INTRODUCTION TO NEGOTIATION

Negotiating is an interpersonal skill that managers use. For instance, they may have to negotiate salaries for incoming employees, negotiate for resources from their managers, work out differences with associates, or resolve conflicts with subordinates,. Negotiation is a process of bargaining in which two or more parties who have different preferences must make joint decisions and come to an agreement.

The dictionary definition of negotiation is "to discuss with the goal of finding terms of agreement."  Unfortunately, in our world today, many people interpret negotiation as being the skill of persuading other people to accept their point of view.  When it is said of a man "He's a good negotiator." it usually means that he gets the best of the deal.

Many seminars and books present techniques for succeeding in this manner.  A prime example advocates the use of intimidation to win.  Such books might suggest compromising in a very limited fashion or letting the other person win on an insignificant point, but only as a last resort.  The goal is to overpower the other people, or at least to "talk them into it" as the expression goes.  This seems to offer satisfaction to certain personality types.

Frequently when a deal is struck to the advantage of one party and the detriment of the other, seeds of disagreement and retaliation are sown, which can have unforeseen future results.  A better way to negotiate is to:

FIND OUT WHAT THE NEEDS OF
THE OTHER PERSON ARE AND
TRY TO MEET THEM WITHOUT
LOSING SIGHT OF YOUR OWN GOALS.

With purposeful effort, it is surprising how frequently this can be done, and fulfill the dictionary definition of reaching an agreement of mutual accord.

The first rule is: "Do not attribute your motives to other people.  Find out what they want."  It is so logical for us to have such a high regard for our own opinions and motives that we assume that any other intelligent person must think the same way.  Wrong.  For example, emotional attitudes may influence a person's approach in ways we may not know about.

A classic example of negotiation is between buyer and seller.  If the buying group has money as its only motive, it is logical to conclude that this is also the predominant motive of the seller.  However, people choose to sell or are forced into it for all sorts of reasons: 1.) ill health, 2.) partners fighting, 3.) divorce, 4.) family problems, and 5.) wish to retire.  All of these seen, and there are many others as well.

If the one selling has a pressing need to act quickly - and this may be more important than the price - the capacity of the buyer to respond promptly meets this important requirement.  A man from Houston owned a sizable tract of land in the suburbs of our city, and offered to sell it to a group of us at what he said was a bargain price, provided we could pay cash and act quickly.  The reason he gave was that he was just about to die and wanted to make his estate as liquid as possible.  We did act quickly.  We did pay cash.  It was a bargain.  He did die.  From his viewpoint there was a strong emotional component as well as considered business judgment.  Some might have taken advantage of the situation and tried to beat the price down, but we felt it was fair and accepted it immediately.

Two brothers owned a very fine manufacturing company.  After being in business for many years, they became completely alienated and decided to sell the operation.  A logical solution would have been for one to buy out the other using a standard formula.  In that arrangement, one names a price and the other either buys or sells at that price, under which circumstances the first is not going to put it too high or too low.  But the brothers were so angry at each other neither wanted the other to have the business under any conditions.  There certainly was an emotional component!  I had an interest with a group of venture capitalists, who spent time exploring the situation, got along well with both brothers and we bought them out.

This brings up an important point.  In any significant purchase, the buyer and seller usually spend time together during the negotiations.  It is during this period that a relationship can be developed, and motives and goals can be discerned.

 

 

 

SUB TOPICS OF NEGOTIATIONS

Three Phases in Negotiation

A negotiation process can be divided into six steps in three phases:

Phase 1: Before the Negotiation

Step 1: Preparing and Planning: In this step, one should gather facts about the other party, learn about the other party’s negotiating style and anticipate other sides position and prioritize issues. To ensure smooth negotiation, one should also prepare alternatives proposals and establish BATNA (the Best Alternative To a Negotiated Agreement). The most ideal case is to come out with a win-win plan to both parties.

Phase 2: During the Negotiation

Step 2: Setting the Tone: In this step, one should firmly state his position and explain his interest on need base.

Step 3: Exploring Underlying Needs: It is also important to actively listen for facts and reasons behind other party’s position and explore underlying needs of the other party. If conflict exists, try to develop creative alternatives without losing the win-win focus. Neutralize tactic if necessary.

Step 4: Selecting, Refining, and Crafting an Agreement: It is a step in which both parties present the starting proposal. They should listen for new ideas, think creatively to handle conflict and gain power and create cooperative environment.

Step 5: Reviewing and Recapping the Agreement: This is the step in which both parties formalize agreement in a written contract or letter of intent.

Phase 3: After the Negotiation

Step 6: Reviewing the Negotiation: Reviewing the negotiation helps one to learn the lessons on how to achieve a better outcome. Therefore, one should take the time to review each element and ask oneself, "what went well?" and "what could be improved next time?"

Face to Face Meetings

Face to face meeting is a kind of negotiation it may be a board meeting or a table talk these are all type of negotiations because they participants have a problem to solve a matter to discuss. They want to draw a conclusion about the matter under discussion. About 300 BC the Chinese warrior Sun Tzu wrote a book called The Art of War, which is very much admired in military circles today, and is even read in the Marine Corps.  He pointed out that you can gain a diplomatic victory or a victory in battle, but a third way to achieve results is working with both factions to solve the problem - exactly what I am calling the luncheon-table technique.  A diplomatic or military victory brings glory to the achiever whereas the third technique is hardly recognized or admired.  However, either of the first two, as would be the case if you get your opponents voted down in a board meeting or defeated in some other way, causes your opposition to be losers, and there can be unfortunate results from the enmity generated.  They might win against you next time.

Electronic Conversations

Modern technology offers a lot of ways to convey messages and for negotiations these may be verbal or in written. Like Telephonic conversations and e-mail, computer conferences, fax inquiries etc.

Trade Negotiations

Negotiations may be for inquiry type like imports of material or purchase of material. Such type of negotiations may be through telephones or through e-mails, fax inquiries etc. Imports managers contact with different vendors for imports or purchase and bargain for the material.

 

Following are the topics of an effective negotiation

Personal Behavior

Acquire as much information what can about the person with whom negotiation will be make. What this individual’s interests and goals? Understanding this person’s position will help you to better understand his or her behavior, predict his or her response to the offers, and frame solutions in terms of his or her interests.

Positive Overture

 Research shows that concessions tend to be reciprocated and lead to agreements. Therefore, begin bargaining with a positive overture and then reciprocate the other party’s concessions.

Address the problem, not personalities

Concentrate on the negotiation issues, not on the personal characteristics of  the individual with whom negotiation is going on. When negotiations get tough, avoid the tendency to attack this person. Remember it’s that person’s ideas or position that you disagree wit, not him or her personally.

Pay little attention to initial offers

Treat an initial offer as merely a point of departure. Everyone must have an initial position. Such positions tend to be extreme and idealistic. Treat them as such.

Emphasize win-win solutions

If conditions are supportive, look for an integrative solution. Frame options in terms of the other party’s interests and look for solutions that can allow this person, as will as your self, to declare a victory.

Create an open and trusting climate

Skilled negotiators are better listeners, ask more questions, focus their arguments more directly, are less defensive, and have learned to avoid words or phrases that can irritate the person with whom they’re negotiating (such as “generous offer,” “fair price” or “reasonable arrangement”). In other words they are better at creating the open and trusting climate that is necessary to reaching a win-win settlement.

 

PRCTICAL STUDY OF AMSON VACCINES & PHARMA (PVT) LTD.,  WITH RESPECT TO THE NEGOTIATIONS

 

Introduction

Amson Vaccines & Pharma is one of the leading top 10 nation wide pharmaceutical companies. Established on 21st June 1995. At Industrial Triangle Kahuta Raod, Islamabad. Technology Sharing Partners & Marketing Associates of Amson are Chiron Vaccines Italy, Green Cross Vaccines Belgium and Beijing Hollycotec. Chiron is a leading biotechnological company making scientific approaches to discover and develop innovative healthcare products for prevention and treatment of  infectious diseases. Chiron is active in three businesses: biopharmaceuticals, vaccines and blood testing. Green Cross Vaccine Corporation develops, produces and markets vaccines against the major wide-spread diseases. As a member of the Rhein Biotech Group, Green Cross Vaccine Corporation uses modern biotechnological techniques for the production of prophylactic vaccines that are of a high quality, safe and affordable. Beijing Holley COTEC specializes in the production of medicines against tropical diseases. COTEC is manufacturing and marketing more than 50 products. The most famous product, COTECXIN® (Dihydroartemisinin), is one of the best antimalarial, widely recognized by the medical professionals.

Amson produces

1.   Anti Ulcers                   2.         Anxiolytics                    3.         Anti-Hypertensive

4. Heamatonics                 5.         Narcotic Analgesics      6.         Vaccines

7. Vitamins                       8.         Anti Fungles                 9.         Anti TB etc.

Community Services

Besides the manufacturing and marketing of quality healthcare products, AMSON VACCINES & PHARMA (PVT) LTD also supports the under-privileged and vulnerable sections of society by providing them products on subsidized rates. In special cases it is free of cost. We collaborate with various reputed NGO’s and social organizations in order to organize free medical camps at frequent intervals. We have launched a social welfare program for creating awareness about hepatitis and providing treatment.

Mission Statement

Improve the quality of life by developing and marketing therapeutic and preventive healthcare products at affordable prices while ensuring high quality standards. In the long term, make Pakistan self-sufficient in EPI and non EPI vaccines and innovative pharmaceutical products.

 

Marketing Division

The basic objective of Amson’s Marketing Division is to supply the best quality medicines and vaccines in the shortest possible time and provide them to the people at their door step. Marketing and delivering life saving medicines and vaccines is a great honor for Amson’s  personnel. The Marketing and Sales team comprises over 300 young and energetic people who are highly qualified in basic sciences, biochemistry and pharmacology. The marketing skills are continuously upgraded by conducting special courses in Pakistan and abroad.

Procurement Department

Procurement Manager is the head of department and responsible for procurement of quality material and real time delivery of material. This department is responsible for making estimates (collection of data) for proposals submission by the organization/Marketing Div.  Also opening tenders for the material in bulk quantity required for production.  Evaluation of vendors in coordination with Quality Assurance department includes in its job. Dealing with  L/Cs and local purchasing on credit and on cash. Make negotiations with vendors telephonic and electronic to procure the quality material and timely delivery.

 IT Department

Information Technology plays a key role in every organization. Including internal information management and announcement of organizational achievements and tenders. Amson’s URL (www.amson.org.pk) have the advertising material and other facts and figures related with the progress of organization. Such type of advertising is controlled and modified as required by the marketing needs.

 

I have studied the Trade negotiations of Amson Vaccines & Pharma (Pvt) Ltd. as under

 

Negotiations in Amson with respect to procurement of material

 

Negotiations are confined exclusively to the vendor’s proposal and its identified deficiencies in relation to the requirements of the request for proposals (RFP), and the requirements and format of the proposed written contract. During negotiations, the vendor elaborates on its qualifications and may revise, modify or alter proposal so that the Procurement Manager can obtain the best and final offer.

For the procurement of goods and nonprofessional services, the Procurement Manager discuss nonbinding estimates of total project costs, including, but not limited to, life-cycle costing, and where appropriate, nonbinding estimates of the price for services.

Procurement Manager of Amson do not:

1.                  Help a vendor bring its proposal up to the level of other proposals through successive rounds of discussion.

2.                  Disclose technical information to a vendor that results in improvement of its proposal.

3.                  Indicate to a vendor a cost or price that it must meet to obtain further consideration.

4.                  Disclose proprietary information, technical information or ideas, or cost information of another vendor.

5.                  Advise a vendor of its price standing relative to another vendor.

6.                  During the negotiation process, the Procurement Manager live sensitive and do not disclose any unauthorized information that may provide an unfair advantage to one vendor over other vendors.

Procurement manager make a comparison statement for the specific job or material and discuss it with Plant Manager and Managing Director for final approval. Other technical feedback is get from the user by internal negotiations / discussions. Some times user is asked to negotiate directly to the vendors about technical assistance or information.

 

Vendor evaluation qualification system is implemented in procurement department of Amson. An approved list of vendors which are qualified for future business is maintained and updated as time passed or business relations grew more. It is also a  requirement of International Standard Organization.

 

 

 

 

Review of Theoretical and Practical Study

 

Every trader wants to improve his sales so it is not too difficult for Procurement Manager to guess the benefits of supplier / vendor. When he feels that it is necessary to give threads he makes and achieves the target. Bargaining in material basis on vendor’s proposals submitted by them. These proposals help Procurement Manager to make a comparison of cost of material.

Amson have adopted all the rules and regulations as in theory of negotiations but the standards are not maintained as the other working procedures are maintained. Although there is not approved rules and regulations in document shape. But in practical the Managers follow all the rules. Some times contradictions appears but these are ignore able because such cases are very rare. These contradictions may be appears when a vendor avoids the verbal agreement or he does not make timely delivery. Then procurement manager’s job becomes tougher to handle such situation. Some times the matter submitted to court, which causes time wastage and wastage of money. Vendors evaluation is made through Vendor Evaluation Qualification Form which contains short questions about the vendors / supplier bio data.

Internal negotiations are in the shape of meetings. Quality Coordination Meeting held once in a month. In which Management Representative, Plant Manager, Procurement manager and other department’s heads participates for issues of Quality control and Production. Minutes of meetings recorded by Plant Manager. Agenda for this meeting is settled prior basis for next meeting. 

Employees are given training for the topic already settled. An inter office memorandum divided to the participants before the meeting / training. They all prepare questions for such meetings and discuss in meetings. Daily conversations are done through Telephone. A digital telephone exchange is available and one extension is provided to every department head. 

 

 

 

 

Merits of Negotiations

 

1.                  Information acquired through Vendor Evaluation Qualification Form about the person to whom business correspondence will continued.

2.                  More then one supplier are negotiated for any type of purchasing, it makes an effective negotiation.

3.                  Vendor are ask to visit the plant and face to face negotiations are arranged at this occasion. 

4.                  A strong competition is made between suppliers.

5.                  Procurement Manager does not disclose the relative strengths and weaknesses of competing vendors.

6.                  Procurement Manager does not ask for non-binding estimates of costs for professional services at this stage of the procedure.

7.                  Media of negotiations is modern and strong. (Telephone, Internet, Fax)

 

Demerits of Negotiations

1.                  No written agreement made for Local purchases (From Pakistan).

2.                  Standards for negotiations are not maintained.

3.                  Only one person involves in negotiations with vendors and Managing Director gives approval.

4.                  Negotiator (Procurement Manager) is a non-technical person and unable to understand technical information compare with a technical one.

5.                  An selection committee should be established

6.                  Lack of technical information during the negotiations.

 

Conclusion:

There is no any proper solution to remove such confusions and conflicts. Such problems occur because written agreement is not made before the supply of material (locally from Pakistan). For imports of material all government rules are followed and working is done through banks. Samples of product approved before opening Letter of Credit and prices are discussed.

 

As I studied the procurement department of Amson I have observed that procurement manager works with fully devotion. He makes negotiations with every type of business concern according to the level of his knowledge and nature. For example when he have to collect the consignment for Lorry Adda he will start negotiation in the driver’s language. The criteria of selection of vendors is totally based on choice of Procurement Manager. All the steps phases of negotiations are adopted but there is no any written standards.

 

Recommendations to tackle the demerits

1.                  All the correspondence should be in written form like purchase agreement for local purchases and payment terms.

2.                  Standard operating system for negotiations should be maintained (ethics, manners, behaviors etc.)

3.                  A selection committee should be established for vendor evaluation, having technical members, and skilled negotiator.

4.                  Although the Procurement Manager is an experienced negotiator but company should give him the training about technical issues or a technical assistant should provided to him.

5.                  Visits of vendor sights should be arranged.

 

Negotiation Guidelines

Following evaluation criteria should established by the selection committee, which guided the selection of vendors for the negotiations stage, also guide the negotiations themselves. Following is a brief summary of some recommended evaluation criteria, with an explanation of what those criteria allow the selection committee to evaluate during negotiations:

1.         Understanding of project requirements: To evaluate the vendor’s analysis, reparation and level of interest.

2.                  Approach or methodology: To evaluate the vendor’s creativity and problem solving ability.

3.                  Key personnel: To evaluate the personal qualifications and professional skills of key individuals.

4.                  Relevant vendor experience: To evaluate relevant related projects presented as previous work of the vendor.

5.                  Relevant individual experience: To evaluate related projects presented as previous work of key personnel.

6.                  Consultant and in-house resources: To evaluate the vendor’s abilities and the importance of consultant or in-house support services.

7.                  Technical project management: To evaluate the vendor’s abilities related to technical functions, such as project cost controls, construction observation, and time schedules.

8.                  Responsiveness to the County’s concerns: To evaluate the vendor’s ability to form successful working relationships and communications with the County.

9.                  Method of compensation: To evaluate the vendor’s method of determining compensation.

10.                 The selection committee should raise other questions in order to evaluate other important or relevant issues raised by the vendor.

 

Appendixes

1.                  Vendor Evaluation Qualification Form

2.                    Request for Issuance of Indent.