession.
Forced choice Subtly nudging them toward your choice.
Good guy/bad guy Hurt and rescue by people.
Incremental conversion Persuade one person at a time. Then use them as allies.
Make an exchange during negotiation that will not get into
Interim trade the final contract.
Leaking Let them find out 'secret' information.
Another person who wants what you have appears on the
New player scene.
No authority Refuse to agree because you are not allowed to.
Padding Make unimportant things 'essential' then concede them.
Plant A 'neutral' person who is really working for you.
Red herring Leave a false trail.
Russian Front Two alternatives, one intimidating.
Reducing choice Offering a limited set of options.
Widows and orphans Show the effect on the weak and innocent.
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Dand

Bad publicity Indicate bad publicity of not agreeing.
Better offer indicate a better offer from the competition.
Better than that Just say 'You'll have to do better than that...'
Big fish Show you're the big fish and they could get eaten.
Breaking it off Walking away from the negotiation.
Call girl Ask to be paid up front.
Deadlines Push them up against the wall of time.
False deadline Time limitation on their action.
New issue Introduce a new key issue during the negotiation.
Non-negotiable Things that cannot be negotiated.
Quivering quill ask for concession just before signing.
See you in court Threatening to go to a higher or public forum.
Shotgun Refusal to continue until a concession is gained.
Take it or leave it give only one option.
Undiscussable Things that cannot even be discussed.
War Threaten extreme action.
Devising the Negotiation Strategy
So far, we have developed an understanding of the negotiation process. We have seen that
“Strategic Process” or the broad approach taken by an individual in a negotiation depends on
the criticality of the relationship and the level of assertiveness versus cooperativeness. The
following grid presents negotiation strategies for various combinations of criticality of
professional relationship and the levels of assertiveness of the individual.
Relationship
Critical Uncertain Not Critical

Assertive Daam Daam-Dand Dand
Assertiveness Compromising Saam-Daam ???? Bhed Dand
Cooperative Saam Saam Bhed Bhed
The actual tactic that would be used would depend on the “Substance” i.e. the agenda of the
negotiation and will vary from situation to situation.
Let us consider an example from the human resources industry to illustrate the above. We
consider two levels of relationship – recruitment of a top management professional as a
critical relationship for the company and the recruitment of an entry level position as not so
critical relationship.
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Similarly, we consider two levels of assertiveness – contract involving a non-negotiable salary

(tilting towards assertiveness) and contracts involving negotiable salary (tilting towards
cooperativeness).
What strategy would a human resources manager follow while recruiting a top manger for a
firm that does not have a flexible salary structure?
Salary Top Management Entry Level

Dand: "Take it or leave it"
Daam: "We will offer you a
Non- "Your skill sets are not a
company car, a cabin and once a
Negotiable complete match with our
year family holiday"
requirements"
Saam: "The fact is your salary has Bhed: "We will revise your salary
a higher take home component" in just three months after you
"We have a fair appraisal process join us" (with the intention of not
Negotiable
and if you perform, we will give you doing so)
a more than proportionate increase "Your salary is one of the best in
in salary" the industry"
Multi-Party Negotiations: Critical Differences
There are many similarities between bipartite negotiations and multiparty negotiations.
However, one key difference is that as soon as the number of parties increases to more than
two, coalitions are likely to form. The prospect of coalition formation requires special
preparation. Entering a multiparty negotiation means thinking ahead about offense—how to
build a winning coalition—and defense—how to organize a blocking coalition that could thwart
other parties' aggressive moves. And because coalitional dynamics are likely to play a crucial
role in most multiparty negotiations, negotiators also need to pay close attention to
managing group interaction.
The preparation process for a negotiation also gets complicated. When there is just one
partner, one typically needs to calculate one’s own BATNA (Best Alternative to a negotiated
Agreement) and the other side's once. As the number of parties increases, BATNA
calculations and resulting considerations of possible settlements take on a kaleidoscopic
quality. In a multiparty negotiation, one needs to recalculate BATNA every time a new
coalition seems likely.
Imagine a merger being negotiated by the chief executive officers of three competing
companies. None of the CEOs is dissatisfied with the status quo. If two of them decide to
merge, their combined resources and market share will swamp the one left out. As a result,
each CEO has to compare the status quo with a variety of two-way and three-way merger
deals—some of which would leave one of them out in the cold. This need to compare
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fluctuating proposals makes preparation in multiparty negotiation much more important and
difficult than preparation for a two-party negotiation.
Cross Cultural Negotiations

Complexities of Negotiating Across Cultures
The risks of diverging views of the underlying negotiations are far higher when the parties are
from different organizational, professional or national cultures. Such negotiators often make
powerful assumptions that pull in nearly opposite directions. For example, to many from
legally oriented cultures, “a deal is a deal” and “a contract is a contract”. To others in more
relationship-oriented cultures, the signed deal or contract is clearly understood as simply the
starting point for ongoing negotiation.
Executives in some regions of the world (such as North America and Northern Europe) tend
to be comfortable with deal making that is accompanied by a comparatively modest
relationship, while a more extensive relationship is often required to support negotiated
agreements in East Asia, Latin America and Southern Europe. This implies different levels of
emphasis on the underlying contract, which in turn raises broader questions. Can the joint
arrangement be understood primarily as a business relationship, or is it more personal and
social? Are relationships with employees, customers and suppliers primarily understood in
economic terms, or are they more complicated?
A breach of the contract or even a perception of that accord can lead to strong negative
reactions. The good news is that all breaches need not be fatal; how they are handled can
strengthen (or further damage) the contract. If a breach was inadvertent, the party should
act to reassure the other side that the breach was unintentional, not exploitive. Sincere
efforts to rebuild confidence can have the effect of rebuilding and reinforcing the contract.
Four Dimensions of Differences
Cross-cultural differences in the negotiation game can be conceptualized along four basic
dimensions—collectivism-individualism, power distance, communication context, and
conception of time.
Dimension 1: Collectivism-Individualism
The Collectivist Negotiator The Individualist Negotiator

(e.g. China, Colombia, Japan, Pakistan, (e.g. USA, Great Britain, The
Taiwan) Netherlands)
Preserves relationships Preserves individual rights & attributes
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Handles conflicts in indirect ways that Handles conflicts directly through

attempt to preserve relationship. competition & problem solving
Is more likely than to use deception, typically Is more likely to hold egocentric notions of
as a means of saving face, avoiding fairness and defects in asymmetric social
confrontation or preserving harmony dilemmas.
Dimension 2: Power distance
This is the relative prevalence of social or professional hierarchies in a society
High Power Distance Societies

Low Power Distance Societies
(e.g. Philippines, Venezuela, India,
(e.g. Denmark, Israel, Austria)
France)
Reflect inequalities among individuals on the
Reflect more egalitarian values
basis of social or professional hierarchies
Have fewer conflicts with their superiors and
are more likely to have superiors intervene in
settling their conflicts
Dimension 3: Communication context
This is the degree to which communicated messages inherit meaning from the settings in
which they are transmitted.
Low Communication Context Cultures

High Communication Context Cultures
(e.g. USA, Germany, Scandinavia,
(e.g. Japan, China, Korea, Vietnam)
Switzerland)
Use implicit, indirect language in which words
and phrases derive their meanings from Use explicit, direct language
contextual clues
Dimension 4: Conception of time
This refers to the way in which people perceive and manage their time.
Polychronic conception of time

Monochronic conception of time
(e.g. Asia, Africa, South America, Middle
(e.g. North American, Western Europe)
East)
Time is plentiful and many tasks can be Time is scarce and only one task can be
undertaken simultaneously handled at a time
Negotiators are more likely to process issues
Negotiators are more likely to process
simultaneously while ignoring conversational
issues sequentially and to negotiate in a
turn-taking (i.e. speaking simultaneously)
highly organized fashion
and using frequent interruptions
In addition to these, following also needs to be taken care of:
Influence of “informal” negotiators
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In many settings, an informal negotiation can envelop and even overshadow the formal one.
One should always be on the lookout for this “enveloping” process, mapping the parties who
won’t necessarily be involved in signing the contract or agreement, but who have influence
on the negotiation process.
Negotiators in Japan, for example, need to pay careful attention to the large
industrial/financial groups, the keiretsu, that are linked by a dense web of business ties and
cross shareholding. Even though the companies have independent identities, knowledge of
the broader relationships and their implications can be critical. Similarly, German financial
giant Allianz is sometimes referred to as the “spider in the web” as a result of its widespread
decision-making influence in that sector. In Italy, you ignore at your peril the economic
decision-making role of powerful families and companies – the salotto buono (“good drawing
room”). And of course influence can take a more sinister form, such as the role of the
Russian “mafia” and other protection/extortion rackets. In these and similar settings, good
local advice can be critical to drawing up the right all-party map.
Stereotyping
Negotiators tend to over-attribute problems in negotiations to cultural differences. A U.K.

CEO, for example, persisted in attributing his French counterpart’s actions to French
“arrogance”, although upon further investigation, it was found that the French negotiators
were following an entirely rational and almost obvious strategy.
Ethics in Negotiations
My father said: 'You must never try to make all the money that's in a deal. Let the other
fellow make some money too, because if you have a reputation for always making all the
money, you won't have many deals.' [J P Getty]
The dictionary definition of ethics is: "a system of moral principles or values; the rules or
standards governing the conduct of the members of a profession; accepted principles of right
or wrong." Ethics establish the means of doing what is right, fair and honest.
Importance of Ethics in Negotiation
EWhen we view negotiation from the purview of ethics, we can see how important it is to
improve our ability to negotiate so that we can be more successful in achieving our goals.
What we want to ensure is that when we do negotiate, we do so in a way that will ensure a
win-win outcome--one that meets the needs and goals of both counterparts, and makes both
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of them willing to come back to the bargaining table to negotiate with each other again at a
later time.
Reputation plays a vital role in every negotiation. It’s much easier to achieve win-win
outcomes when you have a reputation for being fair, honest and willing to do the right thing.
A counterpart who feels you are unfair, dishonest or unwilling to do the right thing will be less
willing to make concessions or even to begin a negotiation with you in the first place. So
guarding your reputation by always acting in an ethical manner is essential to successful
negotiation.
A reputation takes years to build, and only minutes to destroy.
Ensuring Ethical Negotiations
Ethical negotiators don’t think only about what they can "get" out of a negotiation but also
about what they can "give" to their counterpart. In this way, they take the long-term view.
They know that a counterpart who walks away from a negotiation feeling successful will be
willing to come back and negotiate again in the future.
The following 10 tips will ensure that all negotiations are built on a foundation of ethics,
which will increase the chances of achieving win-win outcomes.
1. Know what is not negotiable: Knowing what is negotiable and what is not will
make a person a much more effective negotiator.
2. Be honest: In a negotiation, although there is a cost involved to being to be ethical

and honest, it helps in gaining points and respect.
3. Keep your promises: Sometimes promises and concessions are made in an

eagerness to sign a deal. Ethics requires that one fulfills those promises.
4. Have multiple options: Going into a negotiation with multiple options will help both
parties achieve their respective goals. If the other person proposes an option which is
unethical, one can be ready with an ethical option for accomplishing the same goal.
5. Be familiar with the law: Ignorance of the law is not a good excuse for unethical
behavior.
6. Practice the concept of "no surprises”: Ensuring that a negotiation does not
contain any negative surprises will reduce the chances of an ethical lapse.
P a g e | 19
7. Treat people the way we like to be treated: Caring about your counterparts
enough to treat them the way they want to be treated helps build long-term
relationships based on ethics and trust.
8. Understand the culture of a person or group of people you are negotiating:

Understanding others’ culture is key to effective communication and negotiations.
9. Go with your gut. In negotiations, one needs to be wary of the fact that the head
may try to rationalize deal points to make your gut feel more comfortable.
10. Be willing to say "no.": Being willing to say "no" to something that is not right is a
great strength. In the end if a proposal or deal is ethically not correct, one should be
willing to walk away from the deal
References
P a g e | 20

Understanding Business Negotiations Through The Lens of Kautilya's Theory of Governance

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Project Report MBA (IB) PT (2009-12) ¦ PSYCHOLOGY FOR MANAGERS

“That which is to be realized by negotiation entails little

Understanding Business Negotiations

20th January, 2010

Business Negotiations and Psychology............................................................................................3

Business Negotiations and Psychology

“Negotiation is a process involving two or more people of either equal or unequal

As a process, negotiation has three dimensions. First, negotiation is an educational process:

Moreover, negotiation is about «conflict». In negotiation, conflict tends to be a product of the

What are business negotiations?

Negotiations can be viewed in various perspectives:

1. Dispute Resolution Perspective: Negotiation is a dialogue intended to resolve

2. Solution Provider Perspective: Negotiation is a means to bargain solutions for

3. Need Satisfaction Perspective: Negotiation is a process used to satisfy one’s needs

4. Relationship Change Perspective: Negotiation happens when people exchange

Psychology, Mental Models and Business Negotiations

This document attempts to present a process led approach to business negotiation

The Four Stages in Business Negotiation

Better negotiation is possible only after thorough preparation. Preparation includes

Closing and Commitment

The Basic Elements of Negotiation

2. Behaviour: Behavior refers to the relationships among these parties, the

For example: A “Strategic Process” can be “Aggression to Compete” and an “Operational

Competitiveness versus Cooperativeness

The Thomas-Killman Conflict Mode Instrument or the TKI is a questionnaire designed to

The two dimensions are:

The five conflict resolution modes are:

1. Compete: This mode is considered to be very assertive and very uncooperative.

2. Accommodate: The exact opposite of competing, accommodating is unassertive and

4. Collaborate: – This is assertive and cooperative and it is the opposite of avoiding. A

5. Compromise: The middle ground in terms of assertiveness and cooperativeness.

Kautilya’s Theory and Business Negotiation

Quoting from the Arthashastra: “That which is to be realised by negotiation (mantrasáddhya)

a. Praising the other person (Gunasankírthana)

b. Narration of Mutual Relationship (Sambandhópakhyána)

c. Pointing out Mutual Benefit (Parasparópakárasamdarsanam)

d. Showing Vast Future Prospects (Ayátipradarsanam)

e. Identity of Interests (Atmópanidhánam)

creatively for the welfare of the very people concerned.

Classifying Various Negotiation Tactics

Negotiation Tactic Description

Negotiation Tactic Description

Negotiation Tactic Description

Biased choice Offering choices that already include your biases.

Negotiation Tactic Description

Devising the Negotiation Strategy

Similarly, we consider two levels of assertiveness – contract involving a non-negotiable salary

Salary Top Management Entry Level

Multi-Party Negotiations: Critical Differences

Cross Cultural Negotiations

Four Dimensions of Differences

The Collectivist Negotiator The Individualist Negotiator

Handles conflicts in indirect ways that Handles conflicts directly through

Dimension 2: Power distance

This is the relative prevalence of social or professional hierarchies in a society

High Power Distance Societies

Dimension 3: Communication context

Low Communication Context Cultures

Dimension 4: Conception of time

Polychronic conception of time

In addition to these, following also needs to be taken care of:

Influence of “informal” negotiators