Negotiation

NEGOTIATION

Negotiation is a dialogue intended to resolve disputes, to produce an agreement upon courses of action, to bargain for individual or collective advantage, or to craft outcomes to satisfy various interests. It is the primary method of alternative dispute resolution.

Negotiation occurs in business, non-profit organizations and government branches, legal proceedings, among nations and in personal situations such as marriage, divorce, parenting, and everyday life.

Etymology

The word "negotiation" is from the Latin expression, "negotiatus", past participle of negotiate which means "to carry on business".

Another view of negotiation comprises 4 elements:

Strategy, process and tools, and tactics. Strategy comprises the top level goals - typically including relationship and the final outcome. Processes and tools include the steps that will be followed and the roles taken in both preparing for and negotiating with the other parties. Tactics include more detailed statements and actions and responses to others' statements and actions.

Approaches to negotiation

The advocate's approach

In the advocacy approach, a skilled negotiator usually serves as advocate for one party to the negotiation and attempts to obtain the most favorable outcomes possible for that party. In this process the negotiator attempts to determine the minimum outcome(s) the other party is (or parties are) willing to accept, then adjusts their demands accordingly. A "successful" negotiation in the advocacy approach is when the negotiator is able to obtain all or most of the outcomes their party desires, but without driving the other party to permanently break off negotiations, unless the best alternative to a negotiated agreement (BATNA) is acceptable.

Indeed, the ten new rules for global negotiations advocated by Hernandez and Graham.

           Accept only creative outcomes

           Understand cultures, especially your own.

           Don‘t just adjust to cultural differences, exploit them.

           Gather intelligence and reconnoiter the terrain.

           Design the information flow and process of meetings.

           Invest in personal relationships.

           Persuade with questions. Seek information and understanding.

           Make no concessions until the end.

           Use techniques of creativity

10.Continue creativity after negotiations

Emotion in negotiation

Emotions play an important part in the negotiation process, although it is only in recent years that their effect is being studied. Emotions have the potential to play either a positive or negative role in negotiation. During negotiations, the decision as to whether or not to settle rests in part on emotional factors. Negative emotions can cause intense and even irrational behavior, and can cause conflicts to escalate and negotiations to break down, while positive emotions facilitate reaching an agreement and help to maximize joint gains.

Positive effect in negotiation

Even before the negotiation process starts, people in a positive mood have more confidence, and higher tendencies to plan to use a cooperative strategy. During the negotiation, negotiators who are in a positive mood tend to enjoy the interaction more, show less contentious behavior, use less aggressive tactics and more cooperative strategies. This in turn increases the likelihood that parties will reach their instrumental goals, and enhance the ability to find integrative gains.

Indeed, compared with negotiators with negative or natural affectivity, negotiators with positive affectivity reached more agreements and tended to honor those agreements more. Those favorable outcomes are due to better Decision Making processes, such as flexible thinking, creative Problem Solving, respect for others' perspectives, willingness to take risks and higher confidence.

Post negotiation positive affect has beneficial consequences as well. It increases satisfaction with achieved outcome and influences one‘s desire for future interactions. The PA aroused by reaching an agreement facilitates the dyadic relationship, which result in affective commitment that sets the stage for subsequent interactions. PA also has its drawbacks: it distorts perception of self performance, such that performance is judged to be relatively better than it actually is. Thus, studies involving self reports on achieved outcomes might be biased.

Negative effect in negotiation

Negative effect has detrimental effects on various stages in the negotiation process. Although various negative emotions affect negotiation outcomes, by far the most researched is anger. Angry negotiators plan to use more competitive strategies and to cooperate less, even before the negotiation starts. These competitive strategies are related to reduce joint outcomes. During negotiations, anger disrupts the process by reducing the level of trust, clouding parties' judgment, narrowing parties' focus of attention and changing their central goal from reaching agreement to retaliating against the other side. Angry negotiators pay less attention to opponent‘s interests and are less accurate in judging their interests, thus achieve lower joint gains.

Moreover, because anger makes negotiators more self-centered in their preferences, it increases the likelihood that they will reject profitable offers. Anger doesn‘t help in achieving negotiation goals either: it reduces joint gains and does not help to boost personal gains, as angry negotiators don‘t succeed in claiming more for themselves. Moreover, negative emotions leads to acceptance of settlements that are not in the positive utility function but rather have a negative utility. However, expression of negative emotions during negotiation can sometimes be beneficial: legitimately expressed anger can be an effective way to show one's commitment, sincerity, and needs.

Moreover, although NA reduces gains in integrative tasks, it is a better strategy than PA in distributive tasks (such as zero-sum). In his work on negative affect arousal and white noise, Seidner found support for the existence of a negative affect arousal mechanism through observations regarding the devaluation of speakers from other ethnic origins." Negotiation may be negatively affected, in turn, by submerged hostility toward an ethnic or gender group.

Conditions for emotion effect in negotiation

Research indicates that negotiator‘s emotions do not necessarily affect the negotiation process. Albarracın et al. (2003) suggested that there are two conditions for emotional effect, both related to the ability (presence of environmental or cognitive disturbances) and the motivation:

           Identification of the affect: requires high motivation, high ability or both.

           Determination that the affect is relevant and important for the judgment: requires that either the motivation, the ability or both are low.

According to this model, emotions are expected to affect negotiations only when one is high and the other is low. When both ability and motivation are low the affect will not be identified, and when both are high the affect will be identify but discounted as irrelevant for judgment. A possible implication of this model is, for example, that the positive effects PA has on negotiations (as described above) will be seen only when either motivation or ability are low.

Cultural differences cause four kinds of problems in international business negotiations, at the levels of:

Language

Nonverbal behaviors

Values

Thinking and decision-making processes

The order is important; the problems lower on the list are more serious because they are more subtle. For example, two negotiators would notice immediately if one were speaking Japanese and the other German. The solution to the problem may be as simple as hiring an interpreter or talking in a common third language, or it may be as difficult as learning a language. Regardless of the solution, the problem is obvious.

Nonverbal Behaviors

Anthropologist Ray L. Birdwhistell demonstrated that less than 35% of the message in conversations is conveyed by the spoken word while the other 65% is communicated nonverbally. Albert Mehrabian, a UCLA psychologist, also parsed where meaning comes from in face-to-face interactions. He reports:

7% of the meaning is derived from the words spoken  

38% from paralinguistic channels, that is, tone of voice, loudness, and other aspects of how things are said  55% from facial expressions

Of course, some might quibble with the exact percentages (and many have), but our work also supports the notion that nonverbal behaviors are crucial – how things are said is often more important than what is said.

Exhibit 2 provides analyses of some linguistic aspects and nonverbal behaviors for the 15 videotaped groups, that is, how things are said. Although these efforts merely scratch the surface of these kinds of behavioral analyses, they still provide indications of substantial cultural differences.

Differences in managerial values as pertinent to negotiations

Four managerial values objectivity, competitiveness, equality, and punctuality that are held strongly and deeply by most Americans seem to frequently cause misunderstandings and bad feelings in international business negotiations.

Objectivity

Americans make decisions based upon the bottom line and on cold, hard facts. Americans don‘t play favorites. Economics and performance count, not people. Business is business. Such statements well reflect American notions of the importance of objectivity.

The single most successful book on the topic of negotiation, Getting to Yes, is highly recommended for both American and foreign readers. The latter will learn not only about negotiations but, perhaps more important, about how Americans think about negotiations. The authors are quite emphatic about separating the people from the problem, and they state, every negotiator has two kinds of interests: in the substance and in the relationship. This advice is probably quite worthwhile in the United States or perhaps in Germany, but in most places in the world such advice is nonsense. In most places in the world, particularly in collectivistic, high-context cultures, personalities and substance are not separate issues and cannot be made so.

Competitiveness and Equality

Simulated negotiations can be viewed as a kind of experimental economics wherein the values of each participating cultural group are roughly reflected in the economic outcomes. The simple simulation used in this part of our work represents the essence of commercial negotiations it has both competitive and cooperative aspects. At least 40 businesspeople from each culture played the same buyer-seller game, negotiating over the prices of three products. Depending on the agreement reached, the ―negotiation pie could be made larger through cooperation (as high as $10,400 in joint profits) before it was divided between the buyer and seller.

Time

Just make them wait. Everyone else in the world knows that no negotiation tactic is more useful with Americans, because no one places more value on time, no one has less patience when things slow down, and no one looks at their wristwatches more than Americans do. Edward T. Hall in his seminal writing is best at explaining how the passage of time is viewed differently across cultures and how these differences most often hurt Americans.

Differences in thinking and decision-making processes

When faced with a complex negotiation task, most Westerners (notice the generalization here) divide the large task up into a series of smaller tasks. Issues such as prices, delivery, warranty, and service contracts may be settled one issue at a time, with the final agreement being the sum of the sequence of smaller agreements. In Asia, however, a different approach is more often taken wherein all the issues are discussed at once, in no apparent order, and concessions are made on all issues at the end of the discussion. The Western sequential approach and the Eastern holistic approach do not mix well.

Negotiation Theory

Common Assumptions of Most Theories

Negotiation is a specialized and formal version of conflict resolution most frequently employed when important issues must be agreed upon. Negotiation is necessary when one party requires the other party's agreement to achieve its aim. The aim of negotiating is to build a shared environment leading to longterm trust and often involves a third, neutral party to extract the issues from the emotions and keep the individuals concerned focused. It is a powerful method for resolving conflict and requires skill and experience. Zartman defines negotiation as "a process of combining conflicting positions into a common position under a decision rule of unanimity, a phenomenon in which the outcome is determined by the process."

However, most theories of negotiations share the notion of negotiations as a process. Yet, they differ in their description of the process. Structural Analysis considers this process to be a power game. Strategic analysis thinks of it as a repetition of games (Game Theory). Integrative Analysis prefers the more intuitive notion of process, in which negotiations undergo successive stages, e.g. pre-negotiation, stalemate, settlement. Especially structural, strategic and procedural analysis build on rational actors, who are able to prioritize clear goals, are able to make trade-offs between conflicting values, are consistent in their behavioral pattern, and are able to take uncertainty into account.

Negotiations differ from mere coercion, in that negotiating parties have the theoretic possibility to withdraw from negotiations. It is easier to study bi-lateral negotiations, as opposed to multilateral negotiations.

Structural Analysis

Structural Analysis is based on a distribution of empowering elements among two negotiating parties. Structural theory moves away from traditional Realist notions of power in that it does not only consider power to be a possession, manifested for example in economic or military resources, but also thinks of power as a relation.

Based on the distribution of elements, in structural analysis we find either power-symmetry between equally strong parties or power-asymmetry between a stronger and a weaker party. All elements from which the respective parties can draw power constitute

Structure. They may be of material nature, i.e. hard power, (such as weapons) or of social nature, i.e. soft power, (such as norms, contracts or precedents). These instrumental elements of power, are either defined as parties‘relative position (resources position) or as their relative ability to make their options prevail. Structural analysis is easy to criticize, because it predicts that the strongest will always win. This, however, does not always hold true.

Strategic Analysis

According to structural analysis, negotiations can therefore be described with matrices, such as the Prisoner's Dilemma, a concept taken from Game Theory. Another common game is the Chicken Dilemma.

Strategic analysis starts with the assumption that both parties have a veto. Thus, in essence, negotiating parties can cooperate (C) or defect (D). Structural analysis then evaluates possible outcomes of negotiations (C, C; C, D; D, D; D, C), by assigning values to each of the possible outcomes. Often, co-operation of both sides yields the best outcome. The basic problem however is that the parties can never be sure that the other is going to cooperate, mainly because of two reasons: first, decisions are made at the same time or, second, concessions of one side might not be returned. Therefore the parties have contradicting incentives to cooperate or defect. If one party cooperates or makes a concession and the other does not, the defecting party might relatively gain more. Trust may be built only in repetitive games through the emergence of reliable patterns of behavior such as tit-for-tat.

Process Analysis

Process analysis is the theory closest to haggling. Parties start from two points and converge through a series of concessions. As in strategic analysis, both sides have a veto (e.g. sell, not sell; pay, not pay). Process analysis also features structural assumptions, because one side may be weaker or stronger (e.g. more eager to sell, not willing to pay a certain price). Process Analysis focuses on the study of the dynamics of processes. E.g. both Zeuthen and Cross tried to find a formula in order to predict the behaviour of the other party in finding a rate of concession, in order to predict the likely outcome.

The process of negotiation therefore is considered to unfold between fixed points: starting point of discord, end point of convergence. The so called security point, that is the result of optional withdrawal, is also taken into account.

Integrative Analysis

Integrative analysis divides the process into successive stages, rather than talking about fixed points. It extends analysis to pre-negotiations stages, in which parties make first contacts. The outcome is explained as the performance of the actors at different stages. Stages may include pre-negotiations, finding a formula of distribution, crest behavior, settlement Disadvantages of International Business – Conflict in International Business – Sources and Types of Conflict – Conflict Resolutions – Negotiation – The Role of International Agencies – Ethical Issues in International Buusiness – Ethical Decision-Making.

Contents

Conflict in intern ational business Negotiation

International business ethics

Conflict in Organizations:

Definition

Opposition

Incompatible behavior Antagonistic inter action

Block another party from reaching her or his goals

Key elements

     Interdepen dence with another party

     Perception of incompatible goals

Conflict events

     Disagreem ents

o  Debates

o  Disputes

o  Preventin g someone from reaching valued goals

Functional and Dysfunctional Conflict

Functional conflict: works toward the goals of an organization or group

Dysfunctional conflict: blocks an organization or group from reaching its goals

        Dysfunctional high conflict: what you typically think about conflict

        Dysfunctional low conflict: A typical view. Levels vary among groups

Functional conflict

“Constructive Conflict”--Mary Parker Follett (1925) Increases information and ideas

Encourages innovative thinking

Unshackles different points of view

Reduces stagnation

Dysfunctional high conflict

Tension, anxiety, stress

Drives out low conflict tolerant people Reduced trust

Poor decisions because of withheld or distorted information Excessive management focus on the conflict

Dysfunctional low conflict

Few new ideas

Poor decisions from lack of innovation and information Stagnation

Business as usual

Levels and Types of Conflict

Level of conflict          Type of conflict

Organization               Within and between organizations

Group                          Within and between groups

Individual                    Within and between individuals

Levels and Types of Conflict

Intra-organization conflict

o Conflict that occurs within an organization o At interfaces of organization functions

     Can occur along the vertical and horizontal dimensions of the organization

   Vertical conflict: between managers and subordinates

   Horizontal conflict: between departments and work groups

Intra-group conflict

Conflict among members of a group Early stages of group development

Ways of doing tasks or reaching group's goals

Intergroup conflict: between two or more groups

Interpersonal conflict

Between two or more people

Differences in views about what should be done Efforts to get more resources

Differences in orientation to work and time in different parts of an organization Intrapersonal conflict - Occurs within an individual

Threat to a person’s values

Feeling of unfair treatment

Multiple and contradictory sources of socialization

Related to the Theory of Cognitive Dissonance and negative inequity

Inter-organization conflict

Between two or more organizations Not competition

Examples: suppliers and distributors, especially with the close links now possible

Conflict Episodes

Simple conflict episode

Latent conflict

Manifest conflict

Conflict aftermath

Conflict reduction

Latent conflict: antecedents of conflict behavior that can start conflict episode Manifest conflict: observable conflict behavior

Conflict aftermath

End of a conflict episode

Often the starting point of a related episode

Becomes the latent conflict for another episode Conflict reduction: lower the conflict level

Latent conflict

The antecedents of conflict

Example: scarce resources

Some latent conflict in the lives of college students

Parking spaces

Library copying machines Computer laboratory

Books in the bookstore

School and other parts of your life University policies

Manifest conflict

Observable conflict behavior

Example: disagreement, discussion

Conflict aftermath

Residue of a conflict episode

Example: compromise in allocating scarce resources leaves both parties with less than they wanted

Perceived conflict

o Become aware that one is in conflict with another party o Can block out some conflict

o  Can perceive conflict when no latent conditions exist

o  Example: misunderstanding another person’s position on an issue

Felt conflict

o Emotional part of conflict o Personalizing the conflict o Oral and physical hostility

o Hard to manage episodes with high felt conflict o What people likely recall about conflict

Conflict Frames and Orientations

Conflict frame

Relationship-Task Cooperate-Win

Emotional Intellectual

Conflict frame dimensions

Relationship-Task

Relationship: focuses on interpersonal relationships Task: focuses on material aspects of an episode

Emotional-Intellectual

Emotional: focuses on feelings in the conflict episode (felt conflict) Intellectual: focuses on observed behavior (manifest conflict)

Cooperate-Win

Cooperate: emphasizes the role of all parties to the conflict Win: wants to maximize personal gain

Conflict frames

Limited research results

End an episode with a relationship or intellectual frame: feel good about relationship with other party

Cooperation-focused people end with more positive results than those focused on winning

Conflict orientations

Dominance: wants to win; conflict is a battle

Collaborative: wants to find a solution that satisfies everyone Compromise: splits the differences

Avoidance: backs away

Accommodative: focuses on desires of other party

Reducing Conflict

Lose-lose methods: parties to the conflict episode do not get what they want Win-lose methods: one party a clear winner; other party a clear loser Win-win methods: each party to the conflict episode gets what he or she wants Summary

Lose-lose methods: compromise Win-lose methods: dominance

Win-win methods:  problem solving

International Business Negotiation

Negotiation is the action and the process of reaching an agreement by means of exchanging ideas with the intention of dispelling conflicts and enhancing relationship to satisfy each other’s needs.

Characteristics of negotiation:

Every negotiation involves two or more parties.

The objective of a negotiation must be definite.

Negotiation must be conducted on an equal basis.

A consensus must be built on the basis of mutual concession.

Negotiation involves exchange of ideas, communication, persuasion, compromise and suchlike (process).

The Dual Concerns Model:

Business negotiation is a proce ss of conferring in which the participants of business activities communicate, discuss, and adju st their views, settle differences and finally reach a mutually acceptable agreement in order to close a deal or achieve a proposed financial go al.

Characteristics of Business Ne gotiation:

The objective of business negotiation is to obtain financial interest

The core of business neg otiation is price

(3). Its principle is equality and mutual benefit

(4). Items of contract should keep strictly accurate and rigorous.

Principles of business negotiation:

Equality principle

Cooperation principle Flexibility principle

Positions-subjected-to-interests principle

Depersonalizing principl e (Separating the people from the problem) Using objective criterion

International Business Negotiation is the business negotiation that takes p ace between the interest groups from different countries or regions.

Features of International Busi ness Negotiation:

Language barrier

Cultural differences

International laws and domestic laws are both in force

International political factors must be taken into account

The difficulty and the cost are greater than that of domestic business negotiations

Forms of International Business Negotiation:

Classification by chief negotiator Classification by negotiation object Classification by form Classification by procedure

Classification by chief negotiator

Government- to- government’s negotiation

Government- to- Business’s negotiation

Producer- to- Producer’s negotiation

Producer- to- Trader’s negotiation

Retailer- to -Producer’s negotiation

Business- to- Business’s negotiation

Business- to- Consumer’s negotiation

Classification by negotiation object

(1)Product trade negotiation (2)Technology trade negotiation

Service trade negotiation

International project negotiation

Classification by form:

One- to- one negotiation

Team negotiation

Multilateral negotiation

Classification by procedure

Horizontal Negotiation

Vertical Negotiation

The Basic Forms of International Business

Negotiation:

Host Court” negotiation and “Guest Court” negotiation Oral negotiation and written negotiation Formal and informal negotiation

“Host Court” negotiation and “Guest Court” negotiation:

Host- Court negotiation

Guest- Court negotiation

Changing- Court negotiation

Third- place negotiation

Oral negotiation and written negotiation

Oral negotiation

Written negotiation

Formal and Informal negotiation:

Formal negotiation

Informal negotiation

International Negotiation:

More complex than domestic negotiations

Differences in national cultures and differences in political, legal, and economic systems often separate potential business partners

Steps in the International Negotiation process

The successful international negotiator: personal characteristics

Tolerance of ambiguous situations Flexibility and creativity

Humor Stamina Empathy Curiosity Bilingual

BASIC NEGOTIATION STRATEGIES:

Competitive

     The negotiation as a win-lose game Problem solving

Search for possible win-win situations