July 2007
Even though there are many different types and categories of negotiation, there is no such thing as a “free style” negotiation. For each type of negotiation – real estate, corporate merger, treaty and trade agreements, employment or salary, commodity purchase, etc. – certain laws, regulations, and customs apply. Also, cultural differences are increasingly coming into play in today’s world-wide economy. Failing to conform to these rules and customs can instantly torpedo a negotiation, sometimes fatally.
When preparing for a negotiation, make sure you are clear on the rules and regulations that could affect the process, and be careful to observe any cultural mores as well.
A buyer for a major US pharmaceutical company is negotiating with a new supplier for the purchase of several hundred liters of a highly refined chemical to be used in an important new drug product. So far, the negotiation is going very well. The supplier is located in an Asian country, but they seem to be right on top of everything. The supplier has agreed to meet the full order at a very reasonable price according to an expedited shipping schedule. The buyer for the pharmaceutical company is ecstatic. The negotiation couldn’t be going any better!
However, if the buyer doesn’t understand the rules in play here, she may quickly be very disappointed. The biggest problem in this case is one of cultural differences. In this country, it is not acceptable to tell a stranger – especially a foreigner -- “I’m sorry, but I can’t do that for you” when discussing business. It is considered bad form and could also imply an embarrassing admission of weakness or inferiority on the part of the Asian company. For that reason, the sales rep for the Asian company will agree to anything and promise anything in order to appear accommodating. This isn’t considered to be lying; it is considered to be a form of honoring and respecting your customer.
However, the truth is their factory would not be able to produce such a large quantity of this chemical in such a short amount of time without closing down and completely refitting their production process. They can’t afford to do that, so they will promise something they can’t deliver, produce as much as they can and ship it, apologize for the shortage and get the rest out as soon as possible. The delay could delay the US company’s entry into the market by a couple of months and cost them about $30 million in penalties and lost revenue. Ouch! There is a way to avoid getting blindsided like this, but it involves knowing how to ask just the right questions at the right time in the right way, and it usually requires taking extra time to build a relationship that is not strictly focused on business, before you will get a straight answer to a business question.
The above example, though it may seem a little extreme, is very familiar with anyone who must negotiate for business opportunities with partners in other – especially non-Western – countries. However, similar situations – though less extreme – can occur in more typical negotiation settings everyday, even in the US. Never make the killer assumption that you understand all the rules, regulations and customs that may come into play during your negotiation unless you have carefully thought through every possible issue and asked enough questions to be sure you really know the rules.
Here is a basic list of some of the issues that might affect your negotiation when it comes to knowing the rules:
Accounting regulations
Labor laws
Intellectual property laws
Shipping standards
Local tariffs and import/export protocols
Cultural differences and social customs
Professional and ethical standards
SEC regulations
Sarbanes-Oxley requirements
Internal corporate culture and protocols
HIPPA laws
Of course, the list could be much longer, but you get the idea. People who thoroughly research and understand ALL the rules, will be able to negotiate much more successfully than those who don’t. Don’t let a “minor” oversight in this area turn into a major disaster.
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July Negotiation Quick Tip of the Month -- Avoid “Killer” Assumptions
Will Rogers once said, “It is not what I don’t know that hurts me, it is what I do know that just ain’t so!” This is another way of saying that relying on incorrect assumptions can kill us! Like many military conflicts, a great many negotiations are “lost” because those in charge of the strategy made one or more “killer” assumptions (i.e., assumptions that turn out to be completely wrong and end up killing their opportunity to achieve maximum success). Too often, the assumption may be as simple as believing that the other party will choose what we would choose, or value what we would value, if we were in their situation. No matter what assumptions you might use to formulate your negotiation strategy, the riskiest assumption of all is to believe that your assumptions are adequate to prepare you for the situation. This means you must test all of your assumptions for flaws and weak points, and develop multiple back up strategies based on alternate theories and assumptions, if you want to maximize your competitive advantage as the negotiation unfolds.
