Negotiation Outline standard terms of negotiation examples of negotiation David price and Goliath negotiation in a channel force-cost a reduction company and a government preparation and tactics of negotiation Standard.
Download ReportTranscript Negotiation Outline standard terms of negotiation examples of negotiation David price and Goliath negotiation in a channel force-cost a reduction company and a government preparation and tactics of negotiation Standard.
Slide 1
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 2
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 3
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 4
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 5
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 6
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 7
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 8
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 9
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 10
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 11
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 12
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 13
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 14
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 15
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 16
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 17
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 18
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 19
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 20
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 21
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 22
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 23
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 24
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 25
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 26
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 27
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 28
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 29
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 30
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 31
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 32
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 33
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 34
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 35
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 36
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 37
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 38
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 39
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 40
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 41
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 42
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 43
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 2
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 3
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 4
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 5
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 6
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 7
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 8
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 9
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 10
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 11
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 12
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 13
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 14
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 15
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 16
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 17
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 18
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 19
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 20
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 21
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 22
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 23
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 24
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 25
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 26
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 27
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 28
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 29
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 30
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 31
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 32
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 33
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 34
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 35
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 36
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 37
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 38
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 39
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 40
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 41
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 42
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44
Slide 43
Negotiation
1
Outline
standard
terms of negotiation
examples
of negotiation
David
price
and Goliath
negotiation in a channel
force-cost
a
reduction
company and a government
preparation
and tactics of negotiation
2
Standard Terms in Negotiating
3
Negotiation
formal communication to seek mutual agreement
usually verbally
often between two sides
on sharing and allocation of resources, cost,
benefits, etc.
skills
required preparation
sharpened by practice
4
Terms in Negotiation
BATNA
(best alternative to a negotiated
agreement) （底線）
positions
（立場）
interests
（利益）
needs
（需要）
wants
（願望）
5
Conditions to Use Negotiation
expensive
operations
high-value, large-volume contract
complex technical requirements on product and
process, possibly evolving specifications
capital-intensive items, e.g., plant and equipment
special buyer-supplier relationship
important value-adding activities required from
suppler
6
Examples
7
Which Side Won?
rental
negotiation
age
group size
status
company
Position in company
Party A
middle age
two, couple
landlord
local
owner
Party B
20’s
single
potential tenant
foreign
employee
8
Which Side Won?
story
potential
tenant slow in responding
property
price gone up
higher
rental expected by developers
9
Rental Contract Negotiation
by Mr. Stanley Yen
Mr
Stanley Yen
1971
June: started as a messenger in the
Taiwan branch of American Express (AET)
1971
end: took care also general affairs of AET
…
Now:
a living legend in tourism, management,
social welfare, …
10
Rental Contract Negotiation
by Mr. Stanley Yen
Mr. Yen, “How come you do this? As a custom of
foreign company, I recorded the agreed rental in a
memo.”
mutual respect that grew into long-term
employee-employer and then family-type
relationship
lessons
systematic
polite
11
Real-life Negotiation
with Suppliers
12
Examples of Price Negotiation
some general practice: 5th video clipping 00:14:20
to 00:20:20
depending on opponents
intellectual, traditional, personality
possessing information
BANTA and needs of opponents
market price, actual production cost
strengthen and BANTA of my company
13
Jose Ignacio Lopez
de Arriortua
14
Force-cost Reduction
win-lose
acting
strategy
personally, offensively, and emotionally
demanding
changing
immediate effect
existing contracts
threatening
reduction or less no business
http://www.projectmagazine.com/monitoring-and-controlling/53cost/270-qforcedq-cost-reduction-how-to-respond
15
Deep Trouble of GM in Early 90’s
Michael H. Moffett and Willian E. Youngdahl (1999) Jose Ignacio Lopez de
Arriortua, Thunderbird International Business Review, 41(2) 179-194
16
Life of Jose Ignacio Lopez
doctorate in industrial engineering
196980: Firestone, Spain
198086: GM European operations, Spain
1986: GM’s Opel, Germany
1987: head of purchasing for Europe
work with Jack Smith to make GM Europe profitable
1992, April: VP of Worldwide purchasing of GM
Jack Smith as president of GM in Spring 92
18
New Rules in Purchasing
by Jose Ignacio Lopez
new
all
rules
supply contracts by bidding
a
minimum of 10 bids for a supply contract, at least
one not in north America
no
favorable treatment of internal suppliers,
70% among all
50%
productivity improvement by 1995
19
New Rules in Purchasing
by Jose Ignacio Lopez
second
phase: sending GM teams to help
suppliers for improvement and cost
reduction
mixed
results
exemplary
in some, e.g., Siemens, reduction of
85% assembly line time; 95 percent of
inventory; 20% of cost
not
sharing cost sharing in some cases
20
New Rules in Purchasing
by Jose Ignacio Lopez
forced changes of existing supplier contracts
renegotiation of five-year contract, e.g., cuts of supplier
price of 5%, 3%, 2%, 2%, 1% in the next five years
close working relationship with unions
taking proprietary designs from suppliers for open
bidding by other suppliers
sharing insufficient fixed development cost with
suppliers
21
New Rules in Purchasing
by Jose Ignacio Lopez
results
saving
$4 bill for GM
poor
relationship and rating by suppliers
some
suppliers out of business
loss
of supplier loyalty in long term
not providing best product, nor best service
switching
partners at opportunity
22
Concurrent
Chrysler Purchasing Policy
long-term
partnership with suppliers
criterion:
contribution to whole product
development and manufacturing process,
not only cost
involving
suppliers right at the beginning
23
Contract Renegotiation with
*
the Chilean Government
http://www.negotiations.com/case/contract-renegotiation/
24
Contract Renegotiation with the
Chilean Government*
contract renegotiation over the El Teniente copper mine
in Chile in 1960’s
two parties: Kennecott, a U.S. company, and Chilean
government
background: national sentiment in Chile for foreign
companies to exploit its natural resource
overwhelmingly strong BATNA of the Chilean government
either tough financial terms or even expropriating the mine
enough local experts to manage the mine
25
Contract Renegotiation with the
Chilean Government*
What can be done by Kennecott?
a six-step win-win strategy that strengthens Kennecott’s position
1 selling a majority equity of the mining operation to the Chilean
government
2 divesting the fund into US banks; getting an outside loan, to expand the mining
operations (effect: better deal in re-negotiation)
3 having the Chilean government to guarantee the loan, with the guarantee
under the law of New York state
4 insuring as many as possible assets with U.S. backed guarantees (effect: reducing loss
in case of expropriation)
5 negotiating to sell output from expansion to clients in Europe and North
America (effect: diversifying customer base)
6 lastly selling the rights of the new contracts to a consortium of financial
institutions from Japan, the United States and Europe (effect: multi-party negotiation
in future contract renegotiation, with parties having other interests with the Chile
Government)
http://www.negotiations.com/case/contract-renegotiation/
26
Contract Renegotiation with the
Chilean Government
final
remark: expropriation years later but
much better position for Kennecott in
negotiation
27
Preparation and Tactics
in Negotiating
28
Preparation for Negotiation
identify
participants and set up a team
develop
objectives
e.g.,
price, quality, form of collaboration,
service level, long-term relationship
gather
relevant information
market
price, historical prices, actual cost of
supplier, history, financial strength, quality,
service level, management of supplier, possible
negotiator from supplier …
29
Preparation for Negotiation
analyze
strengths & weaknesses for
suppliers and oneself
for
both sides, e.g.,
how
important is the supplier to us
how
much time we have
any
other backup supplier
how
important is the order for the supplier
financial
strength of the supplier
30
Preparation for Negotiation
recognize
deduce
identify
to
other party’s needs
real needs in others’ perspectives
common goals and facts agreed
simplify discussion
identify
issues to discuss
(potential)
differences between the two sides
31
Preparation for Negotiation
establish
develop
brief
positions and BATNA
strategies and tactics
personnel
practice
the negotiation
32
Tactics
argue based on facts
answer carefully
mind other side’s feeling
know the deadline
avoid trapping oneself in a
corner
e.g., “accept or no deal”
have courage to say no
start with lowest
start with highest
show honesty
take the initiative
listen
disappearance of key persons
never give up
fictitious competition
unethical
order issues
take a rest to cool down
check security
select venue
use threat
side track the issue
raise questions
keep silent
33
Concessions
give-and-take being common in negotiation
guidelines for making concessions
reserve room for concessions
first understand the other side’s needs and objectives
first to concede minor but not the first to concede major
portray unimportant concessions as valuable
fight before every concession
34
Concessions
guidelines
give,
for making concessions
and remember to take
concede
never
slowly and by little
reveal deadline
say
“no” occasionally
try
not to retrieve concessions
record
of concessions
35
Power in Negotiation
power: the ability to influence
sources of negotiating power
informational power: presenting relevant facts and
persuasive argument
reward power
coercive power
legitimate power: credentials of experts
referent power: socially acceptable personal qualities
and attributes, e.g., physical, honesty, charisma,
friendliness, sensitivity
36
Win-Win Negotiation
win-lose – competitive or distributive bargaining
win-win – collaboration or integrative bargaining
beneficial to both sides usually by increasing value or expanding
resources to all participants
equitable sharing of profit or cost
tactics
expand the pie
logroll
compensation for compliance
a bridge solution
37
Getting to Yes
Negotiating Agreement Without Giving In
By Roger Fisher & William Ury
38
Tips from the Book
don’t
bargain over positions
separate
focus
on interests, not positions
invent
insist
the people from the problem
options for Mutual Gain
on using objective criteria
39
Don’t Bargain Over Positions
C: customer; S: Shopkeeper
C: How much do you want for this brass dish?
S: That is beautiful antique, isn’t it? I guess I could let it go for $75.
C: Oh come on, it’s dented. I’ll give you $15.
S: Really! I might consider a serious offer, but $15 is certainly isn’t serious.
C: Well, I could to to $20, but I would never pay anything like $75. Quote me a realistic price.
S: You rive a hard bargain, young lady. $60 cash, right now.
C: $25.
S: It cost me a great deal more than that. Make me a serious offer.
C: $37.50. That’s the highest I will go.
S: Have you noticed the engraving on that dish? Next year pieces like that will be worth twice
what you pay today.
40
Focus on Interests, Not Positions
Negotiation
between Egypt and Israel at
Camp David in 1879
Egyptian Sinai Peninsula occupied by Israel
since the Six Day War in 1967
Positions
Egypt:
getting back whole Sinai Peninsula
Israel: holding part of Sinai Peninsula for
national security
41
Focus on Interests, Not Positions
interests
Egypt:
sovereignty
Israel:
national security
Result:
returned the whole Sinai Peninsula
to Egypt and de-militarized large area for
security of Israel
42
Insist on using Objective Criteria
I: Insurance Adjuster; T; Tom
I: We have studied your case and have decided the policy applies. That means you’re entitled
to a settlement of $6,600.
T: I see. How did you reach that figure?
I: That’s how much we decided the car was worth.
T: I understand, but what standard did you use to determine that amount? Do you know
where I can buy a comparable car for that much?
I: How much are you asking for?
T: Whatever I’m entitled to under the policy. I found a secondhand car just about like it for
$7,700. Adding eh sales and excise tax, it would come to about $8,000.
I: $8,000! That’s too much.
T: I’m not asking for $8,000 or $6,000 or $10,000, but for fair compensation. Do you agree that
it’s only fair I get enough to replace the car?
I: OK, I’ll offer you $7,000. That’s the highest I can go. Company policy.
T: How does the company figure that?
I: Look. $7,000 is all you’ll get. Take it or leave it.
T: $7,000 may be fair. I don’t know. I certainly understand your position if you’re bound by
company policy. But unless you can state objectively why that amount is what I’m entitled to, I
think I’ll do better in court. Why don’t we study the matter and talk again? Is Wednesday at
eleven a good time to talk?
….
43
Insist on using Objective Criteria
….
I: Ok, Mr. Griffith, I’ve got an adhere in today’s paper offering an ‘89 Taurus
for $6,800.
T: I see. What does it say about mileage?
I: 49,000. Why?
T: Because mine only had 25,000 miles. How many dollars does that increase
the worth in your book?
I: Let me see … $450.
T: Assuming the $6,800 as one possible base, that brings the figure to $7,250.
Does the ad say anything about a radio?
I: No.
T: How much extra for that in your book?
I: $125.
T: How much for air conditioning?
……
A half-hour later Tom walked out with a check for $8,024.
44