Negotiation 1 Outline è standard terms of

Negotiation 1

Outline è standard terms of negotiation è examples of negotiation è David and Goliath è price negotiation in a channel è force-cost reduction è a company and a government è preparation and tactics of negotiation 2

Standard Terms in Negotiating 3

Negotiation è formal communication to seek mutual agreement è usually verbally è often between two sides è on sharing and allocation of resources, cost, benefits, etc. è skills è required preparation è sharpened by practice 4

Terms in Negotiation è BATNA (best alternative to a negotiated agreement) （底線） è positions （立場） è interests （利益） è needs （需要） è wants （願望） 5

Conditions to Use Negotiation è expensive operations è high-value, large-volume contract è complex technical requirements on product and process, possibly evolving specifications è capital-intensive items, e. g. , plant and equipment è special buyer-supplier relationship è important value-adding activities required from suppler 6

Examples 7

Which Side Won? è rental negotiation age group size status Party A middle age two, couple landlord Party B 20’s single potential tenant company Position in company local owner foreign employee 8

Which Side Won? è story è potential tenant slow in responding è property price gone up è higher rental expected by developers 9

Rental Contract Negotiation by Mr. Stanley Yen è Mr Stanley Yen è 1971 June: started as a messenger in the Taiwan branch of American Express (AET) è 1971 end: took care also general affairs of AET è… è Now: a living legend in tourism, management, social welfare, … 10

Rental Contract Negotiation by Mr. Stanley Yen è Mr. Yen, “How come you do this? As a custom of foreign company, I recorded the agreed rental in a memo. ” è mutual respect that grew into long-term employeeemployer and then family-type relationship è lessons è systematic è polite 11

Real-life Negotiation with Suppliers 12

Examples of Price Negotiation è some general practice: 5 th video clipping 00: 14: 20 to 00: 20 è depending on opponents è intellectual, è traditional, personality possessing information è BANTA è market and needs of opponents price, actual production cost è strengthen and BANTA of my company 13

Jose Ignacio Lopez de Arriortua 14

Force-cost Reduction è win-lose è acting strategy personally, offensively, and emotionally è demanding è changing immediate effect existing contracts è threatening reduction or less no business http: //www. projectmagazine. com/monitoring-and-controlling/53 cost/270 -qforcedq-cost-reduction-how-to-respond 15

Deep 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 16

Life of Jose Ignacio Lopez doctorate in industrial engineering è 1969 80: Firestone, Spain è 1980 86: GM European operations, Spain è 1986: GM’s Opel, Germany è 1987: head of purchasing for Europe è è work with Jack Smith to make GM Europe profitable è 1992, April: VP of Worldwide purchasing of GM è Jack Smith as president of GM in Spring 92 18

New Rules in Purchasing by Jose Ignacio Lopez è new rules è all supply contracts by bidding è a minimum of 10 bids for a supply contract, at least one not in north America è no favorable treatment of internal suppliers, 70% among all è 50% productivity improvement by 1995 19

New Rules in Purchasing by Jose Ignacio Lopez è second phase: sending GM teams to help suppliers for improvement and cost reduction è mixed results è exemplary in some, e. g. , Siemens, reduction of 85% assembly line time; 95 percent of inventory; 20% of cost è not sharing cost sharing in some cases 20

New Rules in Purchasing by Jose Ignacio Lopez è forced changes of existing supplier contracts è renegotiation of five-year contract, e. g. , cuts of supplier price of 5%, 3%, 2%, 1% in the next five years è close working relationship with unions è taking proprietary designs from suppliers for open bidding by other suppliers è sharing insufficient fixed development cost with suppliers 21

New Rules in Purchasing by Jose Ignacio Lopez è results è saving $4 bill for GM è poor relationship and rating by suppliers è some suppliers out of business è loss of supplier loyalty in long term è not providing best product, nor best service è switching partners at opportunity 22

Concurrent Chrysler Purchasing Policy è long-term partnership with suppliers è criterion: contribution to whole product development and manufacturing process, not only cost è involving suppliers right at the beginning 23

Contract Renegotiation with * the Chilean Government http: //www. negotiations. com/case/contract-renegotiation/ 24

Contract Renegotiation with the Chilean Government* è è è 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 foreign companies to exploit its natural resource è è overwhelmingly strong BATNA of the Chilean government either tough financial terms or even expropriating the mine è enough local experts to manage the mine 25

Contract Renegotiation with the Chilean Government* è è What can be done by Kennecott? a six-step win-win strategy that strengthens Kennecott’s position è è è 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/ 26

Contract Renegotiation with the Chilean Government è final remark: expropriation years later but much better position for Kennecott in negotiation 27

Preparation and Tactics in Negotiating 28

Preparation for Negotiation è identify participants and set up a team è develop objectives è e. g. , price, quality, form of collaboration, service level, long-term relationship è gather relevant information è market price, historical prices, actual cost of supplier, history, financial strength, quality, service level, management of supplier, possible negotiator from supplier … 29

Preparation for Negotiation è analyze strengths & weaknesses for suppliers and oneself è for both sides, e. g. , è how important is the supplier to us è how much time we have è any other backup supplier è how important is the order for the supplier è financial strength of the supplier 30

Preparation for Negotiation è recognize other party’s needs è deduce real needs in others’ perspectives è identify common goals and facts agreed è to simplify discussion è identify issues to discuss è (potential) differences between the two sides 31

Preparation for Negotiation è establish positions and BATNA è develop strategies and tactics è brief personnel è practice the negotiation 32

Tactics è è è argue based on facts answer carefully mind other side’s feeling know the deadline avoid trapping oneself in a corner è è è è e. g. , “accept or no deal” have courage to say no start with lowest start with highest show honesty take the initiative listen è disappearance of key persons è never give up è fictitious competition è unethical è order issues è take a rest to cool down è check security è select venue è use threat è side track the issue è raise questions è keep silent 33

Concessions è give-and-take being common in negotiation è guidelines for making concessions è reserve room for concessions è first understand the other side’s needs and objectives è first to concede minor but not the first to concede major è portray unimportant concessions as valuable è fight before every concession 34

Concessions è guidelines for making concessions è give, and remember to take è concede slowly and by little è never reveal deadline è say “no” occasionally è try not to retrieve concessions è record of concessions 35

Power in Negotiation power: the ability to influence è sources of negotiating power è è informational power: presenting relevant facts and persuasive argument è reward power è coercive power è legitimate power: credentials of experts è referent power: socially acceptable personal qualities and attributes, e. g. , physical, honesty, charisma, friendliness, sensitivity 36

Win-Win Negotiation è win-lose – competitive or distributive bargaining è win-win – collaboration or integrative bargaining è beneficial to both sides usually by increasing value or expanding resources to all participants è equitable sharing of profit or cost è tactics è expand the pie è logroll è compensation for compliance è a bridge solution 37

Getting to Yes Negotiating Agreement Without Giving In By Roger Fisher & William Ury 38

Tips from the Book è don’t bargain over positions è separate è focus on interests, not positions è invent è insist the people from the problem options for Mutual Gain on using objective criteria 39

Don’t Bargain Over Positions è C: customer; S: Shopkeeper è C: How much do you want for this brass dish? è S: That is beautiful antique, isn’t it? I guess I could let it go for $75. è C: Oh come on, it’s dented. I’ll give you $15. è S: Really! I might consider a serious offer, but $15 is certainly isn’t serious. è C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price. è S: You rive a hard bargain, young lady. $60 cash, right now. è C: $25. è S: It cost me a great deal more than that. Make me a serious offer. è C: $37. 50. That’s the highest I will go. è S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice what you pay today. 40

Focus on Interests, Not Positions è Negotiation between Egypt and Israel at Camp David in 1879 è Egyptian Sinai Peninsula occupied by Israel since the Six Day War in 1967 è Positions è Egypt: getting back whole Sinai Peninsula è Israel: holding part of Sinai Peninsula for national security 41

Focus on Interests, Not Positions è interests è Egypt: sovereignty è Israel: national security è Result: returned the whole Sinai Peninsula to Egypt and de-militarized large area for security of Israel 42

Insist on using Objective Criteria è è è è 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? …. 43

Insist on using Objective Criteria è è è è …. 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. 44