Negotiation

1. Negotiation 1

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 2

3. Standard Terms in Negotiating 3

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 4

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

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 6

7. Examples 7

8. Which Side Won? rental negotiation 8

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

10. Rental Contract Negotiation by Mr. Stanley 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, … 10

11. Rental Contract Negotiation by Mr. Stanley 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 11

12. Real-life Negotiation with Suppliers 12

13. Examples 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 13

14. Jose Ignacio Lopezde Arriortua 14

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 15

16. 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

17. Life of Jose Ignacio Lopez doctorate in industrial engineering 196980: Firestone, Spain 198086: GM European operations, Spain 1986: GM’s 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 18

18. New Rules in Purchasingby 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 19

19. New Rules in Purchasingby Jose Ignacio Lopez second phase: sending GM teams to help suppliers for improvement and cost reduction mixed results 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 20

20. New Rules in Purchasingby 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 21

21. New Rules in Purchasingby 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 22

22. 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 23

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

24. Contract Renegotiation with the Chilean 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 25

25. Contract Renegotiation with the Chilean 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/ 26

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

27. Preparation and Tactics in Negotiating 28

28. 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 … 29

29. 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 of the supplier 30

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

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

32. Tactics • argue based on facts • answer carefully • mind other side’s 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 33

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

34. 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 35

35. 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 36

36. 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 37

37. Getting to YesNegotiating Agreement Without Giving In By Roger Fisher & William Ury 38

38. Tips 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 39

39. Don’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. 40

40. Focus 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 41

41. Focus 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 42

42. Insist 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? …. 43

43. Insist 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. 44