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1 Negotiation. 2 Outline  standard terms of negotiation  examples of negotiation  David and Goliath  price negotiation in a channel  force-cost reduction.

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Presentation on theme: "1 Negotiation. 2 Outline  standard terms of negotiation  examples of negotiation  David and Goliath  price negotiation in a channel  force-cost reduction."— Presentation transcript:

1 1 Negotiation

2 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

3 3 Standard Terms in Negotiating

4 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

5 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)

6 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

7 7 Examples

8 8 Which Side Won?  rental negotiation Party AParty B agemiddle age20’s group sizetwo, couplesingle statuslandlordpotential tenant companylocalforeign Position in companyowneremployee

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

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

11 11 Rental Contract Negotiation by Mr. Stanley Yen Stanley YenStanley 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

12 12 Real-life Negotiation with Suppliers

13 13 Examples of Price Negotiation  some general practice: 5 th video clipping 00:14:20 to 00:20:205 th 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

14 14 Jose Ignacio Lopez de Arriortua

15 15 Force-cost Reduction  win-lose strategy  acting personally, offensively, and emotionally  demanding immediate effect  changing existing contracts  threatening reduction or less no business cost/270-qforcedq-cost-reduction-how-to-respond

16 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)

17 17 Questions from the Paper  What was the life of Jose Ignacio Lopez?  What changes were made in the GM purchasing practice by Lopez?  What do you think about the purchasing strategic used by Lopez?  How do you compare the strategies used by Carlos Ghosn and Jose Ignacio Lopez?

18 18 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

19 19 New Rules in Purchasing by 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

20 20 New Rules in Purchasing by Jose Ignacio Lopez  second phase: sending GM teams to help suppliers for improvement and cost reduction  mixed 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 cases

21 21 New Rules in Purchasing by 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

22 22 New Rules in Purchasing by 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

23 23 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

24 24 Contract Renegotiation with the Chilean Government *

25 25 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

26 26 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)

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

28 28 Preparation and Tactics in Negotiating

29 29 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  market price, historical prices, actual cost of supplier, history, financial strength, quality, service level, management of supplier, possible negotiator from supplier …

30 30 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  financial strength of the supplier

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

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

33 33 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

34 34 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

35 35 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

36 36 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

37 37 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

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

39 39 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

40 40 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: $ 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.

41 41 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 1967Six Day War  Positions  Egypt: getting back whole Sinai Peninsula  Israel: holding part of Sinai Peninsula for national security

42 42 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

43 43 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?  ….

44 44 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.

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