Chapter 1 An Overview of International Business Negotiation

Diplomacy is the art of letting someone else have your way. ______ Daniele Vare, Italian diplomat

An Overview of International Business Negotiation

Key Points

1. Concepts of business negotiation

2. Characteristics of international business negotiation

3. Forms of international business negotiation

An Overview of International Business Negotiation

1.1 Definition and Characteristics of

International Business Negotiation

1.2 Forms of International Business Negotiation

1.3 The Basic Forms of International Business

Negotiation

1.1 Definition and Characteristics of International Business Negotiation

1.1.1 Definition and characteristics of

negotiation

1.1.2 Definition and characteristics of

business negotiation

1.1.3 Definition and characteristics of

international business negotiation

What is negotiation?

The definition of negotiation is very simple, while its scope is wide. Every wish or need may cause a negotiation. Once people exchange their ideas to adjust their relation, or they exchange views to reach agreements, they are negotiating.

Gerafd I Niernberg, The Art of Negotiating

What is negotiation?

Various definitions have been given; but researchers have not agreed on a common one. A few are quoted for your reference:

1. Negotiation is a basic means of getting what you want from others. It is back-and-forth communication designed to reach an agreement when you and the other side have some interests that are shared and others that are opposed (Fisher, Ury & Patton, 1981).

2. Negotiation is a discussion intended to produce an agreement; a treaty with another respecting sale or purchase; a transaction of business between nations; the mutual interaction of governments by diplomatic agents, in making treaties, smoothing differences, etc.

3. Negotiation is an activity that all managers and professionals engage in. It’s necessary to negotiate at every stage of a project or business transaction, in order to reach an agreement.

4. Negotiation is a basic, generic human activity---a process that is often used in labor-management relation, in business deals like mergers and sales, in international affairs, and in our everyday activities.

What is negotiation?

5. Negotiation is a viable way of resolving a conflict when the following conditions hold true (See Lewickie, Litterer, Minton, and Saunders 1994: 4): 1) There are two or more parties---two or more individuals, groups, organizations; 2) There is a conflict of interest between two or more parties; that is, what one wants is not necessarily what the other wants, and the parties must search for a way to resolve the conflict, sometimes, through a third party; 3) The parties negotiate because they think they can use some form of influence to get a “better” deal than simply take what the other side will voluntarily give them or let them have. Negotiation is largely a voluntary process. It is a strategy pursued by choice; seldom are we required to negotiate; 4) The parties, at least for the moment, prefer to search for agreement rather than to fight openly, have one side capitulate, permanently break off contact, or take their dispute to a higher authority to resolve it. Negotiation occurs when there is no fixed or established set of rules, procedures, or “system” for resolving the conflict, or when the parties prefer to work outside of the system to invent their own solution to the conflict; 6) Finally, when we negotiate, we expect give and take. We expect that both sides will modify or give in somewhat on their opening statements, requests, or demands.

Definition of negotiation

Negotiation ->the action and the

process of reaching an agreement by means of exchanging ideas with the intention of dispelling conflicts and enhancing relationship to satisfy each other’s needs. Zhuge, Liang Disputes With The South

ern Scholars

Characteristics of negotiation

(1) Every negotiation involves two or more parties. (role-play negotiation, UNmarriage events)

(2) The objective of a negotiation must be definite. (persuasion, mutual interests, rambling negotiation)

(3) Negotiation must be conducted on an equal basis.(4) A consensus must be built on the basis of mutual con

cession.(5) Negotiation involves exchange of ideas, communicati

on, persuasion, compromise and suchlike. (process)

Approaches: Integrative vs. Distributive, Contingency

Integrative approach (also called a cooperative or win-win approach) The core of their thinking is mutual success and convergence of interests.

Seeking convergence of each other’s interests is to conduct negotiations by exploring mutual benefits so that a better and bigger cake of common interests will be jointly made for mutual sharing. To put it simple, “Everybody wins”.

Integrative approach is opposite to distributive (also called competitive or win-lose approach) approach. Conventional practice of distributive approach takes the following steps: 1) Determine each party’s own interests and stance; 2) Defend one’s own interests and stance; 3) Discuss the possibilities of making concession; 4) Reach an agreement of compromising; or 5) Declare failure of negotiation. Negotiators guided by this approach would protect and defend habitually each party’s utmost interests by taking firm stance in negotiations, therefore concessions often prove to be very difficult to make, which would inevitably throw negotiations into impasse or failure. The two dimensional concept largely accounts for numerous failed negotiations. Of course, there are cases of a much stronger party forcing the weaker party into agreement. Nevertheless, these cases cannot be labeled as negotiations but rather a practice of hegemony or playing the bully.

Figure 1 The Dual Concerns Model

Definition of Business negotiation

Business negotiation

->a process of conferring in which the participants of business activities communicate, discuss, and adjust their views, settle differences and finally reach a mutually acceptable agreement in order to close a deal or achieve a proposed financial goal.

Characteristics of Business Negotiation

(1) The objective of business negotiation is to obtain financial interest

(2) The core of business negotiation is price

(3) Its principle is equality and mutual benefit

(4) Items of contract should keep strictly accurate and rigorous

Principles of business negotiation

1. Equality principle 2. Cooperation principle 3. Flexibility principle 4. Positions-subjected-to-interests principle 5. Depersonalizing principle (Separating the

people from the problem) 6. Using objective criterion

Definition of International Business Negotiation

International Business Negotiation

-> the business negotiation that takes place between the interest groups from different countries or regions.

Features of International Business Negotiation

(1) Language barrier

(2) Cultural differences

(3) International laws and domestic laws are both in force

(4) International political factors must be taken into account

(5) The difficulty and the cost are greater than that of domestic business negotiations

1.2 Forms of International Business Negotiation

1.2.1 Classification by chief negotiator

1.2.2 Classification by negotiation object

1.2.3 Classification by form

1.2.4 Classification by procedure

Classification by chief negotiator

(1) Government- to- government’s negotiation(2) Government- to- Business’s negotiation(3) Producer- to- Producer’s negotiation(4) Producer- to- Trader’s negotiation(5) Retailer- to -Producer’s negotiation(6) Business- to- Business’s negotiation(7) Business- to- Consumer’s negotiation

Classification by negotiation object

(1)Product trade negotiation

(2)Technology trade negotiation

(3) Service trade negotiation

(4) International project negotiation

Classification by form

(1) One- to- one negotiation

(2) Team negotiation

(3) Multilateral negotiation

Classification by procedure

(1) Horizontal Negotiation

(2) Vertical Negotiation

1.3 The Basic Forms of International Business Negotiation

1.3.1 “Host Court” negotiation and “Guest

Court” negotiation

1.3.2 Oral negotiation and written negotiation

1.3.3 Formal and informal negotiation

“Host Court” negotiation and “Guest Court” negotiation

(1) Host- Court negotiation

(2) Guest- Court negotiation

(3) Changing- Court negotiation

(4) Third- place negotiation

Oral negotiation and Written negotiation

(1) Oral negotiation

(2) Written negotiation

Advantages VS. Disadvantages

Formal and Informal negotiation

(1) Formal negotiation

(2) Informal negotiation

Tips for International Business Negotiations

Do’s and don’ts rules for international business negotiations are listed in many textbooks and guidebooks. The value of these prescribed rules mostly lies in their attempt to raise awareness of cross-cultural diversity. The following basic rules should be followed by the international business negotiator:

1. Organize a competent delegation. 2.Identify a couple of dependable contacts in the host country and work with them on lo

gistics prior to your visit. 3. Do homework on the host country’s time consciousness, communication styles, proto

col and etiquette, etc. 4. Bring proper gifts because gifts are appreciated in every culture. 5. Choose proper topics for socializing. 6. Bring along a qualified interpreter in case of need. 7. Learn how to pronounce names of host contacts correctly and clarify their positions a

nd job titles. 8. Be well prepared; define in advance your basic interests, objectives and bottom line,

and room for manoeuvre. Before participating in a negotiation, learn the basics about the behavioral norms in your partner’s culture, especially concerning appointments, punctuality and planning.

Tips for International Business Negotiations

9. Take time for adequate preliminaries: getting to know the other party is most often crucial. More time is needed in international business negotiations, since cultural as well as personal knowledge has to be acquired.

10. Be flexible with the negotiation agenda if the other party does not stick to it. 11. If needed, be prepared to renounce a negotiation, because the stakes are too low, or send lower lev

el, less expensive executives. If possible, negotiation at home (turf/home soil advantage) where you have a competitive advantage over your foreign partner in terms of time control.

12. Be ready for different communication styles (verbal) and be cautious in interpreting (non-verbal) silence, emotionality, threats and any kind of manipulative/instrumental communication.

13. Never tell the other side when you are leaving because this gives them control over your time. 14. Respect the sensitivities (hot buttons) of your partner in the area of (i) personal status and (ii) nation

al pride. 15. Allow yourself plenty of time, and even more. Patience is an asset for negotiation and it is destroyed

by time pressure. 16. Do not get fooled by the other party seemingly sharing your time pattern: try to set realistic dates an

d deadlines and plan modestly and realistically. (monochronic vs. polychronic) Tight deadlines may result in jumbo delays that ruin the credibility of the whole planning process.

17. Try to balance relationship- orientation and deal-orientation: wait for the negotiation process to extend beyond the signature of the deal.

Exercises

1. Think of a negotiation you were recently involved in. How do you think it went? If you had the negotiation again, would you do things differently?

2. Answer the following questions according to the text:

How is negotiation defined? In what aspects do distributive and integrative

approaches differ from each other? What is the essence of business negotiation? What are the six principles of business negotiation?

Exercises

3.Please read and reflect on the following anecdotes for their morals. Then work in pairs for possible solutions to the following problem: Suppose that you are the seller and your partner is the purchaser. The seller’s position is stated as selling a certain number of sewing machines at X dollars per unit whereas the purchaser’s position is expressed as receiving a certain number of sewing machines within a month’s time at X minus US$30 per unit. Please jointly work out a solution and report to the class.

Anecdote 1 Recently two of my sons were squabbling over some apple pie, each insisting that he would have the

larger slice. Neither would agree to an even split. So I suggested that one boy cut the pie any way he liked, and the other boy could choose the piece he wanted. This sounded fair to both of them, and they accepted. Each felt that he had gotten the square deal.

Anecdote 2 Two kids are squabbling over the last orange in the fridge. When Dad hears the ruckus, he goes into t

he kitchen and is sure he’s got the answer. He slices the fruit into equal halves and gives one to each kid. Surprising, no one is happy. Why? Because one kid just wanted the pulp, and the other just wanted the rind.

Anecdote 3 Two men were quarrelling in a library. One wants the window open and the other wants it closed. The

y bicker back and forth about how much to leave it open: a crack, halfway, three quarters of the way. No solution satisfies them both. The librarian enters. She asks why he wants the window open: “To get some fresh air.” She asks the other why he wants it closed: “To avoid the draft.” After thinking a minute, she opens wide a window in the next room, bringing in fresh air without a draft.

Exercises

4. Discussion: Business is negotiation. Please comment on this statement.

5. Name the six basic principles for international business negotiations.

6. What is the moral of the following nursery rhyme?

“Jack Sprat could eat no fatHis wife could eat no leanAnd so betwixt them both

They licked the platter clean.”

Homework

Review Chapter 1. Preview Chapter 2 and 3, you could divide th

e work among group members, then learn from each other.

Case group one please send the case slides you are going to present into my e-mail box before this Sunday.