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Skills for business negotiations.

SKILLS FOR BUSINESS NEGOTIATIONS

Conducting international business negotiations can be a straightforward process if certain basic guidelines are followed. Some suggestions for success.

Executives of small and medium-size firms (SMEs) going into the international marketplace often lack the required business negotiation skills. The ability to negotiate effectively may be needed for discussions with importers or agents when the firm is exporting its products. Such skills are also necessary if the firm is exploring joint-venture possibilities abroad or purchasing raw materials from foreign suppliers. Negotiating with business partners located in other countries is more difficult than dealing with local companies, as the customs and language of the counterpart may be quite different from those at home. Such cultural factors add to the complexities of the transaction.

Many leading business schools include specialized seminars or courses on international business negotiations in their programmes. Consulting firms also sometimes offer services to upgrade a company's negotiating skills. But such training opportunities and services are often unavailable to small firms in developing countries. Export managers of SMEs in these countries can, however, improve their negotiating techniques by following a few basic guidelines.

Stages of negotiation

Assume that the export manager of a small manufacturing company specializing in wooden kitchen utensils wants to find an agent for the firm's products in a selected target market and has scheduled a visit there for this purpose. The manager has never been in that country, so is not familiar with either the business practices or cultural customs there, and realizes the need for a better understanding of how to conduct business negotiations in that market before meeting with several potential agents. Limited time and funds do not allow the company official, however, to take a special course on the subject (assuming that such courses are available locally throughout the year).

In a case such as this, the exporter can keep several simple concepts in mind when preparing for the negotiations. They represent the stages through which the negotiation process should move in order to achieve positive results. The concepts are given in the grid on page 10. These terms are simple and easy to remember, as they all begin with the letter "c."

The starting point: As the grid shows, the business negotiation process usually goes from a situation of "contention" to one of "conclusion." "Contention" means that each party starts from a different point concerning what he or she hopes to achieve through the negotiations. "Conclusion" refers to the final agreement between the two parties on what they will each undertake to reach a common goal.

In the case above, when the export manager meets the potential agents in the target market, he or she will have certain interests to pursue in the business dealings that will not necessarily coincide with those of the counterpart. The manager may want the agent to work for only a minimal commission so that the extra profits can be reinvested in the company to expand and modernize production. Furthermore the manager may wish to sign up several other agents in the same country to increase the possibility of export sales, and also to limit the agency agreement to a short period in order to test the market. The potential agent, on the other hand, may demand a higher percentage of the sales than is being offered as a commission, may insist on exclusivity within the country concerned and may call for a contract of several years instead of a short trial period. In this situation, the exporter will need to know how to proceed in the talks to ensure that most of the firm's interests are covered in the final agreement. This leads to the inside boxes of the grid.

Intermediary stages: The terms "clarification," "comprehension," "confidence," "convergence," "credibility," "conciliation" and "concession" are basic phases in the negotiating process between the initial starting position and the final agreement. By applying each concept in sequence in the negotiations, as illustrated on the grid, an export manager can follow a logical progression during the negotiations.

"Clarification" and "comprehension" are the first steps away from the situation of confrontation. In the case above, both the exporter and the potential agents should clarify their views and seek the understanding of the other party on the matters of particular concern. For instance, in this example it is important for the exporter to obtain a low commission rate and for the agent to have exclusivity in the territory concerned.

The next stages in business negotiation concern the concepts of "credibility" and "confidence," attitudes that should develop as both parties discuss their requirements and the reasons behind them. In the example above, this could, for instance, mean that the agent would accept as credible the exporter's need to reinvest a large portion of the profits in order to keep the company competitive. The exporter, on the other side, might have confidence that the agent would put maximum efforts into promoting the product, thus assuring the exporter that a longer term contract would not be disadvantageous. As the negotiations proceed, the two would gradually reach a "convergence" of views on a number of the points under discussion.

Following this would be the stage of "concession" and of "conciliation." In this phase the final matters on which the two parties have not already agreed would be settled through compromises on both sides.

The final stage would be "conclusion," that is, the agreement between the two. In the case of the exporter above, this would mean a signed agreement with a new agent, incorporating at least some of the exporter's primary concerns (such as a low commission on sales) and some of the agent's main considerations (for instance a two-year contract).

Worksheets: As preparation for the negotiations, the export executive can complete a worksheet for each of the nine points above. Each worksheet can list the problems and possible solutions or options for the stage of the negotiations concerned. The interests of the other party in the negotiations should be taken into consideration in drawing up these lists. In this way the exporter can plan the tactics for the negotiating process. The exercise should thus increase the exporter's possibilities of getting results that are beneficial to both parties and therefore offer a certain guarantee of success. The box on page 11 shows how one sheet has been filled in for the export company in the example above.

Although the worksheets should be completed prior to the negotiations, some of them may have to be filled in during the talks as the negotiating positions shift, if time allows (for instance during breaks in the discussion sessions). If the negotiations will be carried out by more than one person, the group should complete the worksheets together to ensure a team approach. It would be advisable to have the forms filled in by several of the senior company staff ahead of time as well, to obtain their views and expertise on the subjects to be discussed.

Negotiating plan

As part of the preparations for business negotiations, an export manager should make an assessment of the current status of the company, including its strong and weak points. This can be done through the "strenghts, weaknesses, opportunities and threats," or "SWOT," method, a technique that is often used to assess business management situations. Although this is a well known business management tool, insufficient attention has been given to linking the results of a SWOT analysis with the development of a business negotiations strategy.

The SWOT method as used for business management purposes consists, in simple terms, of looking at a firm's production and marketing goals and assessing the company's operations and management policies and practices in the light of those goals. The framework for this analysis is four key words: "strengths," "weaknesses," "opportunities" and "threats." All aspects of the company's activities are reviewed and classified under one of these terms.

This analysis is taken a step further when the SWOT results are applied to a negotiating plan. The strengths, weaknesses, opportunities and threats identified are used to plan the negotiating tactics and strategy. Applying the SWOT technique to negotiations helps export executives optimize their companies' strengths, minimize their weaknesses, be open to opportunities and be ready to bargain in the face of threats. On the basis of the company's strengths, the export manager can obtain more support for the firm's proposals during the discussions. Similarly, to offset weaknesses, the manager can minimize their importance by focusing on other aspects of the talks or broadening the range of issues. As far as opportunities are concerned, specific plans can be incorporated into the negotiating strategy for capitalizing on them. Finally, any threats to the company's business operations identified through the SWOT analysis can be countered in the negotiations through specific measures or proposals.

Depending on the nature of the negotiations, an export manager can emphasize specific features or elements of the SWOT analysis in drawing up the strategy. If the aim is to enter into a joint venture, for instance, the SWOT analysis will be interpreted differently than if it is to find a new agent.

Taking the case above, if the company has conducted a SWOT analysis and finds that one of its weak points is a lack of consumer familiarity with its products, the export manager will try to overcome this weakness in negotiations with prospective agents in the target market. At the same time the manager will use one of the company strengths identified through the SWOT analysis, that of the high quality of the firm's wooden utensils, in efforts to convince a prospective agent to work with the firm on favourable terms. When the exporter prepares the worksheets for the negotiations, according to the nine stages outlined above, these aspects will be incorporated in points to be discussed.

Going into negotiations

When conducting business negotiations, export executives should keep certain points in mind that may arise as the discussions proceed. These points, again, all begin with the letter "c," which makes them easy to remember:

* Situations to avoid during the negotiations: conflict, controversy and criticism vis-a-vis the other party.

* Attitudes to develop during the talks: communication, collaboration and cooperation.

* Goals to seek during the discussions: change (or, alternatively, continuity), coherence, creativity, compromise, concessions, commonality, consensus, commitment and compensation.

In business negotiations, particularly those between export executives from different economic and social environments, introducing options and keeping an open mind are musts for establishing a fruitful, cooperative relationship. Experienced negotiators consider the skill of introducing options to be a key asset in conducting successful discussions. Giving the other party the feeling that new ideas proposed have come from both sides also contributes greatly to smooth negotiations.

The goal in such negotiations is to reach an agreement that is mutually beneficial to both parties, leading to substantive results in the long run. To negotiate mutually beneficial agreements requires a willingness to cooperate with others. The talks should therefore focus on the common interests of the parties. If the discussions come to an impasse for any reason, it may be necessary to refocus them by analyzing and understanding the needs and problems of each party.

In summary, the approach to business negotiations is that of a mutual effort. In an international business agreement, whether it concerns securing an export order, appointing a new agent or entering into a joint venture, the aim is the creation of a shared investment in a common future business relationship.

PHOTO : Negotiation skills are necessary for competing successfully on foreign markets.

PHOTO : Negotiations usually start with a situation of contention, reflecting different aims.

PHOTO : Worksheets, as in example at left, can list problems and possible solutions for discussion.

Claude Cellich is chief of ITC's Training Section.
COPYRIGHT 1990 International Trade Centre UNCTAD/GATT
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

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Author:Cellich, Claude
Publication:International Trade Forum
Date:Oct 1, 1990
Words:1953
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