Negotiation Strategies for Cross-Cultural Business Agreements

Introduction

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 because of an inability to reach mutually advantageous agreements. In some cases, negotiators simply lose sight of what they are after and become embroiled in increasingly heated confrontations that lead nowhere. Successful negotiations are possible, however, 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 analysis concerning best approaches 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 a suboptimal agreement or no agreement being reached. A summary of the research and important findings are presented in the conclusion.

The key confidential points in the anticipated negotiations between Chemical Company International (hereinafter "CCI") and Dragon Manufacturing (hereinafter "Dragon") are 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.

Background and Confidential Terms

Exclusive supplier agreement with Dragon: Dragon indicated that it was prepared to consider an exclusive supply arrangement based on the following criteria: (1) a maximum exclusive period of three years coupled with a supply agreement of seven years; (2) a minimum supply level of $50 million of the VBY compound per year, escalating at 10% per year; and (3) payment terms of 30 days.

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, since the quality of the TGB lenses is highly dependent on consistent quality in the base materials; (2) Dragon has very little experience dealing in the international market, having mostly traded in the Chinese domestic market; and (3) managing the cultural dimensions of an ongoing relationship.

Desired terms versus proposed terms: CCI desires a supply contract for 10 years, of which at least 3–5 years would be on an exclusive basis, a guaranteed level of $30 million of the VBY compound per year, and payment terms of 30 to 60 days. Dragon's proposed terms include an overall supply contract of at least 8–10 years if CCI expects Dragon to serve as an exclusive supplier for 3–5 years, a minimum contract value of $200 million measured over the first five years, and payment terms of 60 days.

Bargaining power — CCI: CCI is a major player in the market and is not reluctant to use this position to its advantage during negotiations, though it is not particularly strong at building relationships with other companies.

Bargaining power — Dragon: Dragon is one of only three Chinese companies providing the vital VBY compound ingredient for the TGB range of lenses.

Principled Negotiation and the Getting-to-Yes Framework

Importance of the CCI contract for Dragon: CCI is a significant player in the global pharmaceutical industry, and the contract would provide Dragon with additional credibility for its exports, forge a synergistic relationship with significant future potential, and confer a competitive advantage.

Some people begin their negotiations with a fixed, inflexible stance, while others may capitulate at the first sign of opposition and give up most of what they sought 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 them 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).

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 — by adopting a principled negotiating approach situated somewhere in the middle of a continuum between hard (competitive) and soft (acquiescing) negotiating styles. In this regard, Gortner (2010) suggests that, taken together, best practices in management negotiations based on Fisher et al.'s self-evaluation checklist include the following:

In reality, 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 — including the BATNA discussed further below — and checklists that can be followed to identify opportunities for improving negotiating techniques. Gortner (2010) notes 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. The emphasis is on openness, honesty, and diminishing value-ridden, heel-digging positions" (p. 97).

By helping negotiators move from 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 person saying yes, yes immediately'" (p. 182).

Although the desired outcomes will vary, the general functions of negotiations are to enable all parties to:

In a perfect world, all negotiators would acknowledge the foregoing and accede to the legitimacy of other points of view, but real-world negotiations are rarely conducted under optimal conditions. Aristotle once observed that "it is the mark of an educated mind to be able to entertain a thought without accepting it," and Arnett (1996) similarly makes the point that "even when the selection of a polarized communicative position or 'camp' is a temptation, it is not the only viable option. Some are able to embrace a conviction while remaining open to the other's viewpoint. It is possible to remain sensitive to multiple facets of an issue as one forms an opinion" (p. 30).

In order to help forge common ground, Fisher and his associates recommend that negotiators identify their best alternative to a negotiated agreement (BATNA) as a guiding reference. 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). Fisher and his associates maintain that the BATNA is a process whereby negotiators are able to (a) protect themselves against making an agreement they should reject and (b) maximize their assets so that whatever agreement is ultimately reached "will satisfy your interests as well as possible" (Fisher et al., p. 97).

Conclusion

The research showed that negotiators can lose sight of what they are really trying to achieve if they enter negotiations unprepared or with an intractable position that is not subject to change. The research also showed that there are concrete steps negotiators can take to help them formulate negotiating goals that are reasonable and appropriate — goals that represent their best alternative to a negotiated agreement. By keeping their eye on the prize, Fisher, Ury, and Patton and others suggest that negotiators can achieve most of what they want while maintaining a professional and amicable atmosphere.