Negotiation Strategies for Chemical Company International and Dragon Manufacturing
Negotiations are used to resolve existing and potential conflicts, as well as to help organizations of all sizes and types achieve their goals. In many cases, negotiators fail to achieve all or even most of their goals, though, because of an inability to reach mutually advantageous agreements. In some cases, though, negotiators simply lose sight of what they are after and become embroiled in increasingly heated confrontations that lead nowhere. Successful negotiations are possible, though, by following some proven methods that can help stakeholders avoid these pitfalls and focus on the best available alternative. In this regard, this report provides both parties to the negotiations with an independent detailed report concerning best approaches to the negotiation for two companies currently involved in negotiations, Chemical Company International and Dragon Manufacturing, including a recommended negotiation strategy, negotiation best practices and an appraisal of the potential risks that may contribute to the conclusion of a suboptimal agreement or no agreement being reached. A summary of the research and important findings are presented in the paper's conclusion.
Review and Discussion
Background and Overview
The key confidential points in the anticipated negotiations between Chemical Company International (hereinafter alternatively "CCI") and Dragon Manufacturing (hereinafter alternatively "Dragon") include those set forth in Tables 1 and 2 below which are provided to the respective entities separately; the remainder of the report is provided to both companies in its entirety.
Confidential Points for CCI
Exclusive supplier agreement with Dragon
Dragon indicated that it was prepared to consider an exclusive supply arrangement based on certain criteria:
1. A maximum exclusive period of three years coupled with a supply agreement of 7 years
2. A minimum supply level of $50 million of the VBY compound per year, escalating at 10% per year
3. Payment terms of 30 days (Confidential Instructions).
Exclusive supplier agreement concerns
Although Dragon is a viable potential supplier for the VBY compound needed for the TGB range of lenses, CCI has the following concerns:
1. The quality guarantees that will need to be in place with regard to the VBY compound, as the quality of the TGB lenses are highly dependent on consistent quality in the base materials.
2. Dragon has very little experience dealing in the international market, as they have mostly only traded in the Chinese domestic market.
3. Managing the cultural dimensions of an ongoing relationship.
Desired Terms of the Agreement with Dragon vs. Proposed Terms
CCI Desired Terms
Dragon's Proposed Terms
1. A supply contract for 10 years of which least 3-5 years is desired to be on an exclusive basis.
2. A guaranteed level of $30 million of the VBY compound per year (or more if this can be obtained on favourable terms.
3. Payment terms of 30 to 60 days.
1. An overall supply contract of at least 8 to 10 years if CCI were to expect Dragon to be an exclusive supplier for a period of between 3 to 5 years.
2. A minimum contract value of $200 million measured over the first 5 years.
3. Payment terms of 60 days.
Confidential Points for Dragon Manufacturing
Bargaining power: CCI
CCI is a big player in the market and is not afraid to using this to its advantage during negotiations, but is not strong on building relationships with other companies.
Bargaining power: Dragon
Dragon is one of just three Chinese companies providing the vital VBY compound ingredient for the TGB range of lenses.
Importance of CCI Contract for Dragon
CCI is a major player in the global pharmaceutical industry and the contract would provide Dragon with additional credibility for its exports as well as forging a synergetic relationship with significant future potential and a competitive advantage.
Recommended Negotiation Approaches for CCI and Dragon
Some people begin their negotiations with a positioned stance that does not allow much flexibility, while others may cave at the first sign of opposition and give up most of what they were after in the first place. In order to avoid either of these extremes, many authorities suggest that a middle-ground approach is best suited to most negotiation scenarios. For instance, in their seminal text, Getting to Yes: Negotiating Agreement without Giving In, Fisher, Ury and Patton describe "principled negotiation" as a viable approach to helping negotiations move out of a frozen position toward solutions that are mutually acceptable. The authors emphasize the need to avoid all-or-nothing situations in which negotiators "tend to lock themselves into positions" and "defend & #8230; against attack," making it "less and less likely" that any conversation will "wisely reconcile" their mutual interests. As Fisher and his associates point out, "Positional bargaining becomes a contest of wills" that "sometimes shatters the relationship between the parties" (p. 37). By contrast, Bernstein (1995) suggests that, "Principled negotiation accepts that most conflicts can be converted into win-win rather than win-lose games. The essential task of parties engaged in principled negotiation is to identify their common interests in resolving the conflict and distinguish these from interests that belong to the separate parties" (p. 23). To this end, Fisher and his colleagues provide "the exemplar of effective communication and developed the basic theoretical tenets of principled negotiation" (Cruikshank & Susskind, p. 249).
In their book, Fisher et al. also emphasize the importance of continuing communication in negotiations (pp. 32-36) and suggest that their getting-to-yes process provides a viable framework in which conflict can be resolved or at least minimized the negotiation process facilitated by adopting a principled negotiating approach that is situated somewhere in the middle of a continuum of hard (competitive) and soft (acquiescing) negotiating styles. In this regard, Gortner (2010) suggests that, taken together, best practices to management negotiations based on Fisher et al.'s checklist for self-evaluation of leadership behavior in challenging situations includes the following:
1. Viewing participants as neither friends to soothe nor enemies to beat, but as problem-solvers;
2. Shifting people's focus from hardened positions to inherent interests;
3. Preventing continued hiding of conflict, and pressing for collaborative solutions; and,
4. Anticipating possible non-resolution by knowing and mustering resources for the next-best alternatives.
In reality, though, these negotiating approaches are not necessarily novel or unique, but they have been packaged by Fisher and his associates in an innovative way that provides mnemonic guidance (i.e., their "BATNA" discussed further below) and checklists that can be followed by identify opportunities for improving negotiating techniques. These approaches are based on a theoretical foundation that has been advanced by other authorities as well. For instance, Gortner (2010) points out that, "Expecting and playing toward the best in opponents for the sake of finding solutions changes the game of conflict and engages a form of the Pygmalion effect (an invitation which an opponent may or may not accept, depending on the level of conflict intensity). The emphasis [is] on openness, honesty, and diminishing value-ridden, heel-digging positions" (p. 97).
Therefore, by helping negotiators move from their strictly adversarial positions to ones that are more amenable to compromise, the negotiating process can continue until a mutually acceptable solution is identified (Gortner, 2010). Likewise, Fishwick (1985) points out that in Dale Carnegie's book, How to Win Friends and Influence People, the focus was also on the "getting to yes" process: "Two key rules in How to Win Friends and Influence People were: 'Never tell a man he is wrong,' and 'Get the other persons saying 'yes, yes' immediately'" (p. 182).
Although the desired outcomes will vary, the general functions of negotiations are to enable people to engage in a process in which all of the parties:
1. Present a sequence of arguments to support their case;
2. State their preferences;
3. Recognize and acknowledge what the other side sees as important;
4. Try to achieve an in-depth understanding of all the issues;
5. Ascertain areas of agreement and disagreement;
6. Enter into a series of offers and bids relating to personal targets;
7. Seek out options to overcome areas of disagreement;
8. Engage in a process of mutual concession-making; and,
9. Formally agree and ratify a final deal that is acceptable to both sides, and that can be successfully implemented (Hargie & Dickerson, 2004, p. 373).
In a perfect world, all negotiators would in fact acknowledge the foregoing and accede to the legitimacy of other points-of-view, but real-world negotiations are rarely conducted under optimal conditions. In order to help forge some common ground, Fisher and his associates recommend that negotiators identify their best alternative to a negotiated agreement (BATNA) that can serve as a guide. The acronym BATNA stands for "best alternative to a negotiated agreement" (Fisher et al., p. 97). According to Hargie and Dickerson, "A BATNA is not something that a negotiator wishes for; rather it is determined by harsh reality. This is because negotiations can and do fail, and when this occurs a party with no BATNA may find itself in serious difficulties" (2004, p. 373). In…