In today's global business environment, an executive must have the skills and knowledge to navigate all stages of an international deal, from negotiations to managing the deal after it is signed. The aim of Global Negotiator is to equip business executives with that exact knowledge. Whereas most books on negotiation end when the deal is made, Jeswald W. Salacuse will guide the reader from the first handshake with a potential foreign partner to the intricacies of making the international joint venture succeed and prosper, or should things go poorly, how to deal with getting out of a deal gone wrong. Salacuse illustrates the many ways in which an international deal may falter and the methods parties can use to save it, provides the necessary technical knowledge to structure specific business transactions, and explores the transformations to the international business landscape over the last decade.
|Publisher:||St. Martin's Press|
|Product dimensions:||6.14(w) x 9.21(h) x 0.75(d)|
About the Author
Jeswald W. Salacuse is a professor of law at the Fletcher School of Law and Diplomacy, Tufts University. He also teaches executive training programs sponsored by the Harvard Program on Negotiation. He is author of 11 books, including Making Global Deals and The Art of Advice. He lives outside of Boston, MA.
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The Global Negotiator
Making, Managing, and Mending Deals Around the World in the Twenty-First Century
By Jeswald W. Salacuse
St. Martin's PressCopyright © 2003 Jeswald W. Salacuse
All rights reserved.
THE GLOBAL NEGOTIATOR
Why do all the tough problems seem to land on your desk?
Your company's product development division in Houston, Texas, has located a small manufacturer in Hungary that claims it can supply components at 35 percent less than what you are now paying your Dallas supplier, with whom you have had a relationship for over ten years. Your boss is pushing you to fly to Budapest to negotiate a long-term supply contract with the Hungarians. You don't know anything about Hungary and are worried about how to handle the Dallas supplier when you get back.
Or, your company and a Chinese enterprise have established a joint venture to manufacture and sell high-grade machine tools in China and Southeast Asia. The venture has clear mutual benefits, but you both have become cautious about sharing information. Your Chinese partner is withholding information about customer problems with products and requests for new product features. In response, your engineers have slowed the transfer of technology badly needed by the enterprise. Both of you are also fighting about advertising expenses. Your company wants to spend heavily on advertising, but the Chinese oppose additional advertising as unnecessary. On top of that, during your last visit to China, you met the new provincial governor, who took you aside at a cocktail party and suggested that the joint venture would have an easier time with provincial authorities if you sold a portion of your interest to one of his cronies.
Or, your company has begun construction on a resort hotel in Egypt near the pyramids after securing the necessary land from the government. Your company is financing the deal with a combination of its own money and loans from two London banks. So far the project has spent $15 million in construction costs. Last week, the Egyptian government, under pressure from foreign and domestic environmental groups fearful of the project's adverse impact on the area's archeological sites, revoked the land transfer and canceled the entire project. Your London banks are threatening to call the loan and to seek immediate repayment.
Although these problems have come at you from many different parts of the world and affect many different areas of business, they all have one thing in common: Their solution requires the effective use of negotiation. In order to deal productively with your potential Hungarian supplier and your current Texas supplier, your Chinese partner and the new governor, and the Egyptian government and your London banks, you will need to skillfully negotiate solutions to each of these difficult problems. You may already have significant experience negotiating deals with other businesses in your own city, state, or country. That experience will not help you much in Budapest, Beijing, and Cairo, where you will have to cope with unfamiliar political systems, cultures, languages, laws, bureaucratic traditions, and business practices. Today's expanding world of global business requires you to be a global negotiator.
The word global, aside from referring to the world, has another meaning: comprehensive. Being a global negotiator means not only making business deals in Budapest one week and in Beijing the next, but also effectively handling whole business relationships from start to finish. It means having the skills to deal comprehensively with the entire transaction from the first handshake with a potential foreign partner to the final liquidation of an international joint venture that has served its purpose. This book's goal is to help you gain those skills.
All international transactions are the product of a negotiation — the result of deal making. Deal making in global business requires executives to overcome many unfamiliar barriers not usually found in the U.S. setting, including differences in cultures, laws, bureaucratic traditions, ideologies, and government practices, as well as a perpetually unstable international political and monetary environment — precisely the challenges you will have to overcome to make a deal with a new supplier in Budapest.
Although some people believe that negotiations end when the participants agree on all the details and sign the contract, this view hardly ever reflects reality. In truth, an international deal is a continuing negotiation between the parties to the transaction as they seek to apply their contract to unforeseen situations and to adjust their relationship to a changing international environment. No contract, particularly in a long-term transaction, can predict all eventualities that the parties may encounter, nor can any negotiation achieve perfect understanding between the parties, especially when they come from different cultures. If the two sides do encounter changes in circumstances, misunderstandings, or problems not contemplated by their contract — for example, how much to spend on advertising in a joint venture in China — they will need to resort to negotiation, at least at first, to handle their difficulties. In short, negotiation is a fundamental tool for managing their deal.
And when the parties to a deal become embroiled in genuine conflict — for example, the cancellation of the resort hotel project in Egypt or the demand by London banks for premature loan repayment — negotiation may be the only realistic tool to resolve the controversy — particularly if the parties want to preserve their business relationship. In times of severe conflict, negotiation becomes a means to mend a broken deal.
In the life of any international deal, one may therefore identify three distinct stages when executives must rely on negotiation to achieve their goals:
deal managing, and
The aim of this book is to equip business executives, students, lawyers, and government officials to navigate each of these stages effectively. Whereas most business negotiation books end when the deal is made and the contract is signed, The Global Negotiator will guide the reader through the entire life of an international transaction.
This book is divided into three parts of unequal length. Part I, Global Deal Making, will discuss the challenges of and solutions to negotiating international business transactions in today's global environment. It will set out the seven important rules for preparing and conducting effective global deal making and suggest ways of overcoming the seven principal barriers to making deals abroad. Part II, Global Deal Managing, will discuss the complexities of profitably carrying out the deals that have been negotiated. It will focus particularly on handling power relationships with international business partners and on converting a signed contract into a productive working relationship. And finally, Part III, Global Deal Mending, will equip the reader with the knowledge, skills, and techniques to resolve conflicts that may threaten to destroy business transactions and relationships. In addition, the appendices to this book offer the global negotiators two important supports for carrying out their work: "The Global Negotiator's Checklist" guides the negotiation process and "A Primer on International Business Transactions" outlines the basic elements of common international deals.
Let's consider first the challenges of global deal making.CHAPTER 2
NEGOTIATING DEALS, CONTRACTS, AND RELATIONSHIPS
Deals don't just happen. They result from negotiations — usually long, hard negotiations that invariably consume considerable material, human, and emotional resources. The word "negotiation," after all, is derived from two Latin words, neg and otium, that literally mean "not leisure." The deal being proposed by your product development department with a new Hungarian supplier of components will take at least a week of your time and twenty or thirty thousand dollars of your company's money. Straightening out that troubled relationship with your Chinese joint-venture partner may cost even more.
Before we examine specific ways of solving these problems through negotiation, we should first have a general understanding of two basic concepts: negotiation and the deal. Just what are they, anyway?
Negotiation is basically a process of communication by which two or more persons seek to advance their individual interests through joint action. The parties to a negotiation are sitting at the bargaining table because at least one side has decided that it can improve its situation in some way if both sides agree on a specific joint act, such as establishing a strategic alliance to produce cell phones, making a sales agreement to buy computer components, or transferring for a fee one party's communication technology to the other. Obviously, the other side is sitting at the same table because it too thinks that it has a chance to improve its own situation if it strikes a deal under the right conditions.
A negotiation is a process, a progressive movement toward a desired end. Succeeding in any negotiation requires a mastery of both the substance and the process of the transaction. Business negotiators sometimes become so enmeshed in substantive issues that they forget or neglect the process of creating and managing the deal. While substantive issues like capital contributions, payment terms, and performance guarantees are certainly important in successful deal making, effective negotiators must also pay attention to the negotiation process.
Most people tend to approach a negotiation with a model in mind of how the process should take place. The specific model they have in mind is important because it influences their actions at the negotiating table. There are three basic models of negotiation.
Model I: Negotiation as Compromise
For many executives, the process of negotiation is essentially one of compromise, of striking a deal somewhere between their initial offer and their counterpart's. Let's call this approach Model I. As they begin negotiations, each party has normally determined, but has not disclosed, a point beyond which it will not go to make a deal. For example, in the negotiation over the sale of a business, the seller may ask $10 million while having decided not to sell for anything less than $7 million. Similarly, a potential buyer may offer $5 million but has secretly determined not to pay more than $8 million. These undisclosed "reservation prices" may or may not change as the bargaining proceeds. As long as their reservation prices are not mutually exclusive (as would be the case, for example, if the buyer's maximum were $6 million and the seller's minimum were $8 million), the two sides have room to make a deal. They have what is called "a zone of possible agreement."
In a Model I negotiation, the two sides arrive at an agreement by a series of concessions that each makes until they reach a solution that both can accept. This is the market model of negotiation. As the following diagram shows, A starts at one extreme and B at the other. Over time, they may reduce their demands to the point that they eventually make a deal.
In the struggle to arrive at agreement, the parties see their negotiation as a "win-lose" process in which any gain for one side is a loss for the other. Every dollar gained by the seller in a market transaction is a dollar lost to the buyer. In this model of negotiation, which scholars call "distributive bargaining," the parties assume that their goals are incompatible, that they are struggling over how to divide a fixed pie, and that through a series of concessions and threats they will somehow arrive at an acceptable middle ground.
Model II: Negotiation as Domination
For some executives, negotiating a deal is combat, a means to dominate a business opponent. In this approach to negotiation (Model II), one side dreams up a deal and, using a variety of power plays and dirty tricks, tries to shove it down the throat of the other side, as in the following diagram.
Model II is really just a variation of Model I. In both models, the two sides see their interests as incompatible and truly believe they are struggling over a fixed pie. The principal difference between the models is the rough tactics used by one of the parties in Model II. Whereas Model I may be driven by agreed-upon norms or standards, Model II is invariably driven by power. Like extreme versions of boxing and football that verge on combat, Model II can be considered extreme negotiation.
Model III: Negotiation as Problem Solving
A third approach to negotiation conceives of the process not as compromise or combat, but as an exercise in problem solving. In Model III, the negotiators view their task as resolving a problem that they both share. They see negotiation as a process in which each can gain. In this form of negotiation, which is often called integrative bargaining, the participants consider themselves to have compatible goals. Rather than struggling over dividing a fixed pie, they search for ways to enlarge it so that both sides may satisfy their interests to the maximum extent possible. In this approach to negotiation, the parties begin by seeking to understand each other's interests and then try to fashion a deal that takes those interests into account and integrates those interests into a well-crafted transaction, as illustrated in the following diagram.
Because understanding the parties' interests is central to the process, Model III has also been called interest-based negotiation. To arrive at an integrative solution, the parties' interests need not be identical. Instead, the parties need to recognize the extent to which their interests, though different, are compatible, or at least not mutually exclusive. All too often the two sides in a negotiation assume their interests are incompatible and therefore conduct the negotiation process from the start as an exercise in compromise, if not domination.
For example, in a case that took place in New York City, a wealthy man left his entire estate to be divided between his two daughters, Janet and Claire. The division of his property went smoothly until the two women faced the problem of deciding who would get their father's diamond ring, which he had worn all of his adult life. Both daughters wanted it. Compromise by cutting the ring in half was of course not a feasible solution. Following the pattern of many distributive negotiations, each sought to establish her right to the ring by asserting a norm or principle. Janet pointed to the fact that she had cared for their father in his old age and that she therefore rightfully should have the ring. Claire countered by claiming that years earlier their father had promised it to her. Relations between the two sisters became tense as each insisted on having the ring. Finally, in frustration Janet asked Claire a key question: "Why do you want the ring?" It was a key question because its purpose was to determine her sister's interests in the ring. Problem-solving negotiation begins with an understanding of interests. Claire replied: "Because it has a beautiful diamond and I would like the diamond. I thought I would make a pendant from it." Startled, Janet responded by saying: "That's not why I want the ring. I want it because it reminds me of our father." Claire's interest was in owning the diamond. Janet's interest was the ring's sentimental value. When the two sisters recognized that their interests were different but not necessarily incompatible, they began to explore mutually acceptable solutions to the problem of who should receive the ring. Finally, Janet proposed that Claire take the ring to a jeweler, have the diamond replaced with Janet's birthstone, return the ring to Janet, and keep the diamond. The solution allowed both sisters to achieve their interests.
Joint problem solving is a "win-win" model of the negotiation process. Any negotiation has both competitive and cooperative aspects. Whereas Models I and II emphasize the competitive aspects of negotiation, Model III stresses the cooperative aspects.
APPLYING THE MODELS
Individual negotiators may use any one of the three negotiation models, depending on their background, the industry in which they are working, and the type of deal they are trying to negotiate. For example, suppose you visit Kuala Lumpur to meet with a potential new supplier of components, either to supplement or to replace what you are receiving from one of your U.S. suppliers. You are impressed with the quality of the components produced, the efficiency of the manufacturer's factory, and the knowledge and attitude of the Malaysian managers. You proceed to negotiate a two-year purchase contract, but you become stuck on the price. The Malaysians are asking for $2 a component (which is still lower than what you are currently paying your U.S. supplier), but you are insisting on $1.50. You justify the lower price because of the increased risk of relying on a new, untested foreign supplier who is thousands of miles away from your plant. The Malaysians, on their side, insist on the higher price because of the risks in equipping their factory to produce a large shipment of components for a new customer who may or may not turn out to be reliable. In the typical win-lose fashion of Model I, the Malaysians come down to $1.95 and you increase your offer to $1.55. You are still forty cents apart. You are hoping to meet somewhere in the middle. You think they will come down some more. And they feel you certainly will sweeten the deal. Neither of you budges.
Excerpted from The Global Negotiator by Jeswald W. Salacuse. Copyright © 2003 Jeswald W. Salacuse. Excerpted by permission of St. Martin's Press.
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Table of Contents
|1.||The Global Negotiator||1|
|Part I||Global Deal Making|
|2.||Negotiating Deals, Contracts, and Relationships||7|
|3.||Seven Steps to Prepare for Global Deal Making||29|
|4.||Seven Principles for Global Deal Making||43|
|5.||Seven Special Barriers to Global Deal Making||73|
|6.||Special Barrier No. 1: The Negotiating Environment||77|
|7.||Special Barrier No. 2: Culture||89|
|8.||Special Barrier No. 3: Ideology||117|
|9.||Special Barrier No. 4: Foreign Organizations and Bureaucracies||127|
|10.||Special Barrier No. 5: Foreign Governments and Laws||145|
|11.||Special Barrier No. 6: Moving Money||165|
|12.||Special Barrier No. 7: Instability and Sudden Change||179|
|Part II||Global Deal Managing|
|13.||After the Contract, What? The Challenges of Deal Management||193|
|14.||Power Tools for Global Deals||205|
|Part III||Global Deal Mending|
|16.||Renegotiating Existing Transactions||229|
|18.||The Art of Deal Diplomacy||267|
|Appendix A||The Global Negotiator's Checklist||273|
|Appendix B||A Primer on International Business Transactions||277|
|Appendix C||Suggestions for Further Reading||291|