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The
Nature of Negotiations By
Arun Kottolli Negotiation is a process in which at least one individual tries to persuade another individual to change his or her ideas or behavior. Business negotiations often involve one party attempting to influence another to make a particular decision of sign a contract. Thus negotiating is a process in which at-least parties with different view points and needs try to reach an agreement on matters of mutual interest. The negotiation process has been characterized as occurring within the context of 4C’s: Ÿ Common interests Ÿ Conflicting interests Ÿ Compromise Ÿ Criteria for agreement to hold The outcome of any negotiated agreement depends on the relative bargaining power of both parties. Each sides bargaining power depends on 3 factors :
Negotiating Globally Negotiating effectively across cultures is one of the most important global business skills. Global negotiations contain all the complexity of domestic negotiations, with the added dimension of cultural diversity. Top managers spend more than 50% of their time in formal or informal negotiations. Two tables below highlight the differences in negotiating styles across cultures. Table -A Styles of persuasion vary across cultures
Table- B Styles of negotiations vary across cultures
When to
negotiate? According to experts, negotiating is not always the best approach to do business. Sometimes the best strategy is “take it or leave it”, other times its bargaining. Negotiating demands more time and resources. Therefore managers must negotiate only when the value of the exchange is important. Negotiating is often seen as strategy to create a win-win solutions in business. Consider the following conditions while negotiating: Ÿ Your power position w.r.t that of the counterpart Ÿ The level of trust Ÿ Sufficient time available Ÿ True commitment to carryout the agreement. Ÿ The value of exchange Ÿ Importance to relationship The success of negotiations depends on: Ÿ Individual characteristics Ÿ Situational contingencies Ÿ Strategic & tactical processes. All these factors vary considerably across cultures, but negotiators must influence most control over the strategic and tactical processes. Who makes a
good negotiator? There is no single answer, The answer depends on the cultures involved. The table below gives a cross section of different factors valued for negotiating in different cultures.
Source:
Prof John Graham, School of management, UC at Irvine Buyer-Seller
Relationship Global business negotiations almost always have two parties, a buyer and a seller. It is therefore important to learn the buyer seller relationship in other cultures. For example, in India, seller almost always has a superior position than the buyer. While in US, buyer is in a marginally better position than the seller. While in Japan, the buyer is in superior position. When Indian seller and an American buyer negotiate, the preconceived notions of their respective power places comes to play. All to frequently, negotiations collapse as a result. For the Indians, it appears that the Americans are asking for the moon! Unfortunately, both sides frequently attribute the collapse to unacceptable product or service qualities or price, rather than understand the cross-cultural differences. Negotiating
situation leading to success or failure Situations in which negotiators find themselves vary widely. Effective negotiators recognize and manage the impact of each situation factor on the bargaining process from their own & their opponents’ cultural perspectives. In preparing for global negotiations, they imagine what the situation might look like through the eyes of the other countries’s teams: Ÿ What do they need? Ÿ What is important to them? Ÿ Who has power? Ÿ What is at stake? Ÿ What is their time frame? Ÿ What are their alternatives? Ÿ What is their bottom line? Situational contingencies influence success just as do individual characteristics of the negotiator. These contingencies are often used to influence the negotiation in their favor. Ÿ Location. Our place or theirs or elsewhere? Factors such as travel related stress & limited access to information is used to influence negotiations. Caterpillar, and US company used to take out the opposite party on a yatch trip for negotiations as this avoids interruptions. While this sounds great, the opposite party is always at a disadvantage because he is now a guest and has to behave accordingly, moreover his access to information is limited. Ÿ Physical Arrangements: Closed meeting rooms in US or open halls in Middle east etc.... Japanese like every one sit facing the wall where the problem is presented. This position makes everyone concentrate on the problem during the negotiation. Ÿ Participants: Negotiating team or a single person? Power position of the participants. Often a big team is used in major negotiations in Japan, while its usually one-to-one in US. However American use a team to show their strength or to simply overpower the opposite side into making concessions. Ÿ Time limits: To be done in a set time? or negotiate till an agreement is reached? Americans usually have a strict deadline and are impatient to make a deal. “lets get to the point” , “Zero in other issue” etc... marks their impatience. Chinese on the other hand would like to know the opposite party first before making a deal, therefore they would work with a long timeline. Ÿ Power status: To follow protocols or be informal? Status, age, rank are important during negotiations. Difference in age, ranking or power is treated as disrespect in several countries such as Japan, India, China etc... Negotiation
process Negotiation process is the single most important factor influencing the success of failure of the negotiation. An effective process includes managing the negotiation’s overall strategy or approach. Negotiating process varies widely across cultures and this has to be understood by both parties before hand for a successful negotiation. A successful process balances the position, procedure, timing and the rules of negotiations. Stages of
Negotiation To prepare for an initial meeting, effective negotiators analyze the situation in terms of their own and their counterpart's needs, goals, and understanding cultural values. The common stages are: 1. Preparation 2. Relationship building 3. Information exchange 4. Persuasion 5. Concessions 6. Agreement Planning Negotiator’s planning plays a critical factor in the outcome of the negotiations. Rudolf Gualliani said that the secret to his success as “Relentless planning”. Successful negotiators think of: Ÿ Planning for time. Ÿ Exploring options Ÿ Establish a common ground Ÿ Focus on long term Ÿ Setting limits Ÿ Using issue versus sequence planning The stages of negotiating are same everywhere, but their importance varies among cultures. The table below shows the approaches to each stage of negotiating globally.
Planning Negotiator’s planning plays a critical factor in the outcome of the negotiations. Rudolf Gualliani said that the secret to his success as “Relentless planning”. Successful negotiators think of: Ÿ Planning for time. Ÿ Exploring options Ÿ Establish a common ground Ÿ Focus on long term Ÿ Setting limits Ÿ Using issue versus sequence planning Negotiating
Tactics Negotiating includes both verbal and nonverbal tactics. Americans consider verbal tactics as most important, but many other do not agree. Japanese use silence as a tactic to force others to give a better offer. Verbal tactics Research show that negotiators do better when: Ÿ The number of questions asked increases Ÿ The number of commitments made in the final stage decreases. Ÿ The amount of the initial offer increases. i.e. sellers ask for more & buyers offer less. Consequently, in most cultures negotiators start by having high expectations. Seller asks for a higher price while seller offers very less. This high initial offers is then preceded by asking numerous questions and refrain from making many commitments until the final stage of negotiation. Chinese & Russians often open negotiations by an extreme offer as their opening strategy. By contrast Swedes initially request a price close to the one they expect. Americans tend to lean towards an extreme initial offer. Historically it is shown that opening the negotiation with an extreme offer helps in several cross cultural contexts: a. It demonstrates that the negotiator will not be exploited. b. Allows the negotiator to gain more than expected. c. Prolong negotiation process thereby giving the negotiators more time to gather more information about their counterparts. d. Modify counterpart’s beliefs about negotiator’s preferences. e. Create more room to make subsequent concessions and thus exhibit cooperation. f. Communicate the negotiator’s willingness to play the game according to “usual” norms E.g.: Japanese stated their bid for broadcasting rights of LA Olympics at $6million when ABC had bid for $225 million. The final negotiated price was $18.5 million. The Olympic committee started their asking price at $90 million and expected $10 million. Range of
Tactics Some of the more common tactics used in negotiating include promises, threat, recommendation, warning, rewards, punishment, normative appeal, commitment, self-disclosure, question, command etc... Other tactics used are: Ÿ Irritators: Use words which have negligible value but meant to irritate other side. E.g. “Fair price”, “generous offer”, “reasonable arrangement” etc... Ÿ Counterproposals : Offer a counter proposal to negate the other parties offer. Skilled negotiators often use counterproposals as a common tool. Ÿ Defend/Attack spiral: Skilled negotiators rarely respond to attack with a strong defense. They rarely attack, but when they do, they hit hard and without warning. Ÿ Questions: Used frequently to gather information. Ÿ Behavior labeling: refers to describing what you intend to say before you say it. E.g. “Can I ask a question?” or “Can I make a suggestion?” etc... Ÿ Active listening: involves demonstrating everyone that the previous statement has been clearly understood. Ÿ Argument dilution: Weak arguments often dilute strong arguments. Skilled negotiators use more strong arguments and do not propose weak arguments at all. Ÿ Feelings commentary: Often this is used to lead the negotiations and is used as giving feedback or giving out hints. Nonverbal
tactics Common nonverbal tactics are : Ÿ Silence Ÿ Face fazing or eye contact Ÿ Touching Ÿ Conversation overlaps i.e. interrupt others talk. Dirty tricks Dirty tricks are common in trade negotiations even
though everyone agrees that dirty tricks are wrong. Dirty tricks are resorted
to extract more concessions from the opponents. Some of the common examples
are: Deliberate
Deception Ÿ Phony facts : “Quote a wrong fact or numbers” Ÿ
Ambiguous Authority
: “Negotiating person does
not have the authority to agree” Ÿ Dubious Intentions Psychological
Warfare Ÿ Creating Stressful Situation : Room is too hot, too noisy or too much interrupts Ÿ Personal Attacks : Comments on appearance “Are you alright?” or “Making the other person repeat what he just said” Ÿ
Good Guy/Bad Guy Routine : “Our
normal price is $4000”(bad guy) “But
for you, we can settle for $3800” (Good guy) Positional
pressure tactics Ÿ Refuse to negotiate Ÿ Extreme demands Ÿ Escalating demands Ÿ Lock-in-tactics : Agree publicly to X, this strengthens the bargaining position Ÿ
Hard-hearted partner : “I’d
agree but my partner won’t” Ÿ Calculated delay : Delay until the 11th hour Ÿ Take it or Leave it
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