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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) 179-194

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: $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.

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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