1 Negotiation. 2 Outline standard terms of negotiation examples of negotiation David and...
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1 Negotiation Slide 2 2 Outline standard terms of negotiation examples of negotiation David and Goliath price negotiation in a channel force-cost reduction a company and a government preparation and tactics of negotiation Slide 3 3 Standard Terms in Negotiating Slide 4 4 Negotiation formal communication to seek mutual agreement usually verbally often between two sides on sharing and allocation of resources, cost, benefits, etc. skills required preparation sharpened by practice Slide 5 5 Terms in Negotiation BATNA (best alternative to a negotiated agreement) positions interests needs wants Slide 6 6 Conditions to Use Negotiation expensive operations high-value, large-volume contract complex technical requirements on product and process, possibly evolving specifications capital-intensive items, e.g., plant and equipment special buyer-supplier relationship important value-adding activities required from suppler Slide 7 7 Examples Slide 8 8 Which Side Won? rental negotiation Party AParty B agemiddle age20s group sizetwo, couplesingle statuslandlordpotential tenant companylocalforeign Position in companyowneremployee Slide 9 9 Which Side Won? story potential tenant slow in responding property price gone up higher rental expected by developers Slide 10 10 Rental Contract Negotiation by Mr. Stanley Yen Stanley YenStanley Yen Mr Stanley Yen 1971 June: started as a messenger in the Taiwan branch of American Express (AET) 1971 end: took care also general affairs of AET Now: a living legend in tourism, management, social welfare, Slide 11 11 Rental Contract Negotiation by Mr. Stanley Yen Stanley YenStanley Yen Mr. Yen, How come you do this? As a custom of foreign company, I recorded the agreed rental in a memo. mutual respect that grew into long-term employee-employer and then family-type relationship lessons systematic polite Slide 12 12 Real-life Negotiation with Suppliers Slide 13 13 Examples of Price Negotiation some general practice: 5 th video clipping 00:14:20 to 00:20:205 th video clipping 00:14:20 to 00:20:20 depending on opponents intellectual, traditional, personality possessing information BANTA and needs of opponents market price, actual production cost strengthen and BANTA of my company Slide 14 14 Jose Ignacio Lopez de Arriortua Slide 15 15 Force-cost Reduction win-lose strategy acting personally, offensively, and emotionally demanding immediate effect changing existing contracts threatening reduction or less no business http://www.projectmagazine.com/monitoring-and-controlling/53- cost/270-qforcedq-cost-reduction-how-to-respond Slide 16 16 Deep Trouble of GM in Early 90s Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de Arriortua, Thunderbird International Business Review, 41(2) 179-194 Slide 17 17 Questions from the Paper What was the life of Jose Ignacio Lopez? What changes were made in the GM purchasing practice by Lopez? What do you think about the purchasing strategic used by Lopez? How do you compare the strategies used by Carlos Ghosn and Jose Ignacio Lopez? Slide 18 18 Life of Jose Ignacio Lopez doctorate in industrial engineering 1969 80: Firestone, Spain 1980 86: GM European operations, Spain 1986: GMs Opel, Germany 1987: head of purchasing for Europe work with Jack Smith to make GM Europe profitable 1992, April: VP of Worldwide purchasing of GM Jack Smith as president of GM in Spring 92 Slide 19 19 New Rules in Purchasing by Jose Ignacio Lopez new rules all supply contracts by bidding a minimum of 10 bids for a supply contract, at least one not in north America no favorable treatment of internal suppliers, 70% among all 50% productivity improvement by 1995 Slide 20 20 New Rules in Purchasing by Jose Ignacio Lopez second phase: sending GM teams to help suppliers for improvement and cost reduction mixed results exemplary in some, e.g., exemplary in some, e.g., Siemens, reduction of 85% assembly line time; 95 percent of inventory; 20% of cost not sharing cost sharing in some cases Slide 21 21 New Rules in Purchasing by Jose Ignacio Lopez forced changes of existing supplier contracts renegotiation of five-year contract, e.g., cuts of supplier price of 5%, 3%, 2%, 2%, 1% in the next five years close working relationship with unions taking proprietary designs from suppliers for open bidding by other suppliers sharing insufficient fixed development cost with suppliers Slide 22 22 New Rules in Purchasing by Jose Ignacio Lopez results saving $4 bill for GM poor relationship and rating by suppliers some suppliers out of business loss of supplier loyalty in long term not providing best product, nor best service switching partners at opportunity Slide 23 23 Concurrent Chrysler Purchasing Policy long-term partnership with suppliers criterion: contribution to whole product development and manufacturing process, not only cost involving suppliers right at the beginning Slide 24 24 Contract Renegotiation with the Chilean Government * http://www.negotiations.com/case/contract-renegotiation/ Slide 25 25 Contract Renegotiation with the Chilean Government * contract renegotiation over the El Teniente copper mine in Chile in 1960s two parties: Kennecott, a U.S. company, and Chilean government background: national sentiment in Chile for foreign companies to exploit its natural resource overwhelmingly strong BATNA of the Chilean government either tough financial terms or even expropriating the mine enough local experts to manage the mine Slide 26 26 Contract Renegotiation with the Chilean Government * What can be done by Kennecott? a six-step win-win strategy that strengthens Kennecotts position 1 selling a majority equity of the mining operation to the Chilean government 2 divesting the fund into US banks; getting an outside loan, to expand the mining operations (effect: better deal in re-negotiation) 3 having the Chilean government to guarantee the loan, with the guarantee under the law of New York state 4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss in case of expropriation) 5 negotiating to sell output from expansion to clients in Europe and North America (effect: diversifying customer base) 6 lastly selling the rights of the new contracts to a consortium of financial institutions from Japan, the United States and Europe (effect: multi-party negotiation in future contract renegotiation, with parties having other interests with the Chile Government) http://www.negotiations.com/case/contract-renegotiation/ Slide 27 27 Contract Renegotiation with the Chilean Government final remark: expropriation years later but much better position for Kennecott in negotiation Slide 28 28 Preparation and Tactics in Negotiating Slide 29 29 Preparation for Negotiation identify participants and set up a team develop objectives e.g., price, quality, form of collaboration, service level, long-term relationship gather relevant information market price, historical prices, actual cost of supplier, history, financial strength, quality, service level, management of supplier, possible negotiator from supplier market price, historical prices, actual cost of supplier, history, financial strength, quality, service level, management of supplier, possible negotiator from supplier Slide 30 30 Preparation for Negotiation analyze strengths & weaknesses for suppliers and oneself for both sides, e.g., how important is the supplier to us how much time we have any other backup supplier how important is the order for the supplier financial strength financial strength of the supplier Slide 31 31 Preparation for Negotiation recognize other partys needs deduce real needsin others perspectives deduce real needs in others perspectives identify common goals and facts agreed to simplify discussion identify issues to discuss (potential) differences between the two sides Slide 32 32 Preparation for Negotiation establish positions and BATNA develop strategies and tactics brief personnel practice the negotiation Slide 33 33 Tactics argue based on facts answer carefully mind other sides feeling know the deadline avoid trapping oneself in a corner e.g., accept or no deal have courage to say no start with lowest start with highest show honesty take the initiative listen disappearance of key persons never give up fictitious competition unethical order issues take a rest to cool down check security select venue use threat side track the issue raise questions keep silent Slide 34 34 Concessions give-and-take being common in negotiation guidelines for making concessions reserve room for concessions first understand the other sides needs and objectives first to concede minor but not the first to concede major portray unimportant concessions as valuable fight before every concession Slide 35 35 Concessions guidelines for making concessions give, and remember to take concede slowly and by little never reveal deadline say no occasionally try not to retrieve concessions record of concessions Slide 36 36 Power in Negotiation power: the ability to influence sources of negotiating power informational power: presenting relevant facts and persuasive argument reward power coercive power legitimate power: credentials of experts referent power: socially acceptable personal qualities and attributes, e.g., physical, honesty, charisma, friendliness, sensitivity Slide 37 37 Win-Win Negotiation win-lose competitive or distributive bargaining win-win collaboration or integrative bargaining beneficial to both sides usually by increasing value or expanding resources to all participants equitable sharing of profit or cost tactics expand the pie logroll compensation for compliance a bridge solution Slide 38 38 Getting to Yes Negotiating Agreement Without Giving In B