Flower 1 Petal – 2
International Business Negotiation procedures
Negotiation is a dialogue between two or more people or parties, intended to reach an understanding, resolve point of difference, or gain advantage in outcome of dialogue, to produce an agreement upon courses of action, to bargain for individual or collective advantage, to craft outcomes to satisfy various interests of two person/ parties involved in negotiation process. Negotiation is a process where each party involved in negotiating tries to gain an advantage for themselves by the end of the process. Negotiation is intended to aim at compromise.
The impact of culture on international negotiations
The cultural differences in negotiation styles and how these differences can cause problems in international business negotiations. Cultural differences cause four kinds of problems in international business negotiations, at the levels of:
- Language
- Nonverbal behaviors
- Values
- Thinking and decision-making processes
Differences at the level of language
Translation problems are often substantial in international negotiations.. Exact translations in international interactions are a goal almost never attained., therefore competitors with greater language skills are afforded a natural advantage in international commerce.
The process of Business negotiation goes from a situation of ‘Contention’ to one of ‘Conclusion’. Contentions means that each party start from a different point concerning what he or she hopes to achieve through negotiations. Conclusion refers to final agreement between the two parties on what they will achieve to reach a common goal.
The Initial Stage
Ø Business through Agent: When the exporter meets with the potential agents in the target market he or she will have certain interests to pursue in the business dealing with these of the other party. He may want the agent to work for a minimum commission .
Ø Direct Business with the Importers: Very much like the business through the agents, even in case of direct business deals, the exporter and the importer are the two unknown entities in the initial stages of the business negotiation.
Ø Depending upon the product type , the importer generally prefer doing business on exclusive basis for a particular brand of product and contrary to that , the exporter desire to have as much of exposure as possible through more numbers of importers / distributors/ dealers.
Negotiating Plan
Ø As part of the preparation of business negotiations, an exporter should make an assessment of the current status of the company, including its strong and weak points. This is done by SWOT ( strength, weakness, opportunities, threats) analysis.
Ø Negotiating strategies:
- Pricing
As pricing is often the most sensitive issue in business negotiations the subject should usually be postponed until all of the other aspects of the transactions have been discussed and agreed upon. Generally
Ø Competitive vs. Cooperative
Negotiating strategies, those most commonly used are competitive (win lose) and the collaborative ( win win ) approaches. In a competitive strategy the negotiator is concerned mainly about a favorable outcome at the expense of the other party. The competitive option is valid primarily for a one tine operation in which no repeat business is foreseen, no follow up is needed and the relationship between the two parties is not major issue.
In contrast, a collaborative approach consists of both parties working together is a problem solving manner to satisfy the mutual needs. The cooperative approach is most appropriate for international business deals, particularly those with a along term objective. In a cooperative process each sides seeks to satisfy the other’s interests by sharing information, concentrating on common problems and emphasizing similarities.
Phase of Negotiations
Negotiations can be broken down in two three stages: the pre- negotiation phase, Negotiation phase and the post – negotiation phase.
Ø Pre- negotiation phase
During the preparatory stage it is critical for each party to lay down precisely the purpose of negotiations, the party’s relative strength and weaknesses, its minimum demand and maximum concessions, the strategy and tactics to be used, possible options for solutions and their costs for both parties, and its opening positions. The entire list of concessions to be made should be prioritized and translated in to money terms. It is only by knowing the real value of concession in both the short and long term that is full impact on the issues being negotiated can be assessed.
In addition , issues such as delivery schedules , packaging ,quality schedules should be studied carefully so that counter proposal can be made.
Ø Negotiation Phase
After the opening positions are known each party should start to make minor concessions to keep the negotiation process moving while addressing issues of joint interest
- Price Issue: After covering all of the non- price issue , the exporter can shift the discussions in the final phase of the talks to financial matches having a bearing on the price quotation. This is the time to come to an agreement on issues such as credit terms, payment schedules, currencies of payment, insurance, commission rates, warehousing costs, cost of replacing damaged goods and so on. Agreement reached on these points constitutes the price package .
Ø Hints for perfect price list :
- price list
Your price list is probably the single most important sale tool you have If properly developed and presented it will do much to create a favorable impression , minimize costly errors and generate repeat business.
- Timing
Timing in negotiation is crucial particularly the questions when to make concessions, when to ask for a recess and when to start concluding the agreement.
- Dispute Settlement
Both exporter and importer should agree to suitable arbitration mechanism in case of any dispute arising after signing of contract agreement . Laws of which country will be applicable and also the place of jurisdiction should be clearly stated in the contract agreement.
Ø Post Negotiation phase
Too often, negotiators have the impression that because an agreement is reached their involvement ends. In International business, where risks and uncertainties are much greater than what are found, close monitoring of the agreement is called for.
Ø buying decisions
It is important to remember the three “ P “ s that influence the buying decision . They are : product , price and performance. Normally buyers have in mind a combination of the following factors when making any buying decision:
- Product – Related
Qualities and guarantees
Technical specifications
Design and drawings
Patent and proprietary considerations
Environmental aspects
Packing , Labeling and Markings
- Price – Related
Price
Escalation clause ,
Terms of payment
- Performance – Related
Delivery schedules
Continuity of supplies
Transportation’s arrangements
Confidentiality
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