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NegotiationNegotiation

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OutlineOutline

standard terms of negotiation standard terms of negotiation examples of negotiation examples of negotiation

David and Goliath price negotiation in a channel price negotiation in a channel force-cost reduction force-cost reduction a company and a government a company and a government

preparation and tactics of negotiationpreparation and tactics of negotiation

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Standard Terms in Negotiating Standard Terms in Negotiating

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NegotiationNegotiation

formal communication to seek mutual agreementformal communication to seek mutual agreement usually verballyusually verbally often between two sides often between two sides

on sharing and allocation of resources, cost, on sharing and allocation of resources, cost, benefits, etc. benefits, etc.

skills skills required preparation required preparation sharpened by practicesharpened by practice

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Terms in NegotiationTerms in Negotiation

BATNA (best alternative to a negotiated BATNA (best alternative to a negotiated agreement) agreement) （底線）（底線）

positions positions （立場）（立場） interests interests （利益） （利益） needs needs （需要）（需要） wants wants （願望）（願望）

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Conditions to Use NegotiationConditions to Use Negotiation

expensive operationsexpensive operations high-value, large-volume contract high-value, large-volume contract

complex technical requirements on product and complex technical requirements on product and process, possibly evolving specifications process, possibly evolving specifications

capital-intensive items, e.g., plant and equipmentcapital-intensive items, e.g., plant and equipment

special buyer-supplier relationshipspecial buyer-supplier relationship

important value-adding activities required from important value-adding activities required from supplersuppler

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ExamplesExamples

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Which Side Won? Which Side Won?

rental negotiationrental negotiation

Party A Party B

age middle age 20’s

group size two, couple single

status landlord potential tenant

company local foreign

Position in company owner employee

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Which Side Won? Which Side Won?

storystory potential tenant slow in respondingpotential tenant slow in responding

property price gone up property price gone up

higher rental expected by developers higher rental expected by developers

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Rental Contract Negotiation Rental Contract Negotiation by Mr. by Mr. Stanley Yen

Mr Stanley YenMr Stanley Yen

1971 June: started as a messenger in the 1971 June: started as a messenger in the Taiwan branch of American Express (AET)Taiwan branch of American Express (AET)

1971 end: took care also general affairs of AET1971 end: took care also general affairs of AET

……

Now: a living legend in tourism, management, Now: a living legend in tourism, management, social welfare, … social welfare, …

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Rental Contract Negotiation Rental Contract Negotiation by Mr. by Mr. Stanley Yen

Mr. Yen, “How come you do this? As a custom of Mr. Yen, “How come you do this? As a custom of foreign company, I recorded the agreed rental in a foreign company, I recorded the agreed rental in a memo.” memo.”

mutual respect that grew into long-term employee-mutual respect that grew into long-term employee-employer and then family-type relationshipemployer and then family-type relationship

lessonslessons systematic systematic

politepolite

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Real-life Negotiation Real-life Negotiation with Supplierswith Suppliers

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Examples of Price NegotiationExamples of Price Negotiation

some general practice: 5th 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

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Jose Ignacio LopezJose Ignacio Lopezde Arriortuade Arriortua

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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

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Deep Trouble of GM in Early 90’sDeep Trouble of GM in Early 90’s

Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de Arriortua, Thunderbird International Business Review, 41(2) 179-194

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Life of Life of Jose Ignacio LopezJose Ignacio Lopez

doctorate in industrial engineering doctorate in industrial engineering 1969196980: Firestone, Spain80: Firestone, Spain 1980198086: GM European operations, Spain 86: GM European operations, Spain 1986: GM’s Opel, Germany1986: GM’s Opel, Germany 1987: head of purchasing for Europe1987: head of purchasing for Europe

work with Jack Smith to make GM Europe profitable work with Jack Smith to make GM Europe profitable 1992, April: VP of Worldwide purchasing of GM1992, April: VP of Worldwide purchasing of GM

Jack Smith as president of GM in Spring 92Jack Smith as president of GM in Spring 92

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New Rules in PurchasingNew Rules in Purchasingby by Jose Ignacio LopezJose Ignacio Lopez

new rulesnew rules all supply contracts by bidding all supply contracts by bidding

a minimum of 10 bids for a supply contract, at least a minimum of 10 bids for a supply contract, at least one not in north Americaone not in north America

no favorable treatment of internal suppliers, no favorable treatment of internal suppliers, 70% among all70% among all

50% productivity improvement by 199550% productivity improvement by 1995

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New Rules in PurchasingNew Rules in Purchasingby by Jose Ignacio LopezJose Ignacio Lopez

second phase: sending GM teams to help second phase: sending GM teams to help suppliers for improvement and cost suppliers for improvement and cost reduction reduction

mixed resultsmixed 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 casesnot sharing cost sharing in some cases

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New Rules in PurchasingNew Rules in Purchasingby by Jose Ignacio LopezJose Ignacio Lopez

forced changes of existing supplier contractsforced 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 close working relationship with unions taking proprietary designs from suppliers for open taking proprietary designs from suppliers for open

bidding by other suppliersbidding by other suppliers sharing insufficient fixed development cost with sharing insufficient fixed development cost with

supplierssuppliers

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New Rules in PurchasingNew Rules in Purchasingby by Jose Ignacio LopezJose Ignacio Lopez

resultsresults saving $4 bill for GM saving $4 bill for GM poor relationship and rating by supplierspoor relationship and rating by suppliers some suppliers out of businesssome suppliers out of business loss of supplier loyalty in long termloss of supplier loyalty in long term

not providing best product, nor best servicenot providing best product, nor best service switching partners at opportunity switching partners at opportunity

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Concurrent Concurrent Chrysler Purchasing PolicyChrysler Purchasing Policy

long-term partnership with supplierslong-term partnership with suppliers

criterion: contribution to whole product criterion: contribution to whole product development and manufacturing process, development and manufacturing process, not only costnot only cost

involving suppliers right at the beginninginvolving suppliers right at the beginning

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Contract Renegotiation with Contract Renegotiation with the Chilean Governmentthe Chilean Government**

http://www.negotiations.com/case/contract-renegotiation/

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Contract Renegotiation with the Contract Renegotiation with the Chilean GovernmentChilean Government**

contract renegotiation over the El Teniente copper mine in Chile in 1960’s

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

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Contract Renegotiation with the Contract Renegotiation with the Chilean GovernmentChilean Government**

What can be done by Kennecott? a six-step win-win strategy that strengthens Kennecott’s 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/

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Contract Renegotiation with the Contract Renegotiation with the Chilean GovernmentChilean Government

final remark: expropriation years later but much better position for Kennecott in negotiation

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Preparation and Tactics Preparation and Tactics in Negotiating in Negotiating

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Preparation for NegotiationPreparation for Negotiation

identify participants and set up a team identify participants and set up a team

develop objectives develop objectives e.g., price, quality, form of collaboration, servie.g., price, quality, form of collaboration, servi

ce level, long-term relationshipce level, long-term relationship

gather relevant information gather relevant information market price, historical prices, actual cost of smarket price, historical prices, actual cost of s

upplier, history, financial strength, quality, serupplier, history, financial strength, quality, service level, management of supplier, possible nevice level, management of supplier, possible negotiator from suppliergotiator from supplier …

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Preparation for NegotiationPreparation for Negotiation

analyze strengths & weaknesses for analyze strengths & weaknesses for suppliers and oneself suppliers and oneself for both sides, e.g., for both sides, e.g.,

how important is the supplier to us how important is the supplier to us

how much time we have how much time we have

any other backup supplierany other backup supplier

how important is the order for the supplierhow important is the order for the supplier

financial strengthfinancial strength of the supplier

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Preparation for NegotiationPreparation for Negotiation

recognize other party’s needs recognize other party’s needs deduce real needsdeduce real needs in others’ perspectivesin others’ perspectives

identify common goals and facts agreed identify common goals and facts agreed to simplify discussionto simplify discussion

identify issues to discuss identify issues to discuss (potential) differences between the two sides(potential) differences between the two sides

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Preparation for NegotiationPreparation for Negotiation

establish positions and BATNA establish positions and BATNA

develop strategies and tactics develop strategies and tactics

brief personnel brief personnel

practice the negotiationpractice the negotiation

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TacticsTactics argue based on factsargue based on facts answer carefullyanswer carefully mind other side’s feelingmind other side’s feeling know the deadlineknow the deadline avoid trapping oneself in a avoid trapping oneself in a

corner corner e.g., “accept or no deal”e.g., “accept or no deal”

have courage to say no have courage to say no start with loweststart with lowest start with highest start with highest show honesty show honesty take the initiative take the initiative listen listen

disappearance of key personsdisappearance of key persons never give up never give up fictitious competitionfictitious competition

unethical unethical

order issuesorder issues take a rest to cool downtake a rest to cool down check securitycheck security select venueselect venue use threatuse threat side track the issueside track the issue raise questionsraise questions keep silentkeep silent

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ConcessionsConcessions

give-and-take being common in negotiation give-and-take being common in negotiation

guidelines for making concessions guidelines for making concessions reserve room for concessionsreserve room for concessions

first understand the other side’s needs and objectives first understand the other side’s needs and objectives

first to concede minor but not the first to concede major first to concede minor but not the first to concede major

portray unimportant concessions as valuableportray unimportant concessions as valuable

fight before every concession fight before every concession

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ConcessionsConcessions

guidelines for making concessions guidelines for making concessions give, and remember to take give, and remember to take concede slowly and by little concede slowly and by little never reveal deadline never reveal deadline say “no” occasionally say “no” occasionally try not to retrieve concessions try not to retrieve concessions record of concessionsrecord of concessions

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Power in NegotiationPower in Negotiation

power: the ability to influence power: the ability to influence sources of negotiating power sources of negotiating power

informational power: presenting relevant facts and informational power: presenting relevant facts and persuasive argument persuasive argument

reward power reward power coercive power coercive power legitimate power: credentials of experts legitimate power: credentials of experts referent power: socially acceptable personal qualities referent power: socially acceptable personal qualities

and attributes, e.g., physical, honesty, charisma, and attributes, e.g., physical, honesty, charisma, friendliness, sensitivityfriendliness, sensitivity

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Win-Win NegotiationWin-Win Negotiation

win-lose – competitive or distributive bargaining win-lose – competitive or distributive bargaining win-win – collaboration or integrative bargainingwin-win – collaboration or integrative bargaining

beneficial to both sides usually by increasing value or expanding beneficial to both sides usually by increasing value or expanding resources to all participants resources to all participants

equitable sharing of profit or costequitable sharing of profit or cost tacticstactics

expand the pieexpand the pie logrolllogroll compensation for compliancecompensation for compliance a bridge solutiona bridge solution

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Getting to YesGetting to YesNegotiating Agreement Without Giving InNegotiating Agreement Without Giving In

By Roger Fisher & William Ury

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Tips from the BookTips from the Book

don’t bargain over positions separate the people from the problem focus on interests, not positions invent options for Mutual Gain insist on using objective criteria

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Don’t Bargain Over PositionsDon’t Bargain Over Positions

C: customer; S: Shopkeeper

C: How much do you want for this brass dish?

S: That is beautiful antique, isn’t it? I guess I could let it go for $75.

C: Oh come on, it’s dented. I’ll give you $15.

S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.

C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.

S: You rive a hard bargain, young lady. $60 cash, right now.

C: $25.

S: It cost me a great deal more than that. Make me a serious offer.

C: $37.50. That’s the highest I will go.

S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice what you pay today.

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Focus on Interests, Not PositionsFocus on Interests, Not Positions

Negotiation between Egypt and Israel at Camp David in 1879

Egyptian Sinai Peninsula occupied by Israel since the Six Day War in 1967

Positions Egypt: getting back whole Sinai Peninsula Israel: holding part of Sinai Peninsula for

national security

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Focus on Interests, Not PositionsFocus on Interests, Not Positions

interests Egypt: sovereignty Israel: national security

Result: returned the whole Sinai Peninsula to Egypt and de-militarized large area for security of Israel

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Insist on using Objective CriteriaInsist on using Objective Criteria I: Insurance Adjuster; T; Tom I: We have studied your case and have decided the policy applies. That means you’re entitled

to a settlement of $6,600. T: I see. How did you reach that figure? I: That’s how much we decided the car was worth. T: I understand, but what standard did you use to determine that amount? Do you know

where I can buy a comparable car for that much? I: How much are you asking for? T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for

$7,700. Adding eh sales and excise tax, it would come to about $8,000. I: $8,000! That’s too much. T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree

that it’s only fair I get enough to replace the car? I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy. T: How does the company figure that? I: Look. $7,000 is all you’ll get. Take it or leave it. T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by

company policy. But unless you can state objectively why that amount is what I’m entitled to, I think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at eleven a good time to talk?

….

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Insist on using Objective CriteriaInsist on using Objective Criteria

…. I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus

for $6,800. T: I see. What does it say about mileage? I: 49,000. Why? T: Because mine only had 25,000 miles. How many dollars does that increase

the worth in your book? I: Let me see … $450. T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.

Does the ad say anything about a radio? I: No. T: How much extra for that in your book? I: $125. T: How much for air conditioning? …… A half-hour later Tom walked out with a check for $8,024.