UNIVERSITY OF ECONOMICS IN BRATISLAVA, SLOVAK REPUBLIC

UNIVERSITY OF ECONOMICS IN BRATISLAVA, SLOVAK REPUBLIC INTERNATIONAL NEGOTIATION – UCL – JANUARY, 2014 lecturer Milan Oresky

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 5. Negotiation in Business

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Preparation Identify the main goal of negotiation: yours and opponents Make necessary economic and financial calculations Prepare technical and other documentation Design your negotiating team and get the mandate to negotiate Prepare your position and best alternative (BATNA) Set the agenda for negotiations Gather and analyze information about your opponents

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Preparation: practical aspects Inform your team about your goals, strategy and agenda. Discuss their roles in negotiation process Offer opponents to negotiate at your territory Propose to write down minutes of negotiations Be the first to send draft agenda Meet former employees, business partners or clients of your opponents Invite your opponents to meet informally: dinner or lunch, beer or coffee prior to negotiations Be the first to send them drafts of documents: contract, technical specification, samples etc. Offer your help to the other side: interpreter, driver, office, hotel reservation etc. Take time to relax and be ready to make decisions

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Ask yourself : are we ready? Do we really have enough information or just see what we want to see and make wrong perceptions?

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Exchange of information Main rule: only the necessary minimum of valuable information to the other side Possible exchange of preliminary positions Composition and authority of the teams Final agenda of negotiations Exchange of the draft documents Practical arrangements: meeting room, refreshments etc. Informal meeting with the opponents: dinner, lunch, coffee prior to negotiations

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Team formation (2) Small and flexible Knowledgeable and well informed United: team spirit Resourceful and creative All necessary areas well represented Team members know their roles and functions

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Main principles of integrative negotiation “Getting to YES” Separate the people from the problem Focus on interests, not positions Invent options for mutual gain Use objective criteria

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 1. Separate the people from the problem Separating the people from the problem means separating relationship issues (or "people problems") from substantive issues, and dealing withthem independently. Face the problem, not the people. Try to see the situation from your opponents perspective Dont deduce your opponents intentions from your own fears Avoid blaming your opponent for the problem Discuss each others perceptions Seek opportunities to act inconsistently with your opponents misperceptions Give your opponent a stake in the outcome by making sure they participate in the negotiation process Make your proposals consistent with the principles and self-image of your opponent Recognize , understand and acknowledge emotions: theirs and yours Don’t react to emotional outbursts and allow to let off steam Listen actively and speak to be understood Speak about yourself, not about them Build a working relationship

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 2. Focus on interests, not positions Negotiating about interests means negotiating about things that people really want and need, not what they say that they want or need Behind opposed positions lie shared and compatible interests, as well as conflicting ones Identify the interests: ask “Why?” and “Why not” The most powerful interests are basic human needs: security, economic well-being, a sense of belonging, recognition, control over one’s life Give your interest and reasoning first and your conclusions or proposals later Look forward, not back. Instead of asking to justify what they did yesterday, ask who should do what tomorrow? Be concrete but flexible. Think about options that meet your interest, use “illustrative specificity” Be hard on the problems, soft on the people. Help the other side to solve their problems

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 3. Invent options for mutual gain This means negotiators should look for new solutions to the problem thatwill allow both sides to win, not just fight over the original positionswhich assume that for one side to win, the other side must lose. Brainstorm: invent as many options as possible to reach an agreement Broaden your options by the expertise and changed scope or focus of possible agreement Look for mutual gain indentifying shared interests and matching differing interests Make the opposite side decision easy. Look to agreement from your counterpart perspective and involve him/her in designing the right solution. Invent first, decide later.

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 4. Use objective criteria Insist on objective criteria for decisions. While not always available, if some outside, objective criteria for fairness can be found, this can greatly simplify the negotiation process Find fair standards: market value, precedent, scientific judgment, technical requirements etc. Follow fair procedures: reciprocity, moral standards, reciprocity etc. Agree first on principles and be open to reason. Search for objective criteria together Never yield to pressure, only to principle

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 5 main conceptual instruments BATNA – Best Alternative to Negotiated Agreement Reservation price: walk away price ZOPA – Zone of Possible Agreement Value creation through trade-offs Negotiating power

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 BATNA: Best Alternative to Negotiated Agreement Invent a list of actions you might conceivably take if no agreement is reached Improve some of the promising ideas and convert them into practical alternatives Select one option that seems the best Do not mix it with a Bottom Line: negotiators try to protect themselves by establishing in advance the worst acceptable outcome. The Bottom Line inhibits imagination and creativity

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 BATNA The better your BATNA, the greater your power It gives you additional confidence in negotiations and you can negotiate on the merits. Identify and consider the other side’s BATNA Knowing their alternatives, you can realistically estimate what you can expect from negotiations

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Reservation Price The reservation price is the least favorable point atwhich one will accept a negotiated agreement. For a seller this means the least amount (minimum) or bottom line theywould be prepared to accept, while for a buyer it would mean the most(maximum) or bottom line that they would be prepared to pay. It is alsosometimes referred to as the “walk away” price

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Negotiations: opening (1) Create cooperative and constructive atmosphere: Inquire about trip, hotel, flight etc. Introduce your team Announce time table: information about coffee breaks, lunch, production site visit etc. Ask whether sent documents and information were well received, are sufficient and understood by the other side Ask does the other side need some other help or assistance: separate room, copying or other office services

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Negotiations: opening (2) Take the initiative: Propose and agree the goal of the meeting Announce (correct) the agenda and issues to be discussed Shortly summarize (make comments and corrections) the situation and already agreed issues Invite your opponents for comments, correct them

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Possible agendas (1) Push: start with important issues Procrastinate: you begin with less important issues Assemble: put together groups of issues both parties are likely to agree, forming packages for agreement Classify: classify issues like financial on one side, and all other issues on the other Sort: review all issues to be negotiated and decide if there are any that can be settled

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Possible agendas (2) 6. Select: you suggest the order of issues to be discusses. Never agree to this formula: who picks up an issue to be discussed gets strategic advantage 7. Consult: you agree agenda prior to it and then revise the schedule and announce it 8. Concede: put some issues on the table for discussion you willing to concede. Because of your concessions you can require and anticipate concessions in return 9. Soften: make concessions not important for you on the first stage . When the opponents are comforted negotiated the real deal 10. Appetizers: start with easy issues to agree on.” If we did it so easy, lets do this one as well “

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Negotiations: a good start Pay attention to trivial information “I hope things go well this time”, “We reserved the hotel for two days”, “We’ve been having a good year, but stock has increased since…” Create a diversion Make some jokes. Build self confidence, test the atmosphere. If theyfeel nervous or want to start immediately, expect hard negotiation… Be diplomatic Introduce the issues in relaxed manner, even if you intent to attack andplay tough later on. Do not provoke immediate back fire.

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Importance of the Beginning The initial stage of negotiation is veryimportant (even none of the issues areresolved) because the atmosphere and toneare set. If your attitude differs radically from thatof the other side, experience show that it isonly during this initial phase that there is achance of making any changes.

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Negotiations: “don’ts” Do not talk unprepared, talk to the point Do not make long statements, use short sentences Do not interrupt the opponents and the other members of your team Do not change or modify the agreed strategy without proper analysis and common agreement Do not let the other side to change your strategy and agenda, keep the initiative Take breaks, do not act spontaneously!

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Negotiations: “do’s” Let the other side talk Use pause and time intervals in your speech to stress the importance of the point you are making Use prepared arguments: hard working in preparation – easy in improvisation Ask questions, do not provide immediate answers Ask for explanation and justification: why you consider its good for us both, for my company, for me?

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Making the First Offer (1) Making the offer first you do the anchoring Setting the rules – taking the initiative Your figures and arguments are first to be discussed It puts the opponent into “must react” position Explain: why you making this offer,but not what you are offering or proposing.

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Making the First Offer (2) If the situation is not completely clear, let the opponents to make the first offer Ask the opponents their opinion how to solve the situation/come to the agreement If you are not sure about your arguments, calculations etc., ask your opponents to discuss theirs Let them disclose their intentions: what we can do to solve this issue? or help us to help you

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Negotiations, the Real Life: the factor of “nuclear bomb” If there is a chance – make yourself “a nuke bomb”You don’t need to use it, but better to posses one, usually itmakes your opponents more cooperative: research for a sensitive informationabout your opponents look for irregular business practices ofyour opponents look for unsatisfied clients, bad businesscases… Let them know, that you know….

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Negotiations: some rules to follow Never (ever) accept the first offer Leave yourself a room for maneuver: don’t be too detailed Nothing is for free: let them work hard for every (even not important for you) concession Be constructive, not destructive: don’t react to and be imprisoned by tricks and abuse from the other side Always be ready to terminate negotiation if it brings bad results to you and let them know (and feel) it

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Arguments: soldiers of your negotiating army Arguments is opposite of persuasion. They deal with logic while the other deals with emotions Arguments appeals to reason (or what seems to be a reason) Argument play up your own points and minimize the importance of the other side

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Make your arguments stronger Use comparisons Refer to best practices Use expert opinion Use presentations, statistics , reports, studies etc. Visualize your argumentation: presentations, charts, samples etc. People believe what they see…

INTERNATIONAL NEGOTIATION – UCL, JANUARY 2014 Organize your arguments Deduction: What is true of a group is also true for its members. “This consortium is solvent. The business is under the consortium, therefore it is solvent” Induction: If a large number of members share the characteristic, it is very likely that other members will share it too. “This consortium is insolvent. This business is under the consortium, therefore it might well be in difficulty too” Analogy: A particular situation is similar to another. “This business shows the same trend as another, the market is the same, so outcome of similar operation could well be the same” Hypothesis: Let us suppose that we go ahead with your proposal. What do you think would happen? Suppose that the bank withdrew the credit or supplier abandoned us, or we did not get this order?

UNIVERSITY OF ECONOMICS IN BRATISLAVA, SLOVAK REPUBLIC