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Negotiation has traditionally been based upon a competitive model, leaving collaborative strategies underutilised, mainly because most people do not understand the finer points of collaboration.”

Executive Summary

Negotiation is a fundamental part of the day-to-day activities in the business to business environment. Yet, there are often profound weaknesses which emerge in the negotiation strategies, which results in one or other party failing to achieve the best possible result for their ongoing business. By identifying the weaknesses in the competitive model and requirements for achieving a successful collaborative strategy, it can be seen that a fundamental shift of personality and attitude is necessary from the parties, something which may act as a barrier, particularly for those who have been traditionally utilising the competitive model, for many years.

Introduction, Aims and Objectives

Negotiation styles play an important role in the day-to-day operations of all organisations, both from the point of view of internal communication and also when it comes to the relationships with other third parties, such as suppliers and customers. Broadly speaking, negotiation refers to the situation where there is a dialogue between two or more entities aimed at reaching a specific outcome or resolving a particular issue (Baron, 1998). The negotiation process is undertaken by the parties, in order to achieve the appropriate results and fulfil each party’s own needs. For example, in the commercial environment, negotiations may be entered into between supplier and the core business, in order to look at the volume of items which can be provided, the price and the delivery schedule, so that both the supplier of raw materials and the central company are comfortable with the situation and are prepared to enter into an agreement to supply.

The proposition here argues that negotiation has traditionally looked towards a competitive model. This means that, on many occasions, the option of collaboration is seen as to the detriment of the end result of the negotiations. In order to consider the statement made here, the statement will be broken down into four distinct parts, each of which should be looked at, in turn, before drawing conclusions as to whether or not it is an accurate statement that collaborative strategies are, indeed, underutilised as a result of a lack of understanding of how collaboration can work to advantage of all concerned. This will involve looking at the traditional competitive model and the lack of understanding that surrounds the collaborative model, before discussing the key elements of a successful collaboration and any obstacles that may occur when using a collaborative strategy.

Negotiation has traditionally been based upon the competitive model

The traditional competitive model for negotiation is based on the idea that any given situation can be seen to be similar to a Zero Sum Game and that, in order from one individual to win, another must necessarily lose. In its most basic form, an example is where there are ten apples available to the parties; a competitive model would encourage the parties to negotiate in a competitive manner, accepting that for one party to gain an extra apple, the other party would need to lose one of theirs (Beasor, 2006).

When looking at competitive negotiation, it is the substance of the actual items being traded that is the primary concern of the parties, with negotiations typically being undertaken in quite an aggressive manner and with each individual looking at what they can gain during the process. In many cases of competitive negotiations, price is fundamental. Furthermore, when considering this amongst supplier relationships, a competitive model situation would be seen to arise, where suppliers look to maintain a price and the purchaser looks to reduce this price for their own benefit. Whilst accepting that this means that the supplier will be involved on a regular basis, it can be seen that this type of situation is more likely to be utilised successfully where the relationship between the two parties is relatively unimportant, or is a one-off transaction when neither party is looking towards engendering good will for the future. Where one party shows a weakness, the other will immediately take advantage of this; for example, if the purchaser becomes aware that the supplier has cash flow issues, they will be more inclined to use this as a weakness that can then be exploited to their own advantage.

This type of competitive negotiation is based on the underlying strategy that focuses on a hard exchange between the individuals and encourages the actual exchange to be relatively clear. However, this is not say that there will not be an element of double dealing which may emerge where one of the parties believes that they can achieve a result that is better for themselves, in order to improve their own negotiation position. Fundamentally, however, the competitive negotiation approach is about getting what the individual wants, with little or no regard for the position of the other party.

Competitive negotiation is, therefore, viewed as a means of achieving what the individual parties attempt to achieve and does not consider the ways in which the other parties may benefit from the negotiation. This focuses exclusively on getting the best possible deal for that individual party and, in order to do so, it is necessary that the weaker party or the other party loses (Lewicki, et al., 2003).

Most people do not understand the finer points of collaboration

By focusing on competitive negotiation, it is argued in this paper that this will result in a lack of understanding of the possibility that both parties could benefit, potentially, from the negotiation position.

When looking more at the collaboration approach, the relationship between the two parties is seen as being the central element, rather than the price, as is seen in the competitive negotiation approach. When adopting a competitive approach, it is assumed that there are a fixed number of items involved that can be negotiated over and where one party takes the next item the other party loses that item. Yet, within the collaborative approach, there is a recognition that it is possible to enlarge the items available to include other items that are of value to both parties and to negotiate a position where both parties may potentially be better off when leaving the negotiation table (Perdue et al., 1986).

There are several underlying concepts which are relevant when it comes to understanding how collaboration may work and identifying why there may be a general lack of understanding on the finer points of collaboration, which may limit the use of this approach by those operating within a business environment. The collaborative approach places a great focus on the concept of fairness and achieving satisfaction from an emotional point of view. In reality, a relationship between a commercial supplier and a customer in a business to business transaction will not be a one off situation. Even if that precise relationship of selling an item is a one-off situation, the reputation which the parties maintain as a result of this negotiation may have an impact on future transactions; therefore, creating a less competitive environment and encouraging collaboration can achieve great results for both parties, overall. Whilst this is accepted as an important aspect of negotiation here, it is also argued that there is a lack of understanding by the individual parties as to how they are going to achieve this type of win-win situation. To a large extent, this can be achieved when looking at the negotiation as a joint problem-solving exercise and recognising that the overall situation can be looked at, in order to identify how each party can benefit, in some way (Lewicki, et al., 2000).

A collaborative strategy does not amount to weakness, which can be a difficult concept to understand for those who inherently use the competitive strategy. Essentially, it could be seen as a means of opening up negotiations to include items that may not be immediately apparent. Taking the situation described above, whereby two individuals are negotiating over the ten available apples, greater discussions may indicate that one of the parties would, in fact, prefer to have oranges. Therefore, if the other party has a large stock of oranges, it may be possible to negotiate an exchange of apples for oranges and both parties will ultimately be happier (Cox, 1996).

In order to achieve a collaborative approach, it is necessary for complete transparency and trust between the parties and this again reflects the way in which the relationship between the parties is an ongoing relationship which is valued by both parties, to such an extent that they will consider the opinion and desires of the other party. This does, however, clearly involve a much greater element of communication between the parties and a wider recognition of the needs and desires of other parties involved. This makes it a potentially difficult strategy to follow, typically where there are multiple entities with a variety of different complex needs, or where one individual is maintaining a competitive strategy and is taking advantage of those looking to achieve collaboration.

Critically evaluate the key elements of successful collaboration in negotiation

There are several key elements that are seen to be linked to successful collaboration during the negotiation process. A strong framework is that of the pneumonic ‘POSER’ which refers to the activities that an individual needs follow when looking at achieving a collaborative negotiation strategy (Porter, 1985). Firstly, it is necessary to prepare in order to understand the types of outcome that are desirable from the negotiation and also to undertake the research into the other parties to the negotiation. This means that when turning the situation into a joint problem-solving exercise and encouraging transparency, all individuals need to be fully briefed on the overall vision, not only of their own needs and goals, but also of the needs and goals of all those involved. By having a strong understanding of what the other party is hoping to achieve, it is possible for the other commercial entity to identify how they may potentially improve the situation being experienced by the other party. Using the basic example mentioned earlier, in the paper, it is up to both parties to understood that oranges may potentially offer a solution to the negotiation over how ten apples should be divided; however, without background research in preparation for the negotiations, one party would have no knowledge of the fact that the other party would actually place a greater value on the oranges which they perceive to be simply useless excess.

Secondly, being open and transparent is a further key element of achieving a powerful position for collaboration, and this is not only a case of being open in relation to the information that is held by each party, but also about being open-minded as a potential solution which could be put forward by the other party (Ertel, 1999).

The willingness and ability to share this information with the other party and to view the situation as a joint problem-solving exercise is the third element of a successful collaboration, and where one party views the other as being the underdog during collaboration and maintains a competitive approach, there can be a failure in the collaborative negotiation approach being taken. Crucially, the negotiation process focuses on a period of exchange where assets are understood and the exchange between the parties discussed. This is another aspect of collaborative negotiation which does not necessarily emerge during competitive negotiation. In competitive negotiation price is the crucial factor yet when looking at collaborative negotiation this may be broadened out. For example, where negotiations are taking place between suppliers and customers in a business to business environment, it may be the case that the customer chooses a more expensive supplier, as there is a guarantee of a better delivery schedule or better quality product. Entering into this type of exchange over the various elements of the negotiation which are valued by both of the parties is central to the collaborative approach; yet, without having the information available, collaboration simply cannot happen. Finally, the result of a collaborative approach needs to be recorded and documented, in order to ensure that the collaborative outcome which has been agreed is carried out, in practice, as failure to do so could result in a breakdown of trust between the parties and make it difficult to build up this trust, over several different periods of negotiation (Rubin & Joseph 1990).

Possible obstacles to a Collaborative negotiation strategy in the context of the supply relationship

When looking, specifically at how successful collaboration can be achieved, several key obstacles have been identified that could affect the collaborative strategy and which could result in the parties failing to achieve the overall best results for all involved.

One particularly obvious obstacle which may emerge is the fear that the other party is using the competitive approach. This may result in an individual who is attempting to show collaboration being viewed as weak and being taken advantage of, to such an extent that they will refuse to enter into a collaborative strategy, in the future. This is further exacerbated when it comes to a situation whereby the parties believe that there is only one possible solution to the problem being put forward. Furthermore, collaborative strategy negotiation involves obtaining all the relevant information and having an open and transparent discussion. This can be jeopardised by any failure to be open and transparent, whether it be deliberate or not, as well as a lack of understanding from either party, in terms of what may be relevant to the discussion. Deliberate misuse of information and authority could take place more readily when one party is perceived to be stronger than the other. For example, when considering a business to business supplier arrangement where the supplier is the only supplier of a particular product which is required by the customer, this is likely to reduce the chances of a successful collaborative negotiation, as the supplier is in a considerably more powerful position than its counterparts.

Any failure to view the negotiation process as an ongoing opportunity to build trust between the two parties can also reduce the chances of the collaborative strategy delivering a successful outcome. Moreover, where it is known by one or other party that there is unlikely to be any future interaction between the parties, the chances of achieving collaboration again become much reduced, as neither party places a great value on the ongoing relationship. It is reasonably apparent when looking at the distinctions between the competitive and collaborative approach that using a collaborative negotiation strategy requires a much broader range of considerations and a much softer style from the individuals involved. Where managers or those in charge of negotiation and purchasing have historically taken a more competitive approach, it can be very difficult to adapt and to look at the broader issues, in order to fundamentally change the way in which the negotiation process is viewed (Saner, 2000).

Recommendations and Conclusions

In order for entities to look more towards the collaborative negotiation approach which will be seen as a means of achieving more rounded and stronger results for all parties involved, there are several activities which need to take place; however, it can be difficult for the parties to adapt their style fully, particularly where there are fears that the other party is not moving towards a collaboration strategy, at the same rate. Where one party maintains a competitive approach, but the other is seeking collaboration, there is a real danger that the collaborative party will be viewed as weak and will ultimately lose out, thus creating a general reluctance by the parties to move towards collaboration, particularly in highly competitive industries.

Communication is entirely different where collaboration is concerned, as it involves a much more open and transparent approach of sharing information and considering the perspective of the other party, something which is at odds with the traditional competitive approach, making it hard for those individuals who are rooted in the competitive approach to adapt. Additional training is, therefore, required for these managers and in particular those responsible for purchasing within a business environment, to improve their communication and analysis skills, as these will be fundamental to the success of the ongoing collaboration strategy.

References

Baron, P.D. (1998) “Procurement, Contracting, Efficiency, Re-negotiation and Performance Evaluation,” Information Economics and Policy, (13:2), pp. 109-142.

Beasor, T. (2006). Great Negotiators: How the Most Successful Business Negotiators Think and Behave. GBR: Ashgate Publishing Group.

Cox, A. (1996) “Relational Competence and Strategic Procurement Management,” European Journal of Purchasing and Supply Management, (2:1), pp. 57-70.

Ertel, D. (1999) “Turning Negotiations into a Corporate Capability,” Harvard Business Review, May-June, pp. 55-69

Lewicki, R.J, D.M. Saunders, and J.W. Minton.(2000) Essentials of Negotiation, McGraw-Hill, Boston, MA

Lewicki, R.J., Barry, B., Saunders, D.M. and John, M.W., (2003). Negotiation, 4th edition, McGraw-Hill/Irwin

Perdue, B., Ralph L. & Ronald, E. (1986). Negotiation styles of industrial buyers. Industrial Marketing Management, 15 (3), 171-176.

Porter, E. (1985). Competitive Advantage, New York: The Free Press.

Rubin, P & Joseph R. (1990). Joint optimality in buyer-seller negotiations. Journal of Purchasing and Materials Management, 26 Spring, , 20-26

Saner, R., (2000). The Expert Negotiator. Klumer Law International, The Hague, The

Netherlands.

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Negotiations and Alternate Dispute Mechanism

Alternative Dispute resolution encompasses distinct forms of dispute resolution through arbitration and mediation. Arbitration is a method of dispute resolution involving one or more neutral third parties who are usually agreed to by disputing parties and whose decision is binding.[1] Arbitration generally proceeds in a similar fashion to that of the court with opening statements, the presentation of witnesses and evidence, cross-examination, and closing arguments. Arbitrators then decide cases based on the evidence, and their decision is final binding on the parties.

Mediation on the other hand is an informal dispute process in which the third party – the mediator helps disputing parties to reach an agreement. A mediator, unlike the arbitrator, has no power to impose his decisions on the parties. Therefore, the mediator’s role is to bring the parties closer together through discussions of weaknesses in the case for both sides, in an effort to convince each to settle the dispute.

Arbitration and mediation are voluntary mechanisms- that is the parties are only required to mediate or arbitrate if they agree to do so. The absence of such an agreement will see the parties go to the court of law; therefore the parties in contention cannot be hauled into private mediation and arbitration against their will. It is at the disposal of the parties to decide how they will go about to do it.

Alternative Dispute Resolution mechanisms have advantageous such that they are cheaper and quicker than court proceeding and permit parties to resolve their differences more efficiently. Studies have shown that arbitration proceedings in the employment discrimination area to take an average of 8.6 months to be resolved, whereas the average court cases involving alleged employment discrimination takes almost two years.[2] This has seen businesses and employees placing mediation and arbitration in the employment contracts or agreements thus discrimination conflicts can be solved amicably without going to the court of law.

Arbitration

Arbitration proceedings are like informal court proceedings. They take place in conference room and not in the courtrooms at date scheduled by the parties. In African traditional setting arbitration proceedings take place under a tree called a baraza[3]. Generally during the proceedings of the arbitration the parties select a particular rule to apply to the arbitration and are free to modify such rules by agreement.

The reason parties prefer arbitrations to court is because they are more streamlined and friendly. Discoveries in arbitrations tend to be less comprehensive and persistent, with arbitrators frequently imposing limits on the number of depositions each party can take. The arbitrators equally understand that the parties select arbitration in part to avoid the cost of court proceeding and issue rulings considering these goals.

While arbitrators make evidentiary rulings and can bar evidence and testimony they deem improper, arbitration rules generally shun strict compliance with rules of evidence.[4]  In conforming to the informal nature of the Alternative Dispute Resolution mechanisms, the arbitrators generally make mistake on the side of admitting all the evidence and when they are weight to particular testimony and exhibits. Therefore due to the informal nature the arbitration process give a loophole for some biasness in the process of making decision among the arbitrators.

Unless parties’ arbitration provides otherwise, arbitrators generally are chosen with the help of designated arbitration organization. The process entails the organization submitting names of the arbitrators to the parties then the parties will strike the names they consider lowly ranked. The highly ranked names by the parties will be then asked to arbitrate the dispute.

Various formats of arbitration can be highlighted in this sense. Most traditional is for a single arbitrator to act as the judge of the case, that is, to preside over trial and then issue a ruling based on the evidence. This varies slightly from the use of panel of arbitrators –rather than a single arbitrator- to hear a dispute. A single arbitrator handles small to medium-sized disputes, with a panel of arbitrators used to solve more complicated disagreements. Sometimes parties can decide the number of arbitrators they want in resolving their dispute.

Parties can also select other forms for arbitrating dispute. For instance, parties can use “baseball-style” of arbitration where the one party, which table its proposal for example of a salary to a panel of arbitrators and the employer for example, tables his/ her proposal too.[5] Then the arbitrators go through each party’s proposal and come up with an amicable figure or solution to the dispute.

This is a case where the winner takes it all since the arbitrators do not have the ability to split their decision but to choose one side’s proposal. This kind of scenario is equally done in business settings where each party endeavors to offer the best possible offer, as the more aggressive a party’s submission, the less likely it is to be chosen by the arbitrator.

Another variation from traditional arbitration is the so-called “Party arbitrators”. This is contrary to the traditional arbitrators who are unbiased and must be free of conflict of interest. Parties’ arbitrators are not neutral and instead are appointed by one of the parties. In this case each party appoints its arbitrator to join a third neutral arbitrator who serves as the chairperson of the panel. This can be depicted in sport disputes, which handle players’ grievances, for example.

This form of arbitration is also common in boarder labor environment, with a union and management each appointing its own chosen representative to join a neutral chairperson. Party arbitrators complicate the process of reaching an amicable solution to a problem because the representatives of the parties of course support the position of the parties that appointed them. Some even go ahead and act   as advocates by questioning witnesses. In this effect, arbitrations involving party arbitrators tend to hinge on the vote of the lone neutral arbitrator, with the two party arbitrators generally ruling in favor of the party that appointed them.

Mediation

Mediation, on the other hand, entails the effort of a single and neutral party- the mediator- to act as an intermediary between parties to help them resolve disputes. Most of the mediation proceedings are nonbonding with the mediator having no authority to compel the parties to reach a resolution. In this sense the mediator considers each parties point of view and their reasons in the light of settling the dispute.

This therefore is a case where a skillful and a man of high integrity can act as a broker between the parties and help each party to see the case from a neutral perspective. The mediator can save the parties time and money by pushing them to accomplish their resolution in a day what would have taken weeks and months.

Mediation comes in various facets. One form of mediation is the facilitative mediation. In this form the mediator uses the best efforts to convince each side the reasons to settle. The mediator does this by highlighting the weakness of its case, the strengths in its adversary’s case, the cost of litigation, the downside risk of not prevailing, and any other factors that the mediator believes the parties should focus on in properly assessing the case.

A good mediator- by the fact that he/she is respected by both the parties- can be suited to soften each side’s position. He can ascertain the strongest and weakest points in each side’s case and may be able to advance each side’s position with the opposing party. Facilitative mediation sessions begin in a conference room where the mediator and the all parties are present. Each parties counsel is given an opportunity to make an opening statement in support of its case (the party’s case).

After this opening statement, the parties break into different rooms, separately meeting with the mediator who shuttle back and forth to bring the parties closer. The mediator tries to convince the defendant when he is in the defendant’s room and give him the reasons for not pursing further the case. The mediator also brings out the expenses that the two parties will incur in the process of fighting in the case. He shows how difficult it would to prove her case. In facilitative mediation the mediator does not formally evaluate the case or promote any particular settlement. His goal is to find areas of potential compromise between the parties, and creatively search for a resolution acceptable to each party.

On the other hand evaluative mediation, the mediator does not only facilitate the discussions between the parties but also evaluates the claims in the issue. The mediator in this examines the case, by looking at the pleadings and damages modes and arrives at specific recommended settlement- based on his assessment of the likely result of the prospective trial. Even if this does not lead to   an immediate settlement, it may focus on the parties on middle ground and form the starting point for negotiations in the ensuing days. As in the case of facilitative mediation the mediator ought to be a person of integrity in the society if not so no party will accept his judgment thus making the whole exercise to be in futility.

There is also the kind of mediation referred to as binding mediation. This is where the mediator not only evaluates the parties but also ultimately imposes a settlement on the parties. This method is less prevalent since it the mediator takes the position similar to the judge at the law court. Parties prefer to discuss through their dispute but not to trust third parties. So instead of taking this form of mediation, parties just decide to go for full-blown trial.

In preparation of mediation sessions, as an initial matter the selection of the mediator is very important. In most instances it is the parties that select the mediators. It is important to choose a mediator respected not only by one side but the two sides.  The goal of the of mediation is to use the mediator as an instrument to prod the other side to settle on favorable terms, and only a respected mediator  is likely to have that ability. In the preparation of mediation process the parties concerned have to prepare and submit confidential mediation statement in support of their position in the case.

The statements are confidential and only accessible to the mediator and not to the other party. They are meant to orient the mediator in the case so that he can be a more effective intermediary.  The mediators’ objective is to reach settlement- and not to reach the result he believes is most equity- and he is mostly likely to succeed if he knows in advance what potholes to avoid.

Negotiations

In the endeavor to negotiate effectively, negotiators require a thorough knowledge of client’s case. They also have to know their clients priorities with the respect to the item in dispute. Negotiations require tact and skills, the understanding of the personalities and interests at play, and the trust and respect of the other side. The main mistake in negotiating is to be caught in a bluff, threatening to take certain action then not following through. Once this happens, it diminishes the opposing side’s trust in the counsel and makes favorable settlement far more difficult settlement far more difficult to achieve going forward.

Negotiations sometimes can be long so synchronizing the negotiations is paramount for the success of the processes.[6] Generally, a claimant will make a demand before ever initiating alternative dispute response mechanism; it is the respondent’s rejection of this demand that leads to arbitration. Most arbitration organizations offer voluntary mediation to the parties and arbitrators. Thus effective counsel advocates never fully   give up on the possibility of settlement, even if a negotiation resolution does not seem realistic in the near term.  Effective negotiations require careful preparation by counsel. The main element of negotiations is to accurately express a client’s view of the case and properly set opposing counsel’s expectations.

None of the mechanisms of resolving disputes –arbitration, mediation or private negotiation are exclusive and independent on their own. Therefore none can work without the backing of the other. If for instance a counsel is doing her job properly, she is not just focused on arbitrating or just on negotiating; rather, she is at all time considering the best and most efficient way to get her client form the point of dispute to a satisfactory resolution. If the counsel feels that there is another good mediator who will help to bridge the gap between the parties then she should steer the case toward mediation.

Works Cited

Lewis, Maltby. Private Justice: Employment Arbitration and Civil Rights, 30 COLUM.HUM.REV.29, 55 (1998)

Wax, Robert. Staying Out of Court: Using Alternative Dispute Resolution Can Save Time and Money. Journal (2006)

Whittlesey, Dave. Baseball-Style Arbitration: Don’t Strike Out, Broadcasting & Cable (Jan. 30, 2006).

[1] See Black’s Law Dictionary

[2] See Lewis L. Maltby, Private Justice: Employment Arbitration and Civil Rights, 30 COLUM.HUM.REV.29, 55 (1998)
[3] Baraza- a meeting of elders aimed at arbitrating a conflict in East Africa.
[4] The parties may offer such evidence as is relevant to the dispute and shall produce such evidence as the arbitrator may deem necessary to an understanding and determination of the dispute. Conformity to legal rules of evidence shall not be necessary.
[5] See R. Rabin and D. Whittlesey, Baseball-Style Arbitration: Don’t Strike Out, Broadcasting & Cable (Jan. 30, 2006).
[6] See Wax, Robert. staying Out of  Court: using Alternative Dispute Resolution can Save Time and Money (2006)

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Negotiation strategies & procedures

It is agreed that negotiation is a process and that the first stage of any negotiation, the pre-negotiation stage, is very essential in the planning process for negotiations. But the stage of pre-negotiations, as scholars have come to agree, is in itself also a process.

Since the pre-negotiation stage is so crucial there are therefore certain essential steps to proceed on in order to ensure success. While scholars are not agreed on the exact labeling of the different phases of pre-negotiation, nor on how many specific steps there are to be followed, they generally agree on the essential elements that must come into play during pre-negotiations.

Peterson & Lucas (2001) identify four stages of pre-negotiations. Other writers have classified the processes involved in pre-negotiation into five categories and even some have limited their categories to only three components. Scholars agree that the first step to take in pre-negotiations is for the parties to identify and define the exact nature of the problem and conduct necessary intelligence gathering procedures. This first phase is basically the framing phase. Furthermore, in this first step, parties are able to demonstrate whether or not they are willing to negotiate address the issues.

The next step is the formulation aspects where the parties begin to search for available options or alternatives to the issue(s) from the perspective of both parties. Each party will have to anticipate the possible options that the other could propose. In the third step there is first some amount of commitment to negotiate among the parties, whether formally or informally based on the information gathered and the alternatives identified. There is following this commitment a concrete agreement or decision to negotiate by both parties.

Here the negotiating parties decide on the parameters under which such negotiations would take place. The final step in the pre-negotiation process is the structuring phase where negotiation strategies are developed and plans are made by each side as how best to tackle the actual negotiation. Formal negotiations begin as soon as the parties agree to negotiate and appoint a committee over the negotiations.

What are the Individual Characteristics of Negotiators?

One important factor that impacts greatly on the process and outcome of negotiations is the individual characteristics of the negotiators. While no scholar has proposed a particular model of the best characteristic traits for a successful negotiator, they have identified several factors that could swing negotiation outcomes either in favor of or against the party for with the individual is negotiating.

Among the individual characteristics of negotiators the most commonly identified are negotiation experience, age, sex, education and training as well as culture and beliefs. Other variable characteristics could also have an impact on how well a negotiator performs. Irritability, tension, historical relationship between negotiators, physical health among others factors have been noted to affect the negotiation process. These characteristics are, however, quite variable, and depend heavily on the specific negotiation time and situation and not completely on the negotiator’s usual character traits.

As it pertains to the classifiable characteristics, as it pertains to matters of age, research has not proven any significant relation between this variable and the outcome of negotiations. Younger or older negotiators have not been shown to produce better consecutive results than their counterparts. Age is only relevant only as it relates to experience because it is only as the negotiator ages and matures that significant experience would be gathered.

Thus, in reference to experience, it must be admitted that the more experienced a negotiator is with particular negotiating situations, the easier and smoother the negotiation process flows. The know-how gathered with experience gives a sort of comfort level but it does not, however, suppose a greater propensity to succeed. Peterson & Lucas (2001) note of younger, more inexperienced negotiators, that they are more rigid and uncompromising to the proposals of the other side. Overall the amount of experience a negotiator has could in fact impact negotiations.

A negotiators training and education could impact negotiators. While university qualification does not automatically signify a more successful negotiator, researchers have seen some amount of correlation between education and training and the performance of negotiators. However such correlation has not been shown to be significant enough to make a difference.

The sex of the negotiator has also been highlighted as a characteristic of negotiators. The position of researchers on the approaches taken in negotiations by both sexes is mixed. Some studies suggest that women are more compromising than men and make a greater effort to obtain mutual agreeable solutions.

Differences in negotiators’ cultures and beliefs do of course mean that particular tactics and approaches would be more characteristic of particular negotiators more than others. Such differences are, however, too varied to classify. Suffice it to say that a negotiator’s cultural convictions may be against certain negotiating styles.

Of the characteristics of negotiators outlined above, experience appears to be the more crucial to the success of negotiation sessions. More experienced negotiators understand the intricacies of negotiation and are more familiar with the process and steps to take given any negotiation situation. Because of this knowledge gained overtime, negotiators would tend to move more smoothly through the process where a less experienced negotiation would demonstrate hesitancy. Unfortunately some experienced negotiations overtime tend to begin to overstep certain critical phases of negotiation (Peterson & Lucas, 2001) as they are quite competent and thus do not need to plan as much or as well as before.

REFERENCES

Peterson, R.M. & Lucas, G.H. (Fall 2001). Expanding the Antecedent Component of the Traditional Business Negotiation Model: Pre-negotiation Literature Review and Planning-Preparation Propositions. Journal of Marketing Theory and Practice, vol #(issue #), pages.

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Negotiation

Negotiating for a particular goal may sometimes provide some more insights as to how situations can be handled positively. In some cases however, it is also possible for a party to forecast that a certain negotiation is diverting towards a losing end.

Negotiation is a process of deliberation between two parties to meet a particular agreement of mutual benefits (DFM Unitar, 2004). In this aspect, there are some popular points of views in negotiations which can provide outlooks in a win or lose perspective.

One popular view is to consider negotiation to be a bridging platform. If the two or more sides of the agreement will mutually benefit and that the course practice will connect the parties towards respective self development, then most probably the discussion will reinforce a winning perspective for both parties.

On the other hand, it is very possible that negotiations can impose a losing perspective to at least one of the parties involved. If the view of one party is to use negotiation to take advantage of the other side, and that the other side has no means to counter an imposed agreement due to other prioritized factors, then the latter will be on the losing streak. Therefore, views about a particular negotiation dramatically predict who will win or lose in an agreement.

On a personal note, I had experienced losing in a conflict. This happened when I complained about the higher rates being applied to my credit card bill. I called the company and insisted that I did not deserve such monthly bill rate since I was actually paying a 0% installment plan for an appliance. The agent explained that an additional purchase outside from the installment program can actually increase charges.

He pointed that out in the contract which I was never initially aware of. I was outraged by the seemingly unfair situation I had but when I read through the bill statement at the back of the bill page, the terms of agreement written was actually clear. It was actually my fault that I did not read through the note probably because of the excitement of having my own credit card account. In the end, I accepted my losing experience in the conflict.

A negotiation is usually initiated whenever there is a looking conflict between individuals or entities (Wertheim). But even though it can resolve problems, there are times in which mutual benefits will not be achieved. To lessen the impact of this dilemma, it is only crucial that negotiating parties deliberate well to meet the needs of individual sides of the agreements.

References

DFM Unitar. 2004. Negotiations in Debt and Financial Management. Online Resource Center UNITAR. Retrieved February 21, 2008 from http://www.unitar.org/dfm/resource_center/Document_Series/Document4/3Theoretical.htm.

Wertheim, E. N.D. Negotiations and Resolving Conflicts: An Overview. College of Business Administration, Northeastern University. Retrieved February 21, 2008 from http://web.cba.neu.edu/~ewertheim/interper/negot3.htm.

 

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Negotiations: Methodologies for Unilateral and Collaborative Situations

Negotiation is the preferred method of communication instead because conflict creates unwanted effects to a working relationship. The articles outlined three essential uses and/or strategies of three different authors whom approach to negotiation fit their industries as well as their creative abilities. In Resolving Real Estate Issues, Gerald M. Levy (1999) addresses four primary steps of negotiation: pre-negotiation, presentation and negotiation, intense, agreement and closing phrase (p. 2). The outline is understandable and workable in any industry in which negotiation is relied upon for optimal results.

Meadow discussed the basis of negotiation being an art and science that mixes a party’s ability to bargain with their opponents. The issues stated within the article addressed the basic needs of any individual involved; for instance, “skilled negotiators can separate the conceptual part of negotiation (the “science”) from the behavioral aspects of negotiation (the “art”) to solve the underlying problem that a lawsuit represents (Meadow 1).”

This act of negotiation is very intriguing because you are approaching the aspect of negotiation in a law setting in which rules are outlined by the court, but your use of tactics are up to you and your opponents. In The Art and Science of Problem-Solving Negotiation, Meadow (1999) uses detailed examples to corner a creative negotiator’s ability to overthrow sessions (p.2). These tactics fit their personality and the structure increases negotiator’s chances of success in negotiations. Shaping perceptions of alternatives sets in the pre-negotiation phase of negotiation can lower the limits of acceptable agreements.

For example, a web design company needs a copywriter with writing skills to boost their profits. The market price for a freelance writer is roughly $20/article, but they are offering a per project basis. In this negotiation, a copywriter will pull for the market price or higher due to years of professional experience. This is an example of Meadow’s (1999) belief in shaping the competition’s objectives to fit that of one’s intentions (p. 5). Without the proper game plan, the art and science of negotiation goes out of the window once more problems arise.

As with my example, a negotiator can make commitments, threats, and focal points stick all irrelevant issues aside for a reasonable bargaining set to continue its process within a negotiation. This follows from their previous example. Their ability to highlight this point will make the company re-arrange their current ideal of what a copywriter should be paid per article. Not that it is a threat, but it is a reasonable explanation of why they need to pay the amount instead of losing the writer. In Resolving Real Estate Issues, Gerald Levy (1999) practices influencing aspirations are higher suggestions in return for a need can generate better results (p.2).

Once I understand the dynamics and true market price of a copywriter, I may want more for their work. The web design company is trying to use their talents at a cheap price so I will leave them alone for a set period of time to see if their position changes. By contacting their competition about copywriter salaries, I can gain leverage by addressing it in our next meeting. I am boosting their aspirations to receive the payment I deserve and ‘more’ for their services. After I receive this information, I can develop a stronger position in what I deserve.

Meadow (1999) and Levy (1999) believe that taking a position will cause an opponent to withdraw from their first perspective of the situation (p. 1 and 3). If one chooses to use strong positions, they must stand firm within decision making so opponents will understand and not budge from previous arguments.

For example, if I were asked to accept a lower salary, I will not agree with the web design company and leave the negotiations. This puts my services as a valuable mean for a company’s success in their market. It is very important to keep this in mind while developing a stronger argument for future negotiations. I believe I must remain strong during these steps into a negotiation because companies try to manipulate prospects.

These authors were correct in establishing a strong position for unilateral and collaborative situations. In order to create a better outcome on each end, it should remain essential to practice the art of negotiation without budging to the intense negotiation strategies thrown within the conflict. The preferred methods of Meadow (1999) and Levy (1999) can be implemented in numerous settings; one’s flexibility to establish rapport with an opponent without harming or burning bridges is very important (p.3). Meadow’s (1999) objectives can act as repetitive methodology to instruct new negotiators in the law scene. Many other methods can be helpful, but the ideal argumentation comes from the negotiator’s overall motivations.

References Cited

Menkel-Meadow, Carrie (June 1999). “The art and science of problem-solving negotiation.” Trial. Washington, p. 1- 7.
Levy, Gerald M. (Fall 1999). Resolving Real Estate Issues. Real Estate Issues. Chicago.  Vol. 24, p.1-8.

 

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Hrm-595-62172 Negotiation Skills

FIELD ANALYSIS: UNDERSTANDING THE KEY PARTIES AND THEIR ROLE IN A NEGOTIATION Instructions: For purposes of this assignment, assume that you are the negotiator who is tasked with a salary (on call time, step increases, overtime for captains and majors) and benefits (insurance while employed, insurance after retirement, accrual of leave time, retirement multipliers) dispute between a large municipal county with a strong mayor and the sheriff’s department for the county. You are negotiating the contract on behalf of the sheriff’s office.

The purpose of this activity is to give you an opportunity to construct a field analysis on your relationship with a specific other negotiator. This tool should be helpful when negotiators have to consider multiple parties—on their own side and on the other side—who can affect a negotiation outcome, and whose needs and interests must be considered. YOU/YOUR TEAMOTHER/OTHER’S TEAM 1. Who is on my team on the field? (A) —Me —The Sheriff’s office 2. Who is on their team on the field? (B) —Large municipal county Mayor 3. Who is on my sidelines who can affect the play of the game? (C) —Back up players (Captains, Majors, Retirees, Insurance Company, Community Organizations, National Sheriff’s Association, Court Agents) 3. Who is on their sidelines who can affect the play of the game? (C) —Back up players (Unions, Employees, Councilmen/Freeholders, Business Owners) 4. Who is in my stands that are involved and interested, either directly or indirectly? (D) —Residents —Business Owners —Employees —Media 6.

Who is in their stands that are involved and interested, either directly or indirectly? (D) —Residents —Business Owners —Employees —Media 7. What elements outside the stadium have an interest in the game, or can affect our game in positive or negative ways (E): —Depending upon how a Sheriff is appointed, an election can +/- affect the rules in our negotiation; —Change in climate can come from community support and national association lobbying —Concession from the mayor and municipality —The police department can be a competitor . What elements outside the stadium have an interest in the game, or can affect their game in positive or negative ways (E): —Depending upon how a Sheriff is appointed, an election can +/- affect the rules in our negotiation; —Negative media coverage highlighting the mayor when there may be a large constituency in favor of the Sheriff’s point of view, may change the climate —Other competitors may include a mayoral candidate seeking to gain support and using the negotiations as a platform to garner support

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Writers Strike

The Writers Guild of America is a labor union that represents the thousands of professionals who write what we see and hear on our televisions, in movies, and. The guild combines the efforts of two different US labors; those east of the Mississippi are included in the Writers Guild of America, East. Those members in Hollywood and southern California would be part of the Writers Guild of America, West. Once ever three years the East and West guilds come together to negotiate an agreement with the Alliance of Motion Picture and Television Producers.

The Alliance of Motion Picture and Television Producers is the association that conducts all the negotiations across all the industry-wide guild and union contracts. In the particular year of 2007 when it had come to the negotiating time of year the Writers Guild felt it was time to fight for change this time around. When home video was just starting out the studios asked the writers to take an 80% cut on their pay of videocassettes in order to expand the industry.

This was done with the understanding that once home video was a healthy market the studios would give back what they had given up. With sales soaring with the selling of DVD’s and the use of digital downloading the writers pay has yet to be changed from their pay cut. Dave McNary of Variety Magazine stated that “the Writers Guild wants studios and networks to take a serious look at the Guilds proposals – which seek a doubling of DVD residuals, spelling out terms of new media work and broadening WGA jurisdiction over new media, reality and animation.

Attempts at a negotiation to avoid a walkout failed as the Guild announced they would start their strike on November 5, 2007. The Writers guild had a solid reason behind their strike. Patric Verrone, President of the Writers Guild of America stated, “What we must have is a contract that gives us the ability to keep up with the financial success of this ever-expanding global industry. ” In response to the Writers Guild’s DVD proposal the Alliance of Motion Picture Television Producers tayed with the fact that the studios’ DVD income was needed to pay for the rising costs of production and marketing.

The AMPTP took a solid stance on their approach to the negation. AMPTP spokesman Jesse Hiestand shared that “the AMPTP may have different companies with different assets in different businesses, but they are all unified in one common goal – to reach an agreement with writers that positions everyone in our industry for success in a rapidly changing marketplace. Although the AMPTP was after mutual benefit things always didn’t go that way.

One of the major issues that happened throughout the writers strike was the fact that negotiations between the two parties would fall through. One particular issue that broke up the negotiation was the issue of payment for content broadcast free or bought over the Internet. Finally after 100 days ups and downs the two parties came to an agreement. The deal they came to put in effect a scale of royalty payments for writers whose work is sold over the internet. Over the 100 days the writers strike lasted, there are several things that could have been handled better.

One of the greatest things is this childish behavior reported by Multichannel News Reports stating “Representatives for the writers guild and the studio alliance are blaming each other for the lack of negotiations. ” They could of avoided this issue and possibly could have had an agreement before the strike if they approached the negotiation by separating the people from the problem and working together towards mutual benefit. The greatest thing that went well in this negotiation is the positive outcome.

Writers Guild President Patric Verrone said, “this was not a strike we wanted, but one we had to conduct in order to win jurisdiction and establish appropriate residuals for writing in new media and over the internet. Rather than being shut out of the future content creation and delivery, writers will lead the way as TV migrates to the internet and platforms for new media are developed. Those advances now give us a foothold in the digital age. ” The outcome that came from the negotiations between the two parties sets them off to a positive co-existence in the future.

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Negotiation Strategy Analysis: Vendor Negotiations

Most businesses incorporate strong negotiation skills, especially within the purchasing department. A company must be able to negotiate with vendors to ensure they receive the best price available on items both used and consumed by the business; this also includes hardware and software considerations. Regardless of the industry, building vendor relationships are necessary. The writer will look at vendor negotiations from two different perspectives with one common goal; negotiate the best contract for all parties. The writer will then compare and contrast the different negotiation strategies as they apply to the oil and gas industry.

Vendor Negotiation Process The first article is about Mark Carbrey; Chief Information Officer (CIO) for a Massachusetts-based automotive service organization. His negotiation strategies allow up and coming team members to gain valuable experience with the negotiation process (Overby, 2010). He teaches his team to treat the vendors like a partner. He also teaches them to sort out what is important for the business, and to fact check with contacts that have similar contracts to ensure a fair market price from the vendor. Carbrey also stresses the importance of acquiring the support from the board of directors down (Overby, 2010).

The second article takes a slightly different approach to vendor negotiations than the first article. Joe Auer, Founder, and president of International Computer Negotiations (ICN), has over 35 years experience helping technology users do better and safer deals with vendors (ICN, 2011). Auer believes that attitude toward contract negotiation is one of the most important issues the negotiator faces. Auer’s article is a bulleted list of the “best practices” a negotiator should adhere to during the negotiation process. He uses the analogy of a pilot with 20 years experience still uses a checklist before take-off.

So too should a negotiator. He reminds the negotiator that a supplier often places untimely stress on himself by telling his boss, “the deal is done” before he has confirmation from the negotiator. Negotiators must use this to their advantage. He also shows that wording is subjective such as using the word preferred instead of needed. Auer states the negotiation process begins the first time information transfers to a potential vendor. He also states the negotiator gains or loses power with every succeeding transaction (Auer, 2011). Application to Work Environment

The oil and gas industry is very competitive. Entry into the market is easy but sustainability is difficult. The organization plagued by many of the same issues in information technology that most industries face. Using negotiating strategies is crucial to ensuring the best contract is both functional and valuable. The first article gave sound advice for setting the groundwork of negotiation strategy but did not explain the common pitfalls inexperienced negotiators face. The second article gave a clear checklist that a negotiator can refer to at any point during the negotiation process.

Conclusion Negotiation skills are a necessary part of today’s highly competitive marketplace. Building vendor relationships through the negotiation process is a delicate process. Although there is no one way to negotiate the best contract, one can incorporate the expertise of those with experience to develop the skills necessary to negotiate a fair market price with terms that meet the expectations of both parties. The two articles featured in this paper show very different perspectives with one common goal; to educate the reader with tools used in past negotiations.

Reference

http://www.reuters.com/article/2010/01/30/urnidgns002570f3005978d8852576ba00729ce-idUS345057569120100130?pageNumber=2

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Striking the best deal: a closer look at negotiation

Negotiation styles must be dynamic and flexible; they ought to be adapted based on the context in which they shall be utilized. These styles may either be competitve or collaborative, depending on the extent to which the individual considers himself and the person he is negotiating with. The following scenario has been relayed for purposes of reflecting on my negotiation style and on the tangible means through which I can improve it.

Negotiation has been overlooked as an important management competency / skill as it was limited to the confines of the conflict – resolution phase. This skill whose aim to is to minimize differences between parties, can also be effectively used as a tool for information-sharing, influencing and building or strengthening relationships. This tool is most helpful where the environment promotes openness in communication, particularly in the sharing of information and involvement of everyone in the decision-making in the organization.

Discussion

This paper begins with a thorough discussion of the context in which the negotiation tool place. I have worked as a Human Resources Manager for a Battery Manufacturing company for two years now. After a careful review of my performance, I believe that my salary raise has been way overdue. There were several things which I had to adequately prepare prior to my negotiation with my boss. First, I had to gather as much objective / emprical evidence to back up my case.

This meant going through my performance reviews, and seeing the achievements and the merits which I have accomplished for the past two years. I had to make sure that my claims were backed up by verifiable critical incidents. That is, my evidence must be as objective as possible so as to gain credence and strike up a reasonable bargain with my superior. My objective for the negotiation session was to convince my superior that I add value to the enterprise and therefor deserve a raise that will make my recent promotion worthwhile.

I then proceeded to schedule a meeting with my boss and went through the process of negotiating for a salary raise. I began the discussion with asking him about how he evaluated my performance for the past two years. He said that he thought my performance was exemplary and that I excelled more compared to the other managers of the department. I thanked him for his compliments and proceeded by giving a summary of my achievements within the past two years. I supported each of my traits with critical incidents. I ensured support for both technical exerptise and soft skills.

I also gave a brief rundown of the training sessions which I have attended which demonstrated by authentic intent to improve myself further. I then showed my boss the strategic map of my company which illustrates the different strategic objectives of the organization, from the various perspectives of our Balanced Scorecard, encompassing financials, customer, best business practice, business development, and learning and growth. I again pointed out how the effective performance of my role is able to contribute to each of the strategic thrusts across these perspectives. He seemed to be convinced of the value of my role and my drive to excel.

I then articulated my belief and feeling that my salary increase has been long overdue. He responded by saying that currently, the company has some financial considerations which has compelled him to be be very careful in giving raises lest we go beyond our operating budget. I responded by expressing empathy over his concern; “yes I understand the situation, Sir”. Since reason appealed more to my boss more than feelings, I decided to further rationalize the need for me to have a raise.

I said that based on benchmark data, I feel that my pay is below the industry average when compared to parallel positions in other companies. I showed him the data. With salaries which are uncompetitive, I put forth that we will surely lose critical talent. I have also added that with the addition of one more child to my family, I pragmatically need more financial resources more than ever. He seemed to agree with my arguments and yet he still maintained that the company was currently experiencing financial constraints which I must be able to consider. Again, I have expressed empathy of the situation.

I then proceeded by asking him about his ideas about my proposition. This discussion was very important since both parties were engaged in the brainstorming and decision making process. He again reiterated the fact that the company then was experiencing certain financial constraints. After proposing severla alternatives, he agreed on a ‘conditional’ raise. First, I would have to show consistency in my performance within the next six months, exhibiting the same level of excellence and results orientation in my work.

He said that the financial figures would have shown a turnaround by that time. I then reassured him that I am willing to compromise and that I thought that the proposal was reasonable. I volunteered to summarize the discussion, and reiterated that I was expecting a 20% raise in my basic salary after an interim performance review, six months from the time of our discussion.. He finally agreed. Finally, for clarity of the agreements between us, I have volunteered to document all that was agreed upon so that we could sign for documentation purposes. He has also agreed with this proposal. I then proceeded to doing the minutes of the session and to have him concur to all that was stated in the document.

There were several things which I have learned from myself from this experience on negotiation. First, it may be beneficial and reasonable to exhibit assertiveness when it is due. Had I not decided to muster all my courage to negotiate with my salary increase, I would not have gotten his word – also, considering the organization’s conservative position when it comes to giving out raises. I have also realized that it is always beneficial to use key principles that ensure the smooth interpersonal relationship between two parties during the negotiation process.

First, I have ensured to maintain or enhance his self-esteem despite being somehow frustrated with the fact that I have not received a raise for such a long time. I have expressed to him that I still felt motivated and driven in my work despite the lack of that hygiene factor – pay. Whenever there were instances wherein it appeared he lacked management skill, I always ‘balanced’ it off with a positive trait. This was to ensure that antagonism would not develop as a reaction from him. I found this very effective and critical in the process of negotiation.

Next, I have also practiced the use of empathy. I always assured him that I understood the tight financial position that the company was experiencing then. I also assured him that I understood why he was not able to recommend a raise for me within 2 years’ time when he explained that the company was still in financial rehabilitation. Another effective technique was to engage him in brainstorming for ideas. If the idea solely came from me, he would surely not have buy-in with it and would tend to antagonize it. On the contrary, since he was part of the process of thinking of the best alternative for resolving the situation, he remained amiable and accepting throughout the whole process. This facilitated the discussion and made us arrive at a mutually beneficial option.

There were also several things which I have learned about my superior following that session. I have realized that he was a very rational person, who bases his decisions on empirical data. He wanted support for all that was said. I feel that this was reasonable and has helped encourage objectivity from both parties. I came to the session prepared with all the necessary documents to support my arguments, knowing that he will be more appreciative given all these ‘evidence’. In effect, the sense of subjectivity from both parties is diminished which also helped maintain that atmosphere of amiability. I then realized from the experience that it is very important for a manager to be psychologically prepared before going through any negotiation or bargaining process.

This experience was quite different from the parties whom I have negotiated with in the past. One difference was the personality of the party whom I was negotiating with – my superior was highly objective and was willing to negotiate. Such willingness and objectivity are very important. There were parties in the past who appear to be very antagonistic to begin with, and were not willing to compromise. In effect, the session was simply about manipulation and getting the other party to agree to what one wants.

This is a wrong assumption, and is marked by close-mindedness. Another difference which I have noted was the willingness of my boss to reach a reasonable compromise. He listened to my arguments and assessed if they held water. If they did, he acknowledged them and were open to them. He also considered the financial constraints of the company and had to adjust his proposition so that both parties may benefit.

It should also be noted that in the process of negotiation, managerial-level bargaining is controlled by the organization in such a way that the company’s interest is placed at top priority, unshadowed by the personal interest of the manager (Ramundo, 1992). The effectivity of the negotiation is also seen in the prevalence of the organizational interest as negotiation can be exploited to serve the manager’s or negotiator’s personal objectives. In the future, I would proceed by researching not only about the profile and the ways of my superior per se, but also of other factors which may influence the bargain.

For instance, I was not able to take into consideration the fact that the company was then experiencing financial constraints at that time. A profound knowledge of all the factors that may affect the negotiation process is critical, so that the alternative reached after the process is one that is realistic and that does not put undue pressure on either party.

Conclusion

The competency of negotiation is a must for every manager. As a business leader, the ability to communicate with persuasion, presenting an idea and coming up with options in order to reach an agreement between parties is a well-known, yet unmastered competency. Studies have shown that this skill has been linked to Emotional Intelligence. Ergo, being a good negotiator entails possessing a high EQ. But like any other skill, the researcher believes that negotiation can be developed through training, concepts, knowledge of the techniques and practice. I have learned from the experience that it is important to exhibit assertiveness and effective interpersonal techniques during the negotiation process. Moreover, it may also be helpful to ‘size up’ the party you are bargaining with to be able to use the most suitable bargaining techniques.

I have realized, too, that more than convincing or influencing decisions, negotiating is also about developing and maintaining relationships. In the field of business, this is one of, if not the most important aspects in surviving in its tough arena. The negotiating table is a staple in the life cycle of business – from the start of the partnership, to term modifications until the end of the business relationship.

When one speaks about the skill or process of negotiation, it is usually associated with business deals, bargaining or conflict resolution. However, little did most people know that it is also one form of influencing which is aimed at achieving win-win outcomes (Manning & Robertson, 2004).  It was also described as the process wherein parties meet having different objectives and / or values basing from their motives or interests.

The end product of such process is to at least minimize the conflicting differences, so as to reach a mutual agreement. In the experience which I have just related, I was willing to compromise in having a raise, but within a time frame proposed by my boss. If I had insisted on what I wanted and was not willing to delay gratification, this could have possibly breeded antagonism and would have pre-empted the smooth closure of the negotiation process.

Though the definition may sound too theoretical, managers are very aware of its practical power in the lifeblood of businesses in all industries. It is through negotiation that the business is opened up for partnership, whether it is for dealers, suppliers or customers. For issues that may be surrounding the deal or service, the negotiating table is the venue for smoothing out these issues and maintaining the business relationship. And in the final stages of the business partnership, remaining issues or options on the business are discussed in the process. Following these circumstances, conflict can readily emerge in the process due to the premise of persuading another party to be performing an action or agree to an idea which may be quite disagreeable for some reason.

More specific examples of negotiation can be seen in the following: Managers do negotiation with union contracts (Walton & Mackenzie, 1965), resource prices and allocations, delivery schedules, promotions, compensation packages (Lax & Sebenius, 1986; Murninghan, 1992), and a myriad of other aspects of organizational outcomes ( Wall & Blum, 1991).

This was further emphasized by Mintzberg (1993), pointing out that negotiation was identified as a primary managerial role, particularly in decision-making. Ramundo (1992) postulated that almost two-third of the managerial function is devoted to dialogues in all levels within the organization even if this was not primarily considered in orthodox writings on management. Over the years, organization-based negotiations have not only increased in frequency, but also has become more critically complex.

Wall & Blum (1992) observed that it has likewise put on a more ambiguous and changeable which could be attributed to the interdependencies between organizations brought by the globalization and the trend of diminishing boundaries. In addition, they also cited the cross-cultural differences brought by international business as well as the current pack of employees who are well-educated possessing knowledge of expert caliber.

Thus, as a manager, I feel that negotiation ought to be a core competency, since in the organizational setting, there are many conflicts where negotiation may be useful. Through a thorough knowledge and practice of negotiation techniques, these situations may be handled with greater ease.

References

Lax, D.L. & Sebenius, J.K. (1986). The manager as negotiator: Bargaining for cooperation and competitive gain. New York: Free Press

Wall, J.A. & Blum, M.W. (1991). Negotiations. Journal of Management, 17, 273-303

Ramundo, B.R. (1994). The Bargaining Manager: Enhancing Organizational Results Through Negotiation. Westport, CT: Quorum Books

Mintzberg, H. (1973). The nature of managerial work. New York: Harper and Row

Walton, R.E. &  McKersie, R.B. (1965). A behavioral theory of labor negotiations: an analysis of a social interaction system. Ithaca, NY: BLR

Manning, T. & Robertson, B. (2004). Influencing, negotiating skills and conflict-handling: some additional research and reflections. Industrial and Commermcial Training, 36, 104

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Negotiation styles & strategies

The teachers were very un-collaborative in their approach towards the negotiation and seemed quite unwilling to bend in their resolve not to accept the proposal offered by the board of Education. The teachers basically attempted to force the hand of the board by deciding to go on a strike. Considering that the area had only recently suffered from the effects of the September 11 strike on the Twin Towers and that there was some amount of adjusting to be done, the teachers seem to have manipulated the situation in order to achieve their objectives.

The strike commenced only a few hours after the end of an agreed moratorium period according to Hanley (2001a). This is suggesting that little or inadequate attempt was made to pursue peaceful negotiations prior to decide to enter into an industrial strike. Furthermore the teachers made no attempt to relent or relax their position but were willing, even under punishment of imprisonment, to hold firm to their original position without any or little adjustments or compromise. The board wanted to increase the teachers’ maximum contributions to the health insurance scheme from $250 to $860 (Hanley & Jacobs, 2001). The teachers were adamant in refusing any sort of increasing wanting the figure to remain as was.

So determined was their resolve that at the time of the unsuccessful conclusion of the negotiations 225 teachers, secretaries and other union members had being jailed because of their refusal to obey the court order to return to work (Hanley, 2001c). Had the union leaders not decided on the 29th of November to instruct its members to obey the court order to return to work, the impasse would have probably continued with even more teachers being jailed.

The union however, seemed at one point willing to relax the teachers’ position on the issue of the proposed increase in teachers’ contributions to the health fund. The teachers relaxed their positions partially when they agreed to a set of settlement recommendations proposed by the mediators which would have seen them compromising their position significantly. However the position of the board was even more adamant and thus no solution was arrived on the issue.

The teachers attempted to justify their rejection of the proposal put forward to them. The proposal put forward by the board sought to increase maximum payments by about thirty per cent in one instant. This amount appears to be very unreasonable. Of course the board could not accept the teachers’ proposition that the fees stay as they were before. In their opinion, payments for teachers’ health benefits was costing the district much too much, approximately $8 million (Hanley & Jacobs, 2001). On the extreme though the proposed level of increase in itself appeared exorbitant and too great a percentage increase.

Additionally the teachers felt that their proposal was a lot more reasonable. They suggested helping the board to cut costs by no longer requiring reimbursements on prescriptions (Hanley, 2001b). This proposal would lead to saving on the part of the board and would also ensure that the teachers do not have to pay increased premiums. This alternative seems like a very feasible position but the board was not willing to negotiate on this issue.

On the 29th of November the teachers were instructed by their union leaders to return to work even though the negotiations had not concluded and there was no decision on the issue. It would seem in this regard that the teachers were the ones to have lost because, aside from being imprisoned for a few days, they have to suffer the embarrassment of returning to work without their original demands being met.

It would therefore seem that the teachers did not carry out the negotiations as best as they could since they did not end up reaching a reasonable solution. A number of factors could have contributed to this failure suggesting of course, that the teachers erred in a few areas. First the teachers did not choose an appropriate time to commence the industrial strike. While, in their view the matter seemed to be urgent, they did not consider the psychological environment at the time. The area had only recently been affected by the terrorist bombing of the World Trade Centers. The district was still recovering from the effects of this national disaster and therefore it was not appropriate for the teachers to strike at this particular time.

In addition the teachers did not garner enough support from the community. Hanley & Jacobs (2001) point out that “it was hard to find support for the teachers among Middletown residents.” The members of the community were upset that the teachers chose such an inappropriate time to strike. They were also concerned about the welfare of the students who would be without instruction until the issue was resolved.

Probably a meeting with the parents of students prior to going on a strike could have explained the seriousness of the teachers’ position to them and asked for support. In addition many parents did not agree that in that economic climate that the proposed increase was as terrible as the teachers were making it out to be. The fact that there was not widespread support for the teachers’ strike may have pushed the union to demand its teachers back in the classroom even though negotiations were not finalized.

Finally the teachers themselves seemed not to have entered the negotiation with a correct mindset. They seemed only to be heading for a win/win decision and were not willing to lose not even a little bit. The option they proposed to the board, though it sounded reasonable, did not see them compromising as significantly as they expected the board to compromise to meet their demands. The teachers were unwilling to collaborate effectively to come to a decision feasible and acceptable to both sides.

REFERENCES

Hanley, R. (2001a, Nov 30). Abrupt Walkout by Teachers Closes Schools in Middletown, N.J. The New York Times. (Late Edition (East Coast)), D5.

Hanley, R. (2001b, Dec 4). New Jersey Teachers Jailed for Continuing to Strike. The New York Times. (Late Edition (East Coast)), D1.

Hanley, R. (2001c, Dec 8). In Middletown, A Strike Ends Without a Deal For Teachers. The New York Times. (Late Edition (East Coast)), D1.

Hanley, R. & Jacobs, A. (2001, Dec 6). Teachers’ Strike Grows Angrier, But Support of Residents Is Elusive. The New York Times. (Late Edition (East Coast)), D1.

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Pulchara Negotiation

Introduction

This is paper seeks to analyze and discuss the results of a simulated negotiation between two nations which are Pulchara and Veritas. This researcher represented Pulchara as Deputy Foreign Minister of Economic Affairs to negotiate with the Diego, as the First Secretary for International Legal Affairs from Veritas on issues of compensation caused by damaged to Pulcharas’ farmers crops caused by a chemical pesticide DS-30 leakage from a chemical plant in Veritas that had adversely affected large tracts of Pulchran farmland.

After the negotiation, there is a good ground to now have analysis whether there is basis to sustain of the application of tools that this researcher has learned in class to a deeper understanding of the negotiation. The analysis therefore basically as ask reason for the working of negotiation tactics employed in the case and wells as the finding the reasons for the partner having been able to set the frame more effectively than me.

Using evidence of what really happened in the negotiation as well valid references; this paper will try to revisit what happened in the preparatory phrase including the sort of preparation and what strategy did developed.  Included also are the applications of the concept of BATNA, target point, resistance point, position, interest and positions, anchors  during  entry phrase. In addition, discussion extend to framing preferred and applied by the parties, shaping the end game after the first agreements and whether special topics on culture, gender power, personality, communication, or other thematic issues did play in the negotiation.   A conclusion on the analysis made will form to end the paper.

The preparatory phase

At the preparatory phase, I needed to know what I wanted to have for my country and that is to compensated by Veritas within an amount I believed that is fair enough within a certain predetermined range of figures.  As the representative of Pulchra I approached this negotiation with a Calculus-based trust. I depended on a history of cordial relationship with the Veritas and hoped they will reciprocate. I felt as if I did not have a great BATNA, because winning the election was main concern, and it can only happen if Diego of Veritas spills out the money. I went in with my Resistance Point at 50 million and Optimal point at 100 million.

I found my negotiation with Diego very peaceful and respectful. I ran into a trouble when I could not explain why we cannot export the damage crops in a time of emergency. I have explained to him that the crops were destroyed by the farmers according to our legislation. He argued that they could have been exported to other part of the parts of the world, and our policy states no import over 4ppm.

Diego stated that he can only compensate for the 300,000 mt because it went over 12ppm. I could not get him to come to 800,000mt. I became a little forceful and expressed signs of disrespect when he offered 300,000mt for 125/mt which comes at 37.5 million. Showing signs of a salesman, he offered 500000mt for 125/mt expressing that the farmers are interested in their inflated price of 125/mt, and agreeing to this agreement will make all of us happy. He explained deal comes out at 62.5 million and knowing that congress will reimburse them will 50 million which will come out as 112.5 million, this being over their original demand of 100 million.  I guess Diego knew that I do not have a good BATNA and that he knew that what is important to me is that I got the farmers compensated

The use of BATNA

My BATNA (Spangler, 2003) was to walk out of the negotiation is to bring the complaint of the farmers to the international courts and have Veritas pay the higher or actual amount if the Diego will not agree within my Resistance Point at 50 million and Optimal point at 100 million USD. Veritas’ BATNA was clear as Diego was able to parlay on the table ways to expand the pie when he has sensed that I was losing respect when he started his offer to paying 300 mt at about 37.5 million USD.  Veritas’ side was able to anchor on his belief that my government would be ready enough to give 50 million USD from the act of legislature.

The use of framing

As to the use of framing by either side it may be stated that the other side’s preferred frame is the further expanding the pie as Diego saw my limited options. With his knowledge that I am interested to have that $100M  as compensation of the damage for $800M, he as was brave to say that I could get the part of the amount the from my government. I know that knowing the interest behind my position (Fisher and Ury, 1981) taken is more important in negotiation.

This I came to know after I have revealed the experience of a country who found it difficult to pay after they found the effort was not made to have the commitment of the responsible country to have at least promised some compensation.  I realized telling Diego a part of my BATNA world worse than it should have been. This happened because Diego perceived that my BATNA is worse than I thought. He used power in the conflicts (Coleman, 2000).

Between the two of the negotiator I feel Diego was more persuasive since he seemed to have prepared more for the negotiation up to what level I would be anchoring the negotiation. He seemed to know my asking price. Since his country is basically admitting responsibility he was in a sense to be finding the best criteria to base this country’s liability.  I found that I basically told him what is my interest and he seemed to have read it easily and thus the negotiation was not as difficult as I had expected.

The main negotiation

As to the main negotiation, it may be asked: What tactics were used by both sides? Was it more collaborative or competitive (or did it switch over the course of the negotiation, and how)? Why were these tactics effective or not?In response to the questions, I guess both of us applied the collaborative approach (Weber, and Khandemian, 1997; Meiners and Miller, 2004) as I started with the negotiation by approaching this negotiation with a Calculus-based trust. Having depended on a history of cordial relationship with the Veritas and with my big hope that they will reciprocate, I actually set the stage for a very collaborative instead of competitive one.

This researcher believes that the tactics employed were effective enough because we chose to expand the pie instead of taking a hard-line position in the negotiation. I was looking forward to the election of the President of my country and who continued stay will also keep my long-term in office as government official and a representative of my country on issues of international dealings like the negotiations I had.

As to endgame stage of the negotiation, the following questions  may be asked:  Once we had some agreement on the main points, or a `first agreement`, how did the remaining points shape up, and what brought us the negotiators to the final deal? Did we try any `nibbles` or other tactics in this phase? How well did they work?

What has kept the negotiation proceeding well, I believe, is based on our giving much importance to our relationships is friends and this has led the negotiation proceeding almost very smoothly. With Diego understanding the destruction of the farmers would be important to my country and his country’s readiness to respond to the need by ad admission of the result of the damage, the issue was more the amount of the compensation.

We conducted the negotiation in a relatively peaceful and friendly environment where we feel we could just make thing free flowing.  Diego as I said has the marking of salesman since from his offer of compensating only 300,000 metric tons of the crops which had effectively raised by blood pressure because the amount of compensation would be below my walk away price of 50 million, he was magnanimous and friendly enough to bring it into 500,000 and thereby sending the amount of 62.5 million USD.

He capped it by saying that 50 million could be coming from my country’s legislature and that would exceed the 100 million being demanded by the farmers. I guess, there is wisdom in what Diego did in jumping from 300,000 metric tons to 500,000 tons as a sign of building greater business relationship  with the offer of buying the my country’s farmer’s products for the next five years.  Diego again I suppose know my BATNA and he sensed that my country’s farmers have limited options where to sell the products.

Although a bit satisfied, I felt I should fish for more damaged crops. I insisted that he should compensate for the damage of at least 600,000 mt for the market price of 115/mt. I tried to cajole him into our friendship in the past and that I have to explain the farmers why I cannot compensate for more of damaged crops. They complied according to our law and damaged crops is 800,000 mt not 500,000 mt, which you party is culpable of. He was resolute about his offer, but did bend a little by offering to buy more crops from us in the future, which came about 5 years agreement. I could not set the price of future crops with him due to shortage of time

The relevance of culture, gender power, personality, communication, or other thematic issues in negotiation

As to whether culture, gender power, personality, communication, or other thematic issues play in this negotiation, I believe they have played a part to the extent how one negotiator feels about the other.  Diego’s personality was that of sales man and so was I. We felt there was better reason to agree on many things despite the conflict than walking out of the negotiation.

Conclusion

To conclude, it may be stated that I felt if I was a little aggressive in the beginning and showed more of a concern about the election, and Verities has no option but to help us out with 100million. By expressing that it is in both Presidents’ interest that we win the election and dictating that there will be no compromise in the 800000mt damaged, especially from a friendly nation. Most likely my deal would have closed with much higher offer than 62.5 million. I still would not have a threat approach, by challenging them to the Nuclear charge. I feel cooperative approach is the only way to go.

This experience has also proved to this researcher the importance of frame, the significant role played by having BATAN, anchoring one’s argument of what may deemed fair that could further expand the pie as well the greater benefit in collaborative negotiation rather a competitive one.

References:

Coleman. P (2000) “Power and Conflict.” Morton Deutsch and Peter T. Coleman, eds., The Handbook of Conflict Resolution: Theory and Practice San Francisco: Jossey-Bas Publishers, 2000, pp. 108-130.
Fisher and Ury (1981) Getting to Yes: Negotiating Agreement Without Giving In. (New York: Penguin Books, 1981), 104.
Meiners and Miller (2004) The Effect of Formality and Relational Tone on Supervisor/subordinate Negotiation Episodes; Western Journal of Communication, Vol. 68
Spangler, (2003) Best Alternative to a Negotiated Agreement (BATNA), {www document} URL, http://www.beyondintractability.org/essay/batna/, Accessed December 14, 2007
Weber, and Khandemian  (1997) From Agitation to Collaboration: Clearing the Air through Negotiation; Public Administration Review, Vol. 57, 1997

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Negotiation is a broad and general term

Negotiation is a broad and general term that may be defined in several ways. Not most of us are aware that negotiation happens in almost every aspect of our lives. In fact, San Diego State University sponsored a seminar about negotiation and conducted a survey among the participants about the frequency or rate of recurrence of negotiation in general in their lives. Sixty four percent of the respondents answered ‘always’ (Stark, 2008). That must mean that in most aspects of our lives, we do negotiations.

To fully understand, negotiation, it is significant to go over several definitions that may narrow down the long list of definitive terms used to define the word. Gerard I. Neirenberg wrote the book “The Art of Negotiating” and the president of Negotiations Institute, Inc. in New York. According to him, negotiation as the exchange of ideas in an attempt to alter the status of a relationship and deliberate to make an agreement. (Stark, 2008)

The iron ore price negotiations are an example of a negotiation. An article released on the 2nd of March this year tackles this issue. It is soon to be settled with the heightened demand for pellets from the Companhia Vale do Rico Doce (Vale), therefore negotiations for the prices of the these items is well underway. The CEO of Vale, Mr. Roger Agnelli, stated that talks are being conducted with their consumers to guarantee fairness in their transactions. Apparently, Agnelli said that Vale wants to assure their clients that they will not be overcharged, and at the same time guarantee that their clients will not be paying a lesser amount either. (Steel Guru, 2008a)

Another article released on the 3rd of March this year reveals a negotiation going on between Vale and Arcelor Mittal. The article is also about the price of iron ores. Vale is active in the mining and metal industry in Brazil. Arcelor Mittal, on the other hand, is involved in the steel business. Apparently, Arcelor Mittal is the major client of Vale. Both companies are negotiating to close a deal involving the price of iron ores that will be purchased from Vale. The negotiation is similar to Vale’s negotiations with other companies all over the world. (Steel Guru, 2008b)

In this scenario, Vale is involved in major negotiations with several companies mostly involved in the steel business. Since the demands for pellets and iron ores have reached its summit, there is a need to negotiate the prices of these commodities. This is to ensure that the buying capacity of clients will be able to compensate the production of pellets and iron ores by Vale. The negotiations would then be a vehicle for companies and Vale to agree on a price that would be advantageous for all.

The main point of the negotiation process is exemplified in a statement by Agnelli, the CEO of Vale, wherein he states that they want to make sure they will not be charging too much for their products and at the same time, their clients will not be paying reduced amounts for the actual cost of pellets and iron ores (Steel Guru, 2008a) Perhaps this is a very good example of a well-mannered negotiation because both parties are making sure to agree at a certain point that would be mutually fair. Conceivably, this is the primary concept of negotiation.

At this point, it would be significant to discuss the elements of negotiation. According to Roger Fisher, negotiation has seven elements namely alternatives, interests, options, legitimacy, commitment, communication, and relationship. Having alternatives means that the factions that are holding negotiations should have back-up plans that they can follow individually just in case they fail to arrive at a consensus. Interests are the desires or the requisites of each faction.

These are the conditions that are reasons for a negotiation between factions. The options available in negotiation are the ways or modes in which two factions can compromise. There should be several options available in a negotiation, and it is best that each of these options ensure that the results would lead to a fair and balanced position for both factions. Legitimacy is the evenhandedness of negotiations based on standards or rubrics that are advantageous to both factions.

The commitment of both factions to adhere to their agreement should be talked about or materialized in a written agreement that would state how they are going to go about realizing what they have agreed on. Communication is a significant tool in negotiating because without it, both factions will not be able to understand and arrive at a consensus. During and after negotiations, the relationship between the factions should have improved to affect a harmonious and workable rapport. (Fisher, 2006)

There are also negotiation strategies that ensure a fair and a balanced agreement favorable to both negotiating parties. To cite three of them, negotiation strategies include assigning people who would lead or represent a party in the negotiation process, evaluating the weaknesses and strengths of both negotiating parties, and developing a negotiation plan where priorities are ranked as to importance. Assigning people to represent a party in negotiation proceedings is strategic in nature because the acquisition of the objectives of the party is dependent on their performance as a negotiating team.

It is important to make sure that the negotiating team is a small group and that specific tasks in the negotiating process is assigned to them. It is also strategic to evaluate the strong and weak points of each party involved in the negotiation, such as the background, the existing knowledge, bargaining skills, and importance of the agreement, etc. of and to the other party. It is important for a negotiating party to create a plan wherein their priorities or interests are ranked in order of importance. The non-negotiable interests, issues that are open to compromise, etc. should be identified and laid out to the other negotiating party. (Federal Acquisition Insitute, 2003)

All three strategies are appropriate for negotiators to use before and during the negotiation process. The inappropriateness lies in the negative response of negotiating parties to these strategies mainly because these strategies are laid out in order to affect success in negotiations. These strategies are the foundation of successful negotiations.

In marketing and other business issues, most negotiation subjects are pricing and cost estimates. Pricing analysis is an act of evaluating the appropriateness of a given cost (U.S. Department of Housing and Urban Development, 2008). Pricing or estimating costs should involve marketing analysis and evaluation of other factors involved in pricing, such as the demands, pricing objectives, etc. Negotiating parties should conduct marketing analysis in order to identify the demands of the consumers.

After this, the production of commodities, its distribution, and promotional strategies should be evaluated in order to arrive at the actual cost of producing the demands of the clients. All the expenses involved in the production of commodities for consumers and the standard for altering prices according to the rate of demand should be taken into account. These strategies will then be used to arrive at a price that should appropriate and fair for both negotiating parties. (Net MBA, 2007)

Negotiations are significant in the realization of a goal or objective that cannot be attainable through individual efforts alone. Negotiation is there to provide for a means to attain the interests of an organization through the help of another organization. Negotiation strategies are available for each party to adhere to in order to accumulate success that is favorable for both parties. In marketing and business administration, pricing and cost estimation is very common in negotiation proceedings. Therefore, pricing strategies are also made available for business groups to follow in order to close deals with other negotiating process in a fair and balanced way that is desirable to all of them. Negotiating parties should be able to propel the negotiation on the way to their success.

Resources

Federal Acquisition Institute. (2003). Unit 42: Negotiation Strategies. Retrieved March 9, 2008,   from Federal Acquisition Institute. Website:

http://www.fai.gov/pdfs/Unit42.pdf

Fisher, R. (2006). The 7 Elements of Negotiation. Retrieved March 9, 2008, from

Net MBA. (2007). Pricing Strategy. Retrieved March 9, 2008 from Internet Center for

Management and Business Administration, Inc. Website:

http://www.netmba.com/marketing/pricing/

Stark, P. B. (2008). What is Negotiation. Retrieved March 9, 2008 from SmartBiz.

Website: http://www.smartbiz.com/article/articleview/618/1/5/

Steel Guru. (2008b). Iron ore price negotiations – Vale and Arcelor Mittal. Retrieved

U.S. Department of Housing and Urban Development. (2008) Quick Guide to Cost and

Price Analysis for HUD Grantees and Funding Recipients. Retrieved March 9, 2008 from Homes and Communities: U.S. Department of Housing and Urban

Development. Website: https://portal.hud.gov/hudportal/HUD?src=/program_offices/cpo/grantees/cstprice

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Negotiation Tactics

PROLOGUE

The influx of illegal immigrants in the US has triggered numerous debates. These debates have brought about numerous reactions in relations to the legal viability of most immigrants within the US. Being a legal issue the attorneys general of two countries engage in a heated debate trying to come up with a lasting rational solution.

Two characters (Attorneys general) engage a heated debate the issue of contention is that should illegal immigrants already in the US be given amnesty?  The Mexican attorney general is for the views that there are immigrants who have come over legally. The US attorney general has an intention of deporting all the immigrants from the country. The two engage each other in competitive and collaborative slicing style of negotiation. This is meant to split the difference effect on the weak and innocent.

The negotiation concept began as a communication style in which the Mexican attorney general pays visit in the US attorney general’s chambers; the two would barter with a subject in an effort to resolve a situation peacefully planned negotiation tactics are most likely to succeed in planned political arena. The negotiating scene commences when the foreign attorney general visits the US Attorney General.

US attorney general: Prescreening applications of immigrants should taken strictly and  complete background checked. This crisis takes about 4 hours negotiation. A carefully time framed tactical negotiation is presented. Illegal immigrants have necessitated increased cases of crime in the US.

Mexican attorney general: The year 2005 million of people staged a demonstration against the bill of sending home then illegal immigrants. Melanie Lugo one if the marchers said, “we are the backbone of what America is, legally or illegal, it doesn’t matter.” This means that sending home the illegal immigrants will lead to the collapse of your economy. Illegal immigration therefore has bad and good results. They pay their taxes to your country.

US attorney general: Most of suspects arrested by the FBI officers are illegal immigrants of which most of them are found to engage in this underground dealings of terrorism and drug trafficking. We can not afford to give the terrorism incidences fictional accounts since they have happened. The FBI defines terrorism as the unlawful use of force or violence against persons or property to intimidate or coerce a government, civilian populations, or any segment thereof, in furtherance of political or social goals.

As a country we can not compromise the security of the many people (millions) to a few individuals in the name of individuals. The essential emphasis is how to confront the incidences of law breaking through the law enforcement. To our best knowledge there are no any other suitable ways of containing the situations. Therefore we should draw a clear line between common myth and factual knowledge that has been research on planned negotiates.

Mexican attorney general:  remember that as you consider this case there immigrants who have come in legally. How will it be possible to deport them? US attorney general: Further the growing number of immigrants is a great burden to the country’s economy especially in the provision of jobs, housing and healthy facilities. This many immigrants are bound to erode the cultural values of our country. Since most of the immigrants come form Mexico, the US ahs built a wall along the Mexican border.

Mexican attorney general: The illegal immigrants to the US have an economic value to your country as most of this immigrants are hardworking thus providing necessary power that is on high demand. For instance these illegal immigrants work in industries that produce goods for the countries economic growth.

US attorney general: Dangers posed by the illegal immigrants has necessitated the introduction new strict policies in the department of migration. This is part of effective management of the crisis. The illegal immigrants in the US as per the year 2006 have been approximated to be rise up to 11 million people. These illegal immigrants avoid giving information related to census.

As such the US Border patrol union local 2544 in Tucson, Ariz 2006 reports that  the total number son illegal immigrants in the US today is between 12 million and 15 million.  Almost all these people crossed the borders illegal and this means that the government lacks their administrative records. Some other people staying in the US have mixed statuses for an instance a child born in the US is considered to a US citizen even if it is a child of an illegal immigrant.

Mexican attorney general: I note that various bills have been by the congress to provide for

legalization and amnesty of those present in the country and this a suitable way of controlling illegal immigration. In this procedure your duty shall be to put new polices in place to control the illegal immigrants. Are you supporting the America dream?

US attorney general: For the foreseeable future both domestic and international terrorism is a major concept of and will be a major concern of the US Government and law enforcement agencies. It is in this view I propose that all illegal immigrants should be vacated from the US. The concern for terrorism as a critical issue to US requires that all necessary action should be taken. Remember most of these illegal immigrants engage themselves in the illegal businesses such as drug trafficking, illegal arms which are a great threat to the US. This is therefore our way forward.

EPILOGUE

We have come to an affirmative action that immigrants are important in the country. My major point of contention is to put in place the legalization procedure. The US affirms that the illegal immigrants pose a security threat to the country now that the country had experience terrorist bombing of September 11, 2001. The suggestion of deportation of the illegal immigrants can now be neutralized. Suitable immigrants’ policy for the new comers shall be put in place.

After the negotiation there is hope for those illegal immigrants who had already entered the country. But there was pessimism for anybody wishing to enter US illegally as the policies to be instituted will be strict. We have signed a policy structure document with the Mexican attorney general (whose country contributes many of the illegal immigrants) that accredits terms and conditions that shall favor the good relationship between the countries. After signing the visiting American attorney general leaves the office briskly with good glittering smiles. The agreement arrived herein are through voluntary negotiations.

REFERENCE

George J. (2002). Heaven’s Door: Immigration Policy and the American Economy. Princeton, NJ: Princeton University Press.

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Striking the best deal: a closer look at negotiation

Introduction

Negotiation styles must be dynamic and flexible; they ought to be adapted based on the context in which they shall be utilized. These styles may either be competitve or collaborative, depending on the extent to which the individual considers himself and the person he is negotiating with. The following scenario has been relayed for purposes of reflecting on my negotiation style and on the tangible means through which I can improve it.

Negotiation has been overlooked as an important management competency / skill as it was limited to the confines of the conflict – resolution phase. This skill whose aim to is to minimize differences between parties, can also be effectively used as a tool for information-sharing, influencing and building or strengthening relationships. This tool is most helpful where the environment promotes openness in communication, particularly in the sharing of information and involvement of everyone in the decision-making in the organization.

Discussion

This paper begins with a thorough discussion of the context in which the negotiation tool place. I have worked as a Human Resources Manager for a Battery Manufacturing company for two years now. After a careful review of my performance, I believe that my salary raise has been way overdue. There were several things which I had to adequately prepare prior to my negotiation with my boss. First, I had to gather as much objective / emprical evidence to back up my case. This meant going through my performance reviews, and seeing the achievements and the merits which I have accomplished for the past two years. I had to make sure that my claims were backed up by verifiable critical incidents. That is, my evidence must be as objective as possible so as to gain credence and strike up a reasonable bargain with my superior. My objective for the negotiation session was to convince my superior that I add value to the enterprise and therefor deserve a raise that will make my recent promotion worthwhile.

I then proceeded to schedule a meeting with my boss and went through the process of negotiating for a salary raise. I began the discussion with asking him about how he evaluated my performance for the past two years. He said that he thought my performance was exemplary and that I excelled more compared to the other managers of the department. I thanked him for his compliments and proceeded by giving a summary of my achievements within the past two years. I supported each of my traits with critical incidents. I ensured support for both technical exerptise and soft skills. I also gave a brief rundown of the training sessions which I have attended which demonstrated by authentic intent to improve myself further.

I then showed my boss the strategic map of my company which illustrates the different strategic objectives of the organization, from the various perspectives of our Balanced Scorecard, encompassing financials, customer, best business practice, business development, and learning and growth. I again pointed out how the effective performance of my role is able to contribute to each of the strategic thrusts across these perspectives. He seemed to be convinced of the value of my role and my drive to excel. I then articulated my belief and feeling that my salary increase has been long overdue.

He responded by saying that currently, the company has some financial considerations which has compelled him to be be very careful in giving raises lest we go beyond our operating budget. I responded by expressing empathy over his concern; “yes I understand the situation, Sir”. Since reason appealed more to my boss more than feelings, I decided to further rationalize the need for me to have a raise. I said that based on benchmark data, I feel that my pay is below the industry average when compared to parallel positions in other companies.

I showed him the data. With salaries which are uncompetitive, I put forth that we will surely lose critical talent. I have also added that with the addition of one more child to my family, I pragmatically need more financial resources more than ever. He seemed to agree with my arguments and yet he still maintained that the company was currently experiencing financial constraints which I must be able to consider. Again, I have expressed empathy of the situation.

I then proceeded by asking him about his ideas about my proposition. This discussion was very important since both parties were engaged in the brainstorming and decision making process. He again reiterated the fact that the company then was experiencing certain financial constraints. After proposing severla alternatives, he agreed on a ‘conditional’ raise. First, I would have to show consistency in my performance within the next six months, exhibiting the same level of excellence and results orientation in my work. He said that the financial figures would have shown a turnaround by that time.

I then reassured him that I am willing to compromise and that I thought that the proposal was reasonable. I volunteered to summarize the discussion, and reiterated that I was expecting a 20% raise in my basic salary after an interim performance review, six months from the time of our discussion.. He finally agreed. Finally, for clarity of the agreements between us, I have volunteered to document all that was agreed upon so that we could sign for documentation purposes. He has also agreed with this proposal. I then proceeded to doing the minutes of the session and to have him concur to all that was stated in the document.

There were several things which I have learned from myself from this experience on negotiation. First, it may be beneficial and reasonable to exhibit assertiveness when it is due. Had I not decided to muster all my courage to negotiate with my salary increase, I would not have gotten his word – also, considering the organization’s conservative position when it comes to giving out raises. I have also realized that it is always beneficial to use key principles that ensure the smooth interpersonal relationship between two parties during the negotiation process.

First, I have ensured to maintain or enhance his self-esteem despite being somehow frustrated with the fact that I have not received a raise for such a long time. I have expressed to him that I still felt motivated and driven in my work despite the lack of that hygiene factor – pay. Whenever there were instances wherein it appeared he lacked management skill, I always ‘balanced’ it off with a positive trait. This was to ensure that antagonism would not develop as a reaction from him. I found this very effective and critical in the process of negotiation. Next, I have also practiced the use of empathy.

I always assured him that I understood the tight financial position that the company was experiencing then. I also assured him that I understood why he was not able to recommend a raise for me within 2 years’ time when he explained that the company was still in financial rehabilitation. Another effective technique was to engage him in brainstorming for ideas. If the idea solely came from me, he would surely not have buy-in with it and would tend to antagonize it. On the contrary, since he was part of the process of thinking of the best alternative for resolving the situation, he remained amiable and accepting throughout the whole process. This facilitated the discussion and made us arrive at a mutually beneficial option.

There were also several things which I have learned about my superior following that session. I have realized that he was a very rational person, who bases his decisions on empirical data. He wanted support for all that was said. I feel that this was reasonable and has helped encourage objectivity from both parties. I came to the session prepared with all the necessary documents to support my arguments, knowing that he will be more appreciative given all these ‘evidence’. In effect, the sense of subjectivity from both parties is diminished which also helped maintain that atmosphere of amiability. I then realized from the experience that it is very important for a manager to be psychologically prepared before going through any negotiation or bargaining process.

This experience was quite different from the parties whom I have negotiated with in the past. One difference was the personality of the party whom I was negotiating with – my superior was highly objective and was willing to negotiate. Such willingness and objectivity are very important. There were parties in the past who appear to be very antagonistic to begin with, and were not willing to compromise. In effect, the session was simply about manipulation and getting the other party to agree to what one wants. This is a wrong assumption, and is marked by close-mindedness. Another difference which I have noted was the willingness of my boss to reach a reasonable compromise. He listened to my arguments and assessed if they held water. If they did, he acknowledged them and were open to them. He also considered the financial constraints of the company and had to adjust his proposition so that both parties may benefit.

It should also be noted that in the process of negotiation, managerial-level bargaining is controlled by the organization in such a way that the company’s interest is placed at top priority, unshadowed by the personal interest of the manager (Ramundo, 1992). The effectivity of the negotiation is also seen in the prevalence of the organizational interest as negotiation can be exploited to serve the manager’s or negotiator’s personal objectives. In the future, I would proceed by researching not only about the profile and the ways of my superior per se, but also of other factors which may influence the bargain. For instance, I was not able to take into consideration the fact that the company was then experiencing financial constraints at that time. A profound knowledge of all the factors that may affect the negotiation process is critical, so that the alternative reached after the process is one that is realistic and that does not put undue pressure on either party.

Conclusion

The competency of negotiation is a must for every manager. As a business leader, the ability to communicate with persuasion, presenting an idea and coming up with options in order to reach an agreement between parties is a well-known, yet unmastered competency. Studies have shown that this skill has been linked to Emotional Intelligence. Ergo, being a good negotiator entails possessing a high EQ. But like any other skill, the researcher believes that negotiation can be developed through training, concepts, knowledge of the techniques and practice. I have learned from the experience that it is important to exhibit assertiveness and effective interpersonal techniques during the negotiation process. Moreover, it may also be helpful to ‘size up’ the party you are bargaining with to be able to use the most suitable bargaining techniques.

I have realized, too, that more than convincing or influencing decisions, negotiating is also about developing and maintaining relationships. In the field of business, this is one of, if not the most important aspects in surviving in its tough arena. The negotiating table is a staple in the life cycle of business – from the start of the partnership, to term modifications until the end of the business relationship.

When one speaks about the skill or process of negotiation, it is usually associated with business deals, bargaining or conflict resolution. However, little did most people know that it is also one form of influencing which is aimed at achieving win-win outcomes (Manning & Robertson, 2004).  It was also described as the process wherein parties meet having different objectives and / or values basing from their motives or interests. The end product of such process is to at least minimize the conflicting differences, so as to reach a mutual agreement. In the experience which I have just related, I was willing to compromise in having a raise, but within a time frame proposed by my boss. If I had insisted on what I wanted and was not willing to delay gratification, this could have possibly breeded antagonism and would have pre-empted the smooth closure of the negotiation process.

Though the definition may sound too theoretical, managers are very aware of its practical power in the lifeblood of businesses in all industries. It is through negotiation that the business is opened up for partnership, whether it is for dealers, suppliers or customers. For issues that may be surrounding the deal or service, the negotiating table is the venue for smoothing out these issues and maintaining the business relationship. And in the final stages of the business partnership, remaining issues or options on the business are discussed in the process. Following these circumstances, conflict can readily emerge in the process due to the premise of persuading another party to be performing an action or agree to an idea which may be quite disagreeable for some reason.

More specific examples of negotiation can be seen in the following: Managers do negotiation with union contracts (Walton & Mackenzie, 1965), resource prices and allocations, delivery schedules, promotions, compensation packages (Lax & Sebenius, 1986; Murninghan, 1992), and a myriad of other aspects of organizational outcomes ( Wall & Blum, 1991).

This was further emphasized by Mintzberg (1993), pointing out that negotiation was identified as a primary managerial role, particularly in decision-making. Ramundo (1992) postulated that almost two-third of the managerial function is devoted to dialogues in all levels within the organization even if this was not primarily considered in orthodox writings on management. Over the years, organization-based negotiations have not only increased in frequency, but also has become more critically complex. Wall & Blum (1992) observed that it has likewise put on a more ambiguous and changeable which could be attributed to the interdependencies between organizations brought by the globalization and the trend of diminishing boundaries. In addition, they also cited the cross-cultural differences brought by international business as well as the current pack of employees who are well-educated possessing knowledge of expert caliber.

Thus, as a manager, I feel that negotiation ought to be a core competency, since in the organizational setting, there are many conflicts where negotiation may be useful. Through a thorough knowledge and practice of negotiation techniques, these situations may be handled with greater ease.

References

Lax, D.L. & Sebenius, J.K. (1986). The manager as negotiator: Bargaining for cooperation and competitive gain. New York: Free Press

Wall, J.A. & Blum, M.W. (1991). Negotiations. Journal of Management, 17, 273-303

Ramundo, B.R. (1994). The Bargaining Manager: Enhancing Organizational Results Through Negotiation. Westport, CT: Quorum Books

Mintzberg, H. (1973). The nature of managerial work. New York: Harper and Row

Walton, R.E. &  McKersie, R.B. (1965). A behavioral theory of labor negotiations: an analysis of a social interaction system. Ithaca, NY: BLR

Manning, T. & Robertson, B. (2004). Influencing, negotiating skills and conflict-handling: some additional research and reflections. Industrial and Commermcial Training, 36, 104

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Research Paper on Negotiation

1st Log on negotiation Presented To : Dr. Hassan wageih Presented By : Mahmoud Ahmed EL-Etriby Program : MIBA 38 A Date : 3 December 2011 Mr. Essam Sharaf in Qena ,The full crime of Soft Negotiator Locals in Qena continue protesting against their governor In respect for Easter, protesters demonstrated against the new governor in silence. Negotiations early today to open the railway failed. Ahram Online, Sunday 24 Apr 2011

Sharaf fails to calm crowds in Qena Egypt’s prime minister visits Qena where protesters had brought the city to a standstill following the appointment last month of a Coptic governor but his words do little to ease sectarian sentiments Ahram Online, Tuesday 3 May 2011 Egypt’s Prime Minister Essam Sharaf on Tuesday visited Qena where demonstrations erupted on 15 April following the appointment of Emad Shehata Mikhail as governor.

Protesters objected to a Christian being governor for the second time in succession. Sharaf addressed an audience saying that although he had prepared a written speech he would rather speak to them “from his heart” and added that his government will pay attention to the development of Upper Egypt and appraised religious unity in Qena. While Sharaf had meant to discuss the crisis in Qena over a Christian governor, he instead stated “all of your demands will be met. The crowds, in turn, chanted its demand of a Muslim governor to which Sharaf only repeated that demands will be met. Life has returned to normal in Qena after Sharaf announced last week that he will freeze the activity of Mikhail for three months. The protesters had been further angered by Mikhail’s past as a police officer. During the peak of the protests, both the Eastern and Western highways leading into the governorate were blocked as well as train tracks, stopping trains coming from Luxor and Aswan as well as Cairo.

As we can see in the above headlines from Ahram Online the famous problem of Qena and the protesting of the people against the governor, the saddest part of the story is the complete failure of Mr. Essam Sharaf as a prime minister and a negotiator in handling and solving the problem. Mr. Essam in this negotiation operation was actually a full and complete example of what we called Soft Negotiator, a negotiator that is very weak in response and too much delayed because he gets panic to the threat of the protesters . Imagine that the problem initiated in the 15 th of April and he only went to the spot of the drama 3 weeks later.

After he went there he continues all the sins of soft negotiator again by being so fragile and reasonable instead of being resilient and cognitive , telling them” I am speaking to you from my heart ” was completely a weak and non suitable phrase to the revolution inside the protesters as he gives them too much trust actually not in its place which made him appears very weak in front of them and give them the upper hand to move the negotiation in one way direction towards their request only without discussing the fact that they have violate the law by blocking the highway to Upper Egypt and the cutting the railways as well which would give him a chance on a win-win situation in this adversative situation.

Moreover he completes the sins of the soft negotiator by being so concessionary telling the crowd in public that “all your demands will be met” so what’s the role of the negotiation skills that you must have Mr. Essam in such problems if any time you face a problem or a protest you will simply choose Satisficing and settle for something much more less than you could otherwise has, which reflects clearly a self-Reinforcing Incompetence that hinders you from leveraging your power and strengths. Finally being so soft and weak in negotiations creates a cycle in which the lack of the principled negotiator skills will deprive you not only the ability to produce correct response but also the expertise necessary to know that you have produced a wrong one.

Being fair only is not what we need in our prime minister , its being Fair and Firm is what we need and what make him actually a successful prime minister. It’s the Principled negotiator skills that we wanted from you at that time and every time in this era which Egypt is facing , Principled negotiators are the men of the new era , those who are not hard as nails or soft as pudding, those who have chess player mentality , who are Fair and Firm, who have strong personality and role profiles , who are always improving their power and strengths and face threats firmly with hidden strong threats that suits the adversative era and with an integrative and cognitive way that ensure the fairness rule to everyone. *******************************************************

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Introduction to Negotiation

Introduction to Negotiation Negotiation is and activity that every individual caries out in his everyday life. We are constantly negotiation with ourselves, our family, friends, business, etc. Every activity that happens is the result of a negotiation – “Pros and Cons”. And thus negotiation can be defined as; “The means by which people deal with their differences” Negotiation is a continuous and an evolving process especially in a supply chain environment. A company cannot meet the expectation of its customers or shareholders single handed and thus there is lot of negotiation is involved and it is a continuous process.

It is a process that emerges when there is a difference and it cannot be settled single handed without a negotiation. Negotiation is not necessarily a win-loose process, but a good negotiation process is where both parties accept a mutually beneficial or amicable solution. A Negotiation can be distributive or integrative depending on how it been conducted. A negotiation which involves hard bargaining and is mostly concentrated on one topic where usually the winner takes all is a distributive negotiation. There is little or no attention paid to relationship, consideration or sharing of information and are very aggressive.

On the contrary an integrative negotiation is a process in which all parties cooperate to maximize the benefit to all parties and is commonly referred to as expanding the pie. There is lot of understanding among the parties and importance is paid to how more value can be generated in a continuing partnership. Sometimes depending on the topic a negotiation can get very complex. It could get into a Multi Phase Negotiation stage where one negotiation could lead into another negotiation with the complexity increasing at each stage.

It could also get into a Multiparty Negotiation where the needs and want of other parties will require to be explored and will be included into further negotiations. Though there are many types or causes of negotiation, it is always important for an effective negotiation to underline once BATNA (Best Alternative To A Negotiated Agreement) and their Reservation Point. A BATNA is something which every negotiator should have, and is completely under his control. With this he should be able to set up his reservation point, something beyond which he should not negotiate.

Once these are clearly understood and negotiated up on, we can at most of the time identify the ZOPA (Zone of Potential Agreement), which in most of the times overlaps both parties’ reservation points. Apart from the above other main elements that plays an important role in a negotiation and the most important is listening. Both parties should pay attention, listen and acknowledge the other parties BATNA and Reservation Points. This will not only improve relationships and achieve in establishing a ZOPA, but could also be beneficial to other departments or other entities that could have connection with your unit or industry.

There should also be lot of preparation involved prior to a negotiation and preparation should focus on all areas. While a negotiation can be very effective, it could have several barriers. Therefore it is always important that some level of effort is put in in prior and during the negotiation. It is important to respect all parties and acknowledge their interests and concerns. Finding areas of common interests and sharing same, providing a comfort zone for negotiation, talking about past experiences, etc. , are some of the few ways to unwind before going into a negotiation process directly.

Similarly it is important that during negotiation a process is clearly followed. The point around which discussion is taking places is well identifies and not deviated from and a clear time line is established. It is also important that the right persons are involved during the negotiation and the points negotiated upon is justifiable There should be room for flexibility all barriers like lack of trust, excessive bargaining, being reluctant to share information, structural impediments in putting inappropriate people at the discussion, cultural and gender difference any inds of spoilers should not be used and the language used should be simple and understanding to all parties. Mental barriers like Escalation, Partisan Perception, Irrational Expectation, Override confidence caused by ego, having shifting BATNA, not having a clear breakpoint, not understanding the other person, not sharing problem and understanding viewpoint, feeling invincible, etc. and should not be used during a negotiation process. While there are no rights or wrongs, style also matters in a negotiation. This often reflects on the kind of person one is always best to consider how to proceed.

There are 5 different styles and each can be detailed as below; Avoiding style is when you hates conflicts and try to avoid them at all cost. It is often associated with trying to withdraw from situation or try to pass the decision to someone else and hence very difficult to arrive at a conclusion. This kind of style can be used if the issue, relationship, decision is of less importance, but can cause problems if the relationship or issue is of importance. Using this too often can have a negative feeling. Accommodating is when trying to use relationship to solve a conflict.

On the contrary if the other person is not accommodating and takes advantage there is nothing returned in the negotiation process a negotiation can be accommodating when no much importance is paid to the issue or when there are not arguments on one’s side of the table. This can often create problem if the outcome is going to be shared at it could show that other are taking advantage of your position. Competing is like trying to win and take control of the situation or considers a negotiation as wining and loosing.

There is no attempt made on collaboration, or cooperation from others and if used often shall loose self-respect eventually. A competing strategy can be during a negotiation if there is an emergency and a decision is imminent. It could also be that one side is confident that they are right and have all the supporting’s and the situation is under their control Compromising negotiation often tries to find something amicable. This often results in giving and taking with moderate satisfaction to both parties. This could create problem while negotiation on very creative problem and could be used the working together s important with limited resources A good solution is often considered as a bottleneck and any collaboration is considered as forcing something on. Collaborating is more a problem solving style of negotiating. They are very imaginative who think about win-win situation and thing of expanding the pie. Issues and relationship are both given importance along with being cooperative and creative. All concerns are well addressed and as a result will not be able to exercise if time frame is too short. It is also not applicable the issues are trivial or no much preparation or rehearsing time.

A negotiation can also be different when negotiation for yourself or for others. When negotiation for yourself you often tend to negotiate what is most beneficial to your whereas on the other hand when negotiation for a third party there is often a personal gain side that is looked at especially is cases where negotiating for a property via a real estate agent. However a third party negotiator can bring with him lots of experience that could also be very beneficial and will assist in a negotiation process. Thus for a negotiation it is important to understand one own style and to determine the other persons style as well.

This will avoid unpleasant surprises during a negotiation. and will assist in the effective preparation of BATNA and reservation points We can thus understand that the process of negotiation is continuous and needs to be constantly improved. It is a process that needs to be understood and required to be planned and monitored using various strategies and resources. As part of continuous improvement it is important to create a process, train all participants to follow and monitor the process. This process can be improved by learning and summarizing from reflection after a negotiation.

It is also important to consider that every negotiation must have a preparation process where goals and expectation are clarified. A clear BATNA have to be defined which everyone in the team is well aware off. Any smart suggestions need to be recognized and suitably rewarded. Develop a process that works best for oneself and use it to evaluate what works best and willingness to follow the process. And the most important to remember that all negotiations cannot be won and not to be abandon just because we are not able to achieve what we perceived.

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The Doha Round and Financial Services Negotiations

The Doha Round and Financial Services Negotiations AEI STUDIES ON SERVICES TRADE NEGOTIATIONS Claude Barfield, series editor THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS Sydney J. Key INSURANCE IN THE GENERAL AGREEMENT ON TRADE IN SERVICES Harold D. Skipper Jr. LIBERALIZING GLOBAL TRADE IN ENERGY SERVICES Peter C. Evans REDUCING THE BARRIERS TO INTERNATIONAL TRADE IN ACCOUNTING SERVICES Lawrence J. White The Doha Round and Financial Services Negotiations Sydney J. Key The AEI Press Publisher for the American Enterprise Institute WA S H I N G T O N , D . C . 2003

Available in the United States from the AEI Press, c/o Client Distribution Services, 193 Edwards Drive, Jackson, TN 38301. To order, call toll free: 1-800-343-4499. Distributed outside the United States by arrangement with Eurospan, 3 Henrietta Street, London WC2E 8LU, England. Library of Congress Cataloging-in-Publication Data Key, Sydney J. The Doha round and financial services negotiations / Sydney J. Key. p. cm. Includes bibliographical references and index. ISBN 0-8447-4182-5 (pbk. ) 1. Financial services industry—Law and legislation 2. Foreign trade regulation. I. Title K1066.

K49 2003 343′. 087—dc 22 2003063553 3 5 7 9 10 8 6 4 2 Printed in 2003 by the American Enterprise Institute for Public Policy Research, Washington, D. C. The views expressed in publications of the American Enterprise Institute are those of the authors and do not necessarily reflect the views of the staff, advisory panels, officers, or trustees of AEI. The views expressed by the author in this publication should not be interpreted as representing the views of the Board of Governors of the Federal Reserve System or anyone else on its staff. Printed in the United States of America Contents Q

FOREWORD, Claude Barfield ACKNOWLEDGMENTS 1 2 INTRODUCTION INTERNATIONAL TRADE IN FINANCIAL SERVICES E-Finance 6 Modes of Supply 7 Services Provided across Borders 8 Foreign Direct Investment 9 Presence of Natural Persons 9 LIBERALIZATION AND REGULATION Three Pillars of Liberalization 12 National Treatment and Market Access 13 Nondiscriminatory Structural Barriers 15 Freedom of Capital Movements 18 Strengthening Domestic Financial Systems 20 Minimum Standards and Codes of Good Practices 22 “Surveillance” 23 The Prudential Carve-Out in the GATS 24 NATIONAL TREATMENT AND MARKET ACCESS “Binding” Existing and Ongoing Liberalization 28 IMF Conditionality 30 Permanence of GATS Commitments 31 Foreign Direct Investment 32 Remaining Barriers to Entry and Operation 33 MFN Exemptions 34 Barriers within the Scope of the Prudential Carve-Out 35 Cross-Border Services 37 Binding Gaps versus Remaining Barriers 38 Uncertainty about WTO Jurisprudence 39 v vii xiii 1 4 3 11 4 27 vi CONTENTS

More Liberal Approaches for Wholesale Services 39 Evolving Regulatory Responses to Retail Cross-Border Services 40 Negotiating Goals 41 5 NONDISCRIMINATORY STRUCTURAL BARRIERS Regulatory Transparency 44 Rules about Developing and Applying Rules 44 Sound Financial Systems 46 “Effective Market Access” 47 General Anticompetitive Measures 49 “Necessity” and Domestic Regulation 50 Recognition of Prudential Measures 51 Harmonization 52 Facilitating Access 52 The Intra-EU Approach 53 Remaining Second-Pillar Barriers 54 Applicability of the Intra-EU Approach 55 CONCLUSION 43 6 57 61 87 101 107 NOTES REFERENCES INDEX ABOUT THE AUTHOR Foreword Q In advanced industrial economies, the services sector accounts for a substantial portion of each nation’s gross domestic product.

Despite the increasing importance of trade in services, the General Agreement on Trade in Services (GATS), which was negotiated during the 1986–94 Uruguay Round and entered into force in January 1995, marked the first time that rules for opening markets in services were included in the multilateral trading system. The GATS called for periodic negotiating rounds, beginning no later than 2000, to achieve further liberalization of trade in services. Serious individual sector negotiations, however, did not shift into high gear until a comprehensive new round of multilateral trade negotiations was launched at the November 2001 ministerial meeting of the World Trade Organization (WTO) in Doha, Qatar. The American Enterprise Institute is engaged in a research project to focus on the latest round of trade negotiations on services.

Mounted in conjunction with the Kennedy School of Government at Harvard University, the Brookings Institution, and the Coalition of Service Industries Research and Education Foundation, the project entails analysis of individual economic sectors: financial services; accounting; insurance; electronic commerce; energy; air freight and air cargo; airline passenger services; and entertainment and culture. Each study identifies major barriers to trade liberalization in the sector under scrutiny and assesses policy options for trade negotiators and interested private sector participants. AEI would like to acknowledge the following donors for their generous support of the trade-in-services project: American Express Company; American International Group; CIGNA Corporation; FedEx Corporation; Mastercard International; the Motion Picture Association of America; and the Mark Twain Institute. I emphasize, however, that the vii viii FOREWORD conclusions and recommendations of the individual studies are solely those of authors.

Issues for the Financial Services Negotiations In this study, Sydney J. Key analyzes the role of the GATS and the WTO in the liberalization and regulation of the financial services sector and identifies six broad goals for the financial services negotiations in the Doha round. What makes her analysis unique is that she integrates the two very different perspectives of trade policy and financial regulatory policy. Throughout the study, Key emphasizes the complementary and mutually reinforcing relationship between efforts to open markets under the GATS and the intensive ongoing international work on strengthening domestic financial systems, including prudential regulation and supervision.

The study examines the role of the GATS and the WTO in relation to what Key characterizes as the three pillars of liberalization necessary to achieve “international contestability of markets”: (1) opening markets to foreign services and service suppliers through GATS commitments to provide “national treatment” and “market access”; (2) implementing domestic structural reforms that would eliminate nondiscriminatory structural barriers to trade in financial services; and (3) liberalizing capital movements. Key explains that the GATS deals with third-pillar liberalization only insofar as it affects countries’ specific commitments to liberalize trade in services; in general, liberalization of capital movements is a matter of concern for the International Monetary Fund (IMF).

Key emphasizes the importance of focusing on fundamental first-pillar liberalization in the Doha round financial services negotiations and sets forth four first-pillar goals: first, binding in the GATS existing and ongoing liberalization that provides market access and national treatment; second, removing remaining barriers to national treatment and market access and binding the resulting liberalization; third, narrowing or withdrawing the broad exemptions that some countries have taken from the most favored nation (MFN) obligation of the GATS; and, fourth, using an incremental approach for cross-border services that combines strengthening GATS commitments and achieving greater liberalization in practice. CLAUDE BARFIELD ix How far should the Doha round financial services negotiations extend into the realm of second-pillar liberalization?

Like other authors in this series, Key grapples with the role of the GATS with regard to the domestic structural reform needed to reduce or eliminate nondiscriminatory structural barriers to trade in services. Key believes that the Doha round financial services negotiations should proceed selectively by concentrating on the areas in which the GATS and the WTO have a comparative advantage. She singles out two particularly important second-pillar goals for the Doha round financial services negotiations: developing stronger GATS disciplines on regulatory transparency; and removing barriers to “effective market access” and binding the resulting liberalization.

Key argues that GATS rules on transparency in developing and applying regulations, together with the closely related principle of procedural “fairness” in applying regulations, would not only help eliminate barriers created by opaque and unfair regulatory procedures but also help ensure that a country does not use its regulatory process to undermine its commitments to national treatment and market access. Key explains how GATS rules on transparency in financial services regulation could both complement and build upon the work on transparency that is part of international efforts to strengthen domestic financial systems. The other second-pillar goal set forth by Key involves anticompetitive domestic regulatory measures that cannot be justified on prudential grounds and serve primarily to keep foreign financial firms from competing in host-country markets by making entry impractical or too costly—thereby denying them “effective market access. Key explains that identifying barriers to effective market access that could be negotiated in the Doha round requires a country’s trading partners to determine whether, in practice, a host country’s measures keep foreign firms from competing in its markets and whether a “critical mass” of regulators believes that the measures are inappropriate for prudential purposes. She points out, however, that even if the prevalent regulatory view is that the measures cannot be justified on prudential grounds, host-country regulators must be persuaded to accept it. What about barriers to trade in financial services that are created by legitimate prudential measures? Key explains the importance of the “prudential carve-out” for domestic regulation in the GATS Annex on Financial x FOREWORD

Services: it ensures the GATS will not interfere with the ability of national authorities to exercise their responsibilities for prudential regulation and supervision to protect consumers of financial services and to promote the integrity and stability of the financial system. She notes that while prudential measures sometimes impose additional requirements on foreign firms, they may also create barriers simply because they differ among countries— that is, financial firms operating on a global basis may often find it burdensome to comply with a multitude of different national rules. Key identifies two approaches for dealing with barriers created by prudential measures.

One would have home-country regulatory authorities convince host-country authorities that their prudential concerns can be addressed with less sweeping requirements. These efforts could take place bilaterally or in various international fora, including the financial services negotiations under the auspices of the WTO, where finance ministries play a major role. A second approach would have home- and hostcountry authorities negotiate a recognition arrangement. Although the GATS Annex on Financial Services facilitates unilateral or mutual recognition of prudential measures by permitting a departure from the MFN obligation of the GATS for such arrangements, Key explains why the WTO is not the appropriate forum for their negotiation.

In conclusion, Key summarizes the forces affecting the outcome of the Doha round financial services negotiations and the importance of that outcome to the process of financial sector liberalization: Success in achieving the financial services goals discussed in this study depends significantly on factors beyond the scope of the negotiations. As the GATS explicitly recognizes, liberalization of trade in financial and other services is an ongoing process. For financial services, this process is being driven in large part by market forces and new technologies. It is also being driven by the growing recognition among policymakers that market opening can benefit host-country consumers of financial services and, at the same time, contribute to the resiliency of domestic financial systems.

The development of international minimum standards and codes of good practices for sound financial systems and their implementation by individual CLAUDE BARFIELD xi countries provide a strong foundation for moving ahead with further liberalization of trade in financial services. The negotiations in the Doha round can play an important role in helping to accelerate the process of liberalization as well as solidifying its results in the form of binding commitments subject to the WTO dispute settlement mechanism. CLAUDE BARFIELD American Enterprise Institute for Public Policy Research Acknowledgments Q The author greatly appreciates the assistance of the many individuals who read all or part of the manuscript and provided valuable comments and suggestions in their areas of expertise.

She would like to thank Alistair Abercrombie, Claude Barfield, Nicholas Bayne, Stijn Claessens, Steven Fabry, Bernard M. Hoekman, Cecilia Klein, Masamichi Kono, Robert D. Kramer, Patrick Macrory, Ann Main, Marilyn L. Muench, Kathleen M. O’Day, Patrick Pearson, Mary S. Podesta, Amelia Porges, Peter E. W. Russell, Hal S. Scott, Richard E. Self, Jonathan D. Stoloff, and T. Whittier Warthin for reading the manuscript in its entirety. She would also like to thank Peter Berz, Barbara J. Bouchard, James M. Boughton, David T. Coe, Kenneth Freiberg, Ralph Kozlow, Ross B. Leckow, Michael D. Mann, Juan A. Marchetti, Peter K. Morrison, William A. Ryback, David Strongin, Mark W. Swinburne, Andrew Velthaus, and Obie G.

Whichard for reading drafts, and often redrafts, of particular sections. Finally, the author would like to thank Juyne Linger for her work in editing the manuscript. xiii 1 Introduction Q The General Agreement on Trade in Services (GATS), the first global trade agreement to cover financial and other services, is an important new element in the international framework for liberalization and regulation of the financial sector. Participation in the GATS, however, does not necessarily mean that a country has made strong commitments to open its markets to foreign services and service providers. Indeed, the strength of commitments varies substantially among countries.

The GATS therefore requires periodic negotiating rounds on financial and other services to improve commitments and thus achieve “a progressively higher level of liberalization. ”1 The GATS was negotiated in the Uruguay Round, which was launched in 1986 and formally concluded in April 1994. 2 Financial services, however, was one of several sectors for which negotiations on specific commitments were extended, and final agreement was not reached until December 1997. 3 In 2000, in accordance with the deadline established by the GATS for initiating a new round of services negotiations, work began again on financial and other services. This occurred despite the failure of the Seattle ministerial meeting of the World Trade Organization (WTO) in December 1999 to launch a comprehensive new round of trade negotiations.

Subsequently, at the Doha ministerial meeting in November 2001, WTO members reached agreement on an agenda for comprehensive multilateral trade negotiations that incorporated the so-called “built-in” agenda for financial and other services. 4 The ministerial declaration set January 1, 2005, as the deadline for completing the Doha round; the declaration called for the next ministerial meeting, subsequently scheduled for September 2003 in Cancun, to assess progress and provide any necessary political guidance. 5 1 2 THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS For financial services liberalization, four aspects of the GATS and the WTO are particularly significant: First, the WTO is a multilateral forum in which the primary goal is reducing or eliminating trade barriers to promote competitive markets and thereby support economic growth and development.

The new prominence of this goal at the multilateral level complements the intensive work on strengthening domestic financial systems in a variety of other international fora, ranging from institutions such as the International Monetary Fund (IMF) to specialized bodies such as the Basel Committee on Banking Supervision. 6 Indeed, the efforts to liberalize trade in financial services and the efforts to strengthen domestic financial systems, including prudential regulation and supervision, are mutually reinforcing. In addition, the WTO is a forum in which all members have the opportunity to participate on an equal basis. Multilateral trade agreements are negotiated in the WTO without the “conditionality” that links IMF or World Bank financial assistance to the implementation of specific policy measures by a borrowing country. In principle, therefore, GATS commitments to liberalization have “domestic ownership”—that is, they reflect a country’s recognition of the need for policy reform—a quality that the IMF has found to be a crucial determinant of the success of its programs. 8 Second, the GATS provides a mechanism for parties to undertake legally binding commitments subject to enforcement under the WTO dispute settlement mechanism. A GATS commitment is permanent in that it cannot be withdrawn without compensation of trading partners. Failure to honor a commitment could open a country to a dispute settlement proceeding and, ultimately, WTO-sanctioned retaliatory measures by its trading partners. Thus, backsliding in the face of protectionist domestic political pressures could be extremely costly. As a result, binding even the status quo is extremely important.

Moreover, for negotiations that stretch over many years, the “status quo” in the final phase is often different from that at the outset of the negotiations, in part as a result of the negotiating process itself. Third, the GATS is based on the most-favored-nation (MFN) principle, which precludes discrimination among foreign countries. Under the MFN obligation of the GATS, a WTO member must accord to services and INTRODUCTION 3 service suppliers of any other member treatment “no less favorable” than the treatment it provides to “like” services and service suppliers of the most favored foreign nation. 9 The reach of the MFN obligation is very broad ecause it applies to all measures affecting trade in services that are covered by the GATS, not just those for which a member has made specific commitments to liberalization. 10 Although the GATS does allow members to enter into economic integration agreements—such as the Treaty establishing the European Community (EC Treaty)11 and the North American Free Trade Agreement (NAFTA)—without extending the benefits of the agreements to all WTO members, it establishes stringent criteria for an agreement to qualify for this exception. 12 If a WTO member undertakes liberalizing measures in connection with services obligations in an agreement that does not meet the criteria, it must apply the measures to all WTO members on an MFN basis. 3 Fourth, the GATS negotiating process can itself have a positive impact on domestic policymaking, particularly in emerging market economies and other developing countries. Governments that participate in the negotiations are forced to account to their trading partners for the barriers they impose and to explore the possibility of overcoming domestic political constraints to reduce or eliminate those barriers. A continuing challenge for the trading partners is to use the GATS negotiating process to provide support for and to harness political and market forces that are creating pressures for liberalization within a host country. In this regard, a country’s “readiness” for reform is critical. Thus, the outcome of the GATS process depends heavily on factors beyond its purview.

The next chapter of this study presents a brief discussion of the international provision of financial services and their coverage by the GATS. The third chapter provides a framework for analyzing the role of the GATS and the WTO in liberalization and regulation of the financial sector. The fourth chapter focuses on the barriers to national treatment and market access that need to be addressed in the financial services negotiations in the Doha round. The fifth chapter examines nondiscriminatory structural barriers and identifies certain areas of domestic structural reform that could usefully be dealt with in the GATS negotiations. The final chapter presents the conclusions of this study. 2 International Trade in Financial Services Q

The financial sector is a critical component of a nation’s economy: It not only contributes directly to output and employment but also provides an essential infrastructure for the functioning of the entire economy. The financial system serves as a channel through which savings can be mobilized and used to finance investment and, at the same time, facilitates transactions necessary for internal and external trade. It also helps to manage risks and reduce so-called information asymmetries between providers and users of funds. 1 For these reasons, a sound and efficient financial system is imperative for economic growth and development. A sound financial system also increases the resiliency of a nation’s economy, thereby helping it to withstand external shocks such as movements in exchange rates or a major increase in global interest rates.

International trade in financial services—together with enhanced prudential regulation and supervision and other basic structural reforms—can play an important role in helping countries build financial systems that are more competitive and efficient, and therefore more stable. Financial services trade can enhance capital market efficiency; improve the quality, availability, and pricing of financial services; stimulate innovation through the dissemination of new technologies, know-how, and skills; and promote the use of international good practices in areas such as accounting, risk management, and disclosure of financial information. 2 The rapid growth of trade in financial services in recent years reflects a combination of economic, technological, and regulatory factors. These include new and expanding markets in developing and transition economies, technological advances, and progress in reducing or eliminating a variety of host-country barriers (see chapter 3). 4 INTERNATIONAL TRADE IN FINANCIAL SERVICES 5 Trade in services, as defined in the GATS, includes services provided across borders and through foreign direct investment. The cross-border provision of services—for example, the provision of financial services from an office located in one country to residents of another country— is broadly analogous to trade in goods. 4 By contrast, foreign direct investment involves the establishment of a commercial presence, such as a branch or subsidiary, within a host country. 5 The GATS approach of defining international trade to nclude services provided to host-country customers through the establishment and operation of a commercial presence differs from the approach used for balance-of-payments purposes, in which once a local branch or subsidiary has been established, the services it provides to host-country customers are treated as domestic. 6 In this study, the term “financial services” refers to financial services other than insurance, which is the subject of another study in this series. 7 Although the GATS definition of financial services encompasses both “insurance and insurance-related services” and “banking and other financial services (excluding insurance),”8 they have been negotiated and listed in the financial services schedules as separate subsectors. 9 These subsectors are, however, closely linked.

Many of the major commercial and investment banks operating internationally are part of financial conglomerates that also include firms engaged in insurance underwriting, and banks often engage directly in insurance brokerage activities. Moreover, the development of new types of products and instruments is blurring the distinctions between financial subsectors. Major financial firms now provide a wide range of financial services to customers in other countries. These include commercial banking activities such as lending and deposit-taking; investment banking activities, such as underwriting securities and advising on mergers and acquisitions; trading activities, that is, brokering and dealing in securities and other financial instruments; and asset-management activities, including management of mutual funds and pension funds.

Other financial services provided internationally include financial information and data processing services; investment advisory services; payment and money transmission services, including credit cards; settlement and clearing for financial assets; and financial leasing. 6 THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS Many financial services provided internationally are wholesale in nature; that is, they are provided to “sophisticated” customers such as corporations and institutions, other financial services firms, and wealthy individuals. 10 Both foreign direct investment and cross-border supply are important means of providing wholesale financial services.

In the banking sector, when wholesale services are provided through establishment of a commercial presence, direct branches of the foreign bank—if permitted by host-country regulation—are usually a more efficient form of organization than subsidiaries. Unlike subsidiaries, branches are not separately incorporated in the host country and operate using the firm’s consolidated worldwide capital (but see chapter 4 regarding lending limits based on branch capital-equivalency requirements). E-Finance Technological advances have long had a major impact on the conduct of wholesale financial activities. Business-to-business electronic transactions within the financial sector have been used for more than two decades, both domestically and internationally.

Financial firms have also provided online services to nonfinancial firms over closed proprietary networks for a number of years. Widespread access to the open network technology of the Internet, however, offers a whole new range of possibilities to provide services to a much broader base of customers at substantially lower costs. As a result, online services provided to wholesale customers—both within and across national borders—are growing rapidly. This growth includes not only traditional financial services but also new types of services designed to facilitate business-to-business e-commerce activities. 11 The same technological and cost-saving possibilities exist for the provision of electronic banking and other financial services to retail customers.

Within some countries, the provision of some types of financial services over the Internet and through web-enabled technologies, such as mobile telephony, is expanding dramatically. Prominent examples include discount brokerage and mutual funds in the United States, and banking services in Finland, Norway, and Sweden. 12 The cross-border provision of INTERNATIONAL TRADE IN FINANCIAL SERVICES 7 financial services to retail customers over the Internet, however, is still in its infancy. In general, the international provision of retail financial services still takes place primarily through locally incorporated subsidiaries. 13 Indeed, a number of banks are now using their host-country subsidiaries as a base from which to provide electronic banking services to host-country retail customers.

The lack of widespread development of cross-border retail banking and other financial services—through the Internet or more traditional methods—reflects host-country regulatory requirements aimed at ensuring adequate consumer protection, consumer preferences, and tax considerations. Some countries actually require the establishment of a commercial presence to provide retail financial services. Even when regulatory requirements for cross-border services involve nondiscriminatory application of host-country prudential standards, firms operating on a global basis may have difficulty meeting a multitude of different national requirements. Perhaps even more important, consumers may prefer dealing with a local commercial presence, particularly because redress against a local establishment is usually readily available through the domestic legal system.

In addition, in a number of countries, consumers receive more favorable tax treatment on financial products that are provided through locally incorporated entities. 14 Modes of Supply In an effort to include all of the ways in which services are provided internationally, the GATS defines “trade in services” in terms of four so-called modes of supply. Mode 1 and mode 2 cover services provided across borders; for financial services, the distinction between these two modes is not always clear. Mode 3 covers services provided through establishment of a commercial presence—that is, through foreign direct investment, a term that is not used in the GATS.

Mode 4 covers services provided through the temporary presence of “natural persons,” which includes nonlocal employees of a foreign service provider. The GATS uses modes of supply not only to define the scope of its coverage but also as the basis for specific commitments to liberalization that WTO members undertake. 8 THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS Services Provided across Borders. In this study, the term “cross-border services” is used broadly without attempting to assign a geographic location to the transaction. Thus, this study does not attempt to determine whether a transaction “takes place” in the country of the service provider or in the country of the customer.

For example, a cross-border financial services transaction could be carried out in a number of different ways: (a) a representative of, say, a foreign bank might visit the country of the customer to arrange a loan; (b) the customer might travel abroad to visit the office of the foreign bank; or (c) the transaction might take place via telephone, fax , or, increasingly, the Internet, which, in this context, is simply another technological means of delivering the service. 15 The GATS, however, distinguishes between services provided to nonresidents “from” the country of the service supplier (mode 1 or crossborder supply) and services provided “in” the country of the service supplier (mode 2 or consumption abroad). Usually—but as currently defined by the GATS, not necessarily—mode 2 involves physical movement of the consumer, such as the movement that occurs in tourism. 6 For financial services, however, the line dividing these two modes of supply is not always clear, especially in the case of example (c) in the previous paragraph. Indeed, because financial services are intangible, assigning a geographic site to their provision across borders is difficult and often arbitrary and will become more so as the importance of e-finance increases. From a regulatory perspective, a major issue is whether, and to what extent, the rules of the host country—that is, the country of the customer—are applied to the cross-border transaction. 17 Suppose, for example, that employees of a foreign bank visit the host country to arrange cross-border loans.

Even when the host country does not have a regulatory framework in place for cross-border banking services, host-country bank regulators sometimes look at factors, such as the frequency and duration of visits and the permanence of the host-country infrastructure for the visiting employees, to determine whether, for regulatory purposes, the cross-border activity rises to the level of a host-country office. 18 Or suppose that a foreign broker-dealer solicits host-country customers to purchase securities. Securities regulators often use solicitation— in addition to the actual conduct of business with domestic residents—as INTERNATIONAL TRADE IN FINANCIAL SERVICES 9 criterion for determining whether the foreign firm is subject to hostcountry broker-dealer registration requirements. 19 In response to the increasing use of the Internet by the securities industry, a number of regulators also examine factors such as whether a web site is being used to target host-country customers (see chapter 4). 20 Besides regulatory jurisdiction, another important jurisdictional issue arises in the event of a dispute; here the question is which country’s courts have jurisdiction to try the case and which country’s laws apply. 21 Foreign Direct Investment. The inclusion of foreign direct investment in the GATS reflects its importance as a way of providing services internationally. 2 By contrast, the General Agreement on Tariffs and Trade (GATT) does not cover foreign direct investment; for goods, there is only a relatively narrow agreement, negotiated in the Uruguay Round, on trade-related investment measures (TRIMs). 23 Although the GATS includes establishment of a commercial presence as a mode of supply, it does not have a separate framework for investment like that of the NAFTA or the widely used bilateral investment treaties (BITs). 24 These agreements cover portfolio investment as well as direct investment in both goods and services. Moreover, unlike the GATS, they include provisions to ensure the protection of investments—specific rules governing expropriation and compensation, for example—and also provide for arbitration of disputes between private investors and host-country governments. Presence of Natural Persons.

The fourth mode of supply in the GATS, the temporary presence of natural persons, includes the temporary presence in the host country of employees of firms providing services across borders or through a commercial presence. For example, for financial services, this mode of supply covers the presence of nonlocal staff of a host-country branch or subsidiary of a foreign financial firm as well as agents of the firm visiting the host country to facilitate the provision of cross-border services. 25 Although the presence of natural persons is listed as a mode of supply in the GATS, and members can negotiate sectorspecific commitments, countries usually make commitments for the temporary presence of natural persons as “horizontal commitments” that 10 THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS apply to all services sectors. 6 For the financial services sector, however, most countries that belong to the Organization for Economic Cooperation and Development (OECD) have incorporated into their schedules a set of commitments allowing the temporary entry of senior managerial personnel and certain types of specialists in association with the establishment of a commercial presence. 27 3 Liberalization and Regulation Q Policymakers, particularly in emerging market economies, are increasingly recognizing that opening markets to foreign financial firms can benefit both consumers of financial services and the domestic economy as a whole. As noted in chapter 2, the presence of foreign firms can create more competitive and efficient markets for financial services, thereby supporting economic growth and development and contributing to a more resilient domestic financial system.

At the same time, however, ensuring adequate prudential regulation and supervision of financial firms and markets, together with other fundamental domestic structural reforms, is essential to obtain the maximum benefits of liberalization while minimizing the risks. Basic structural reforms include increasing transparency and accountability in both the private and public sectors; introducing effective risk management techniques; and developing the institutional infrastructure, such as insolvency laws and appropriate judicial procedures. Because measures to promote competitive markets and to strengthen domestic financial systems are complementary and mutually reinforcing, the relationship between financial sector liberalization and regulation has two distinct dimensions. On the one hand, liberalization requires reducing or removing anticompetitive regulations that pose unnecessary barriers to trade in services. On the other hand, liberalization requires increasing the strength and quality of certain regulations and, in some areas, introducing new regulations. Thus the process of liberalization involves, inter alia, reaching a consensus on where to draw the line between regulations that are simply anticompetitive barriers to trade—and should therefore be eliminated—and regulations that serve legitimate purposes. For financial services, the GATS contains a “prudential carve-out” for domestic regulation. 2 In the GATS, the term “prudential” is used broadly 11 12 THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS o encompass not only measures to promote the integrity and stability of the financial system (as the term has traditionally been used in banking regulation) but also measures designed to protect consumers of financial services. The prudential carve-out, discussed later in this chapter, is designed to ensure that any obligations undertaken or commitments made in the GATS will not interfere with the ability of national authorities to exercise their responsibilities for prudential regulation and supervision. Whether a particular measure is prudential or simply being used to avoid a country’s obligations and commitments under the GATS is, however, an issue that could be brought before a WTO dispute settlement panel. All countries impose certain rules that are clearly prudential.

Even if a measure is prudential, however, it may create a barrier to trade in financial services. This could occur because a host country imposes additional prudential requirements on foreign financial firms vis-a-vis their domestic counterparts. Such barriers could also be created simply because prudential rules differ among countries—that is, even if each host country applies the same rules to foreign and domestic firms, financial services firms operating on a global basis often find it burdensome to comply with a multitude of different national prudential rules. A critical question is whether such barriers could be addressed without jeopardizing prudential goals.

Specifically, in what areas and under what conditions might financial services regulators be able and willing to recognize each other’s regulations and supervisory practices as being as effective as their own? The GATS is permissive with respect to such recognition arrangements. However, as will be explained in chapters 4 and 5, the WTO is not the appropriate forum for financial services regulators to negotiate recognition of prudential measures. Three Pillars of Liberalization “International contestability of markets” refers to the creation of markets that are competitive and efficient on a global basis—a goal that can be achieved by removing all types of barriers to foreign participation in hostcountry markets. International contestability is, in effect, based on three pillars of liberalization: (1) national treatment and market access; (2) the LIBERALIZATION AND REGULATION 13 removal of nondiscriminatory structural barriers, that is, domestic structural reform; and (3) freedom of capital movements. For financial services, the GATS has so far dealt mainly with the first pillar. An important question for the Doha round is how far the negotiations should extend into the second pillar. The GATS deals with the third pillar only insofar as it affects countries’ specific commitments to liberalize trade in services; in general, liberalization of capital movements is a matter of concern for the IMF 4 . National Treatment and Market Access. The first pillar of international contestability of markets is liberalization aimed at opening markets to foreign services and service suppliers and ensuring that they enjoy substantially the same treatment as their domestic counterparts. Such liberalization requires reducing or removing barriers that discriminate against foreign services and service suppliers with regard to entry and operation in a host-country market. A host country might, for example, discriminate against foreign financial firms by refusing to grant licenses for their branches or subsidiaries; imposing limitations on their ownership position in domestic firms or on their aggregate market share; or prohibiting them from engaging in certain activities that are permissible for their domestic counterparts.

First-pillar liberalization also requires removing various quantitative limitations on the overall provision of services in a host-country market. Although these barriers may not, on their face, be overtly discriminatory, they are typically used to block entry by foreign services and service suppliers. A country might, for example, limit the number of service suppliers in a particular market by restricting the number of new licenses that may be issued or by relying on an economic needs test, which involves an assessment of “needs” in the market by host-country authorities. 6 Because these measures have the effect of imposing some type of quantitative limitation on foreign entry, they are similar to the more overtly discriminatory barriers.

To deal with these first-pillar barriers, the GATS uses the principles of “national treatment” and “market access. ” Article XVII (National Treatment) relies on a generally accepted definition of national treatment—that is, it 14 THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS requires a host country to treat foreign services and service suppliers no less favorably than “like” domestic services and service suppliers. 7 Barriers to entry or operation that discriminate against foreign services or service suppliers vis-a-vis their domestic counterparts would therefore be inconsistent with national treatment. The GATS does not attempt to define market access.

Instead, Article XVI (Market Access) provides a list of restrictive measures, primarily quantitative, that are typically used by host countries to deny entry to foreign services or service suppliers. A country that does not maintain any of these measures is regarded as providing full market access. 8 The list includes seemingly nondiscriminatory quantitative barriers to entry that apply to both domestic and foreign firms, such as limitations—in the form of numerical quotas or economic needs tests—on the number of service suppliers or their total assets. It also includes quantitative barriers to entry that are clearly discriminatory and thus are also inconsistent with national treatment, such as limitations on foreign ownership interests in domestic firms.

As a result, some overlap exists in the national treatment and market access provisions of the GATS—that is, certain measures may be inconsistent with both national treatment and market access. 9 The list of measures in Article XVI also includes restrictions on the type of legal entity through which services may be supplied—for example, requiring establishment of a subsidiary as opposed to a branch. In the GATS, national treatment and market access are “specific commitments” as opposed to general obligations. 10 As a result, national treatment and market access do not apply across-the-board to all services sectors; instead, they apply only to sectors, subsectors, or activities that a WTO member specifically lists in its schedule of commitments. 1 If a member is making only a partial commitment to national treatment or market access within a listed sector, subsector, or activity, any limitations must be listed in its schedule. 12 The use of specific commitments for national treatment and market access instead of obligations applicable to all services sectors is in some respects a structural weakness of the GATS. 13 Under a more ambitious approach, such as that used in the NAFTA’s services and investment provisions, national treatment and market access would apply in each sector unless an exception was specifically listed in a country’s schedule of LIBERALIZATION AND REGULATION 15 commitments or one of the public policy exceptions, such as the national security exception, applied. 14 Nondiscriminatory Structural Barriers.

The second pillar of liberalization required for international contestability of markets is aimed at removing nonquantitative and nondiscriminatory structural barriers. Such barriers are associated with national measures that do not discriminate between domestic and foreign services and service suppliers. A secondpillar barrier could arise because a national measure is primarily anticompetitive or fosters anticompetitive behavior by private parties. In some cases, the barrier could be associated with the inadequacy or absence of domestic regulation—for example, the lack of an adequate domestic legal framework for insolvency. A second-pillar barrier could also arise because of differences in national rules, including prudential rules, that make it difficult to conduct operations on a global basis.

Removing second-pillar barriers goes far beyond achieving national treatment and market access. Those principles ensure that foreign services and service suppliers can enter a host-country market as currently structured and enjoy equality of competitive opportunities vis-a-vis their domestic counterparts. By contrast, second-pillar liberalization represents an effort to create maximum potential competitive opportunities in a host-country market. Achieving this could require major domestic structural reform. This would necessarily involve some degree of convergence of national regulatory systems, either de facto or through negotiated harmonization. A longstanding U. S. rohibition on affiliations between banks and insurance companies in the United States, which was repealed in 1999, created a major second-pillar barrier for many years. 15 Indeed, the European Union had found it difficult to accept that a European financial conglomerate that included both a bank and an insurance company could engage in only one of these businesses in the United States. Regardless of whether this nondiscriminatory restriction was primarily anticompetitive or could have been justified as a prudential measure, it nonetheless constituted a barrier to trade in financial services. Significant second-pillar barriers are often associated with national regulatory regimes for asset-management services. 16 These include 6 THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS across-the-board prohibitions on delegation of functions, such as portfolio management and administrative operations, by the host-country office to a foreign affiliate; extremely strict asset-allocation requirements for a domestic mutual fund or pension fund; and rules that prohibit such funds from investing in foreign securities. 17 While asset management activities raise legitimate prudential concerns about ensuring adequate protection of hostcountry customers, these types of measures often serve primarily to restrict competition, particularly competition from foreign firms (see chapter 5).

Nondiscriminatory structural barriers to trade in financial services are not limited to financial sector regulation. Barriers in other areas that are particularly important for the effective functioning of the financial services sector, such as lack of adequate frameworks for corporate governance or insolvency, are part of the international work on strengthening domestic financial systems, which is discussed later in this chapter. Ineffective or nonexistent competition policy regimes, which could foster anticompetitive behavior by private parties, can also create major second-pillar barriers. Differences in national tax systems are yet another source of second-pillar barriers.

Discriminatory treatment of foreign firms under national tax or competition rules, however, would be a first-pillar barrier. 18 Second-pillar barriers can also arise from a country’s administrative procedures—in particular, a lack of regulatory transparency and procedural “fairness. ” For example, a country might fail to publish all of its laws, regulations, and administrative decisions; administer them in an impartial manner; establish a meaningful procedure for interested parties to comment on proposed regulations; act on applications for licenses within a reasonable period of time; or provide a mechanism for independent review of administrative decisions.

Because regulatory transparency and procedural fairness can be extremely effective in ensuring that commitments to market access and national treatment are fully implemented, they constitute an important underpinning of first-pillar liberalization. The European Union’s single-market program represents the most far-reaching effort to date to remove nondiscriminatory structural barriers among a group of nations. Predicated on political agreement on goals for economic liberalization, that effort is being carried out in the context of LIBERALIZATION AND REGULATION 17 the unique supranational legislative, judicial, and administrative structure of the European Community. 9 Even within the European Union, however, important nondiscriminatory structural barriers to trade in financial services among the member states are still in place (see chapter 5). The GATS addresses certain types of second-pillar barriers. Article III (Transparency) imposes a general transparency obligation on WTO members to publish all measures “of general application” that are relevant to trade in services. 20 Article VI (Domestic Regulation) addresses, in fairly general terms, barriers created by domestic regulations. It requires countries to apply such regulations in a “reasonable, objective and impartial manner” to avoid undermining commitments to market access and national treatment. 1 Moreover, countries must have appropriate legal procedures to review administrative decisions affecting trade in services. 22 Article VI also mandates further work to develop disciplines to ensure that licensing requirements or technical standards do not constitute unnecessary barriers to trade in services. Pending the completion of this work, countries must refrain from adopting licensing rules or technical standards that are so burdensome, restrictive of trade, or lacking in transparency that they undermine the benefits that could reasonably be expected from their commitments to national treatment and market access. 23 The GATS deals with additional second-pillar barriers for individual sectors in members’ schedules of commitments.

The most far-reaching example is in basic telecommunications, where a substantial majority of the countries that have made commitments to national treatment and market access in that sector have incorporated into their schedules— using the “additional commitments” column—a reference paper setting forth “procompetitive” regulatory principles. 24 Designed for a sector where dominant suppliers often control essential host-country facilities, these principles seek to ensure that a country’s national treatment and market access commitments will not be undermined. Countries committing to the principles undertake, among other things, to maintain measures to ensure network interconnection on nondiscriminatory terms and to prevent certain anticompetitive practices. 25 In the financial services sector, most OECD countries addressed nondiscriminatory structural barriers in their 1997 schedules of commitments 18 THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS imply by making a general “best efforts” commitment to remove or eliminate any significant adverse effects of such barriers. 26 In addition, the United States and the European Union used the additional commitments column of their schedules to make “best efforts” commitments to remove specified nondiscriminatory barriers. For example, the U. S. administration committed to try to work with the Congress to remove Glass-Steagall Act restrictions, a goal that was subsequently accomplished, while the European Union pledged that its member states would try to process applications for licenses for banking and insurance subsidiaries within specified periods of time.

Japan, under great pressure from its trading partners, went further and made binding commitments regarding removal of certain second-pillar barriers—including restrictions on asset-management services and lack of regulatory transparency and limitations on lines of business in insurance—that were covered in its bilateral financial services agreements with the United States (see chapters 4 and 5). Freedom of Capital Movements. The third pillar of liberalization involves achieving freedom of capital movements across national borders. Such movements comprise international capital transactions—that is, the creation, transfer of ownership, or liquidation of capital assets, including financial assets—and the payments and transfers associated with such transactions. 27 Restrictions on international capital movements are usually imposed on the underlying transactions as opposed to the related payments and transfers. 8 For example, if a country wished to restrict foreign direct investment in the banking sector, it could prohibit foreign financial firms from acquiring significant ownership interests in host-country banks: it would be unusual to try to achieve this result by permitting the acquisition of the ownership interests while using exchange controls to block payment for them. 29 Although the free movement of capital plays a critical role in allowing efficient allocation of resources on a global basis, the Asian financial crisis of 1997–98 revived a long-standing debate over the appropriateness and effectiveness of capital controls, particularly on short-term flows. 0 Nevertheless, all parties to the debate agree that capital controls can never be a substitute for sound macroeconomic policies and fundamental reforms of domestic financial and legal structures. Indeed, the Asian crisis itself emphasized that weaknesses in domestic financial systems can create significant vulnerabilities LIBERALIZATION AND REGULATION 19 as capital movements are liberalized. At present, conventional wisdom holds that, although imposition of new capital controls should, in general, be avoided, the imposition of limited, temporary capital controls to deal with massive temporary inflows or outflows of short-term debt might be useful in some cases. 1 Moreover, it is now widely recognized that removal of existing controls must be carried out with great care. Of particular importance are the pace and appropriate “sequencing” of liberalization of different types of capital flows and of liberalization of capital movements vis-a-vis structural reforms to strengthen domestic financial systems. 32 Freedom of capital movements per se is not within the purview of the GATS; international capital movements and international trade in financial services are, however, closely related. Establishment of a commercial presence in a host country by a foreign service supplier involves both trade in services under the GATS and international capital transactions.

For example, a commitment in the GATS to liberalize financial services trade by allowing foreign financial firms to establish wholly owned subsidiaries is essentially a commitment to allow foreign direct investment that involves the acquisition of 100 percent of the shares of existing or de novo hostcountry financial firms. 33 In theory it is possible that, once established, the subsidiary could conduct its ongoing activities without engaging in additional international capital transactions; however, its activities would need to be limited to transactions with host-country residents involving domestic financial assets. 34 Establishment and operation of branches, which are not separately incorporated in the host country, virtually always involve international capital transactions between the bank’s head office and the branch. 5 These transactions include both foreign direct investment and portfolio investment. 36 For branches conducting a wholesale business, ongoing activities would typically also involve international capital transactions with unaffiliated parties. For cross-border financial services, international capital transactions are typically either integral to, or closely associated with, the provision of the service. For example, international capital transactions are an integral part of accepting deposits from or making loans to nonresidents. In addition, international capital transactions are usually, although not necessarily, associated 20 THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS ith financial services such as securities trading or asset management on behalf of a customer residing in another country. 37 By contrast, certain crossborder financial services, such as investment advisory services and financial information services, can be provided without an associated international capital transaction. The usefulness of investment advice might be limited, however, if the customer were prohibited from investing in foreign assets. In general, it is difficult to realize fully the benefits of liberalization of trade in financial services without freedom of capital movements. Financial services trade absolutely requires, however, the liberalization of only those capital movements that are necessary for the trade transaction to occur.

In recognition of this relationship, Article XI of the GATS (Payments and Transfers) prohibits WTO members from imposing restrictions on capital transactions or associated payments and transfers that would be inconsistent with their specific commitments to liberalization of trade in services. 38 A footnote to Article XVI (Market Access) provides greater detail—namely, a country that has made a specific commitment to market access must allow (a) capital movements that are “essential” for the provision of a service in mode 1 (cross-border supply); and (b) inward capital movements that are “related” to a service supplied through establishment of a commercial presence. 39 The bottom line is that if a country makes a commitment to liberalize trade with respect to a particular financial service in the GATS, it is also making a commitment to liberalize most capital movements associated with the trade liberalization commitment.

The country is not, however, making an across-the-board commitment to freedom of capital movements. The GATS provisions dealing with capital movements, like GATS specific commitments to liberalize trade in services, are subject to a balance-of-payments safeguard. 40 Both the capital movements and balance-of-payments safeguard provisions of the GATS refer to and are consistent with the IMF’s responsibilities in these areas. 41 Strengthening Domestic Financial Systems The financial services sector has an elaborate and intensively used framework of international fora that are used, both separately and in combination, LIBERALIZATION AND REGULATION 21 o address overall financial and regulatory policy issues; to promote cooperation and coordination among supervisors; to set voluntary but widely accepted international minimum standards and codes of good practices; and, most recently, to provide “surveillance” of domestic financial systems. This surveillance includes monitoring and helping to build institutional capacity for implementation of the international standards and codes. The international fora dealing with these issues include the Group of Seven (G-7), the Group of Ten (G-10), the Group of Twenty (G-20), the Financial Stability Forum, the Basel Committee on Banking Supervision (Basel Committee), and the International Organization of Securities Commissions (IOSCO), as well as the IMF and the World Bank. 2 The international framework for the financial services sector, which has been constructed over the past quarter century and is still evolving, is a response to two major factors: the internationalization of banking and other financial activities; and the special characteristics of the financial sector, especially the phenomenon of “systemic risk. ” Because of systemic risk, problems with one financial firm can be transmitted to unrelated financial firms, both within and beyond a single country. For example, a chain reaction of problems could be triggered through imitative runs on banks as depositors lose confidence in a banking system, through default on domestic or international interbank obligations, or through domestic or international payment systems.

Problems in a country’s financial sector can also affect the real economy, both domestically and internationally, through declines in output and shifts in trade flows. In addition, the existence of global financial firms, with activities falling within many different national jurisdictions, requires cooperation and coordination among home- and host-country authorities to prevent gaps in supervision. Increasingly, these global firms are financial conglomerates, which means that supervisory cooperation and coordination are necessary across financial subsectors as well as national borders. For these reasons, countries have a stake in the quality of each other’s regulation and supervision of the financial sector and also in ensuring cooperation and coordination among supervisors.

In this regard it is useful to distinguish between prudential regulation, which includes, for example, capital and other requirements designed to ensure the safety and 22 THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS soundness of financial institutions, and supervision, which is aimed at making certain that financial firms adhere to such requirements. The importance of strong, effective supervision cannot be overemphasized; without it, the best prudential rules can be meaningless in practice. The extent to which both experience and good judgment are required for such supervision also needs to be emphasized. Indeed, the role and nature of supervision make it particularly difficult for supervisory authorities to reach recognition agreements based on the harmonization of prudential rules (see chapter 5).

While regulation and supervision must be strong and effective, a further complication is that a poorly designed regulatory system—for example, an excessively generous deposit-insurance scheme—can create an unacceptable degree of moral hazard; that is, it may encourage excessive risk-taking by regulated firms. Accordingly, national regulatory and supervisory systems must be designed to complement and support, but not to substitute for, market discipline. Thus, achieving widespread transparency in both the public and private sectors, including accurate and timely disclosure of financial information, is critical

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Negotiation: Game Theory

Negotiation| | The use of Game Theory could be a powerful force in negotiation. Investigate the different ways that Game Theory can be used or manipulated to change an outcome in a negotiation. | | Negotiation| | The use of Game Theory could be a powerful force in negotiation. Investigate the different ways that Game Theory can be used or manipulated to change an outcome in a negotiation. | | Quentin Dutartre Yash Ruia Damien Canneva Kilian Bus Emilien Allier David Schil Quentin Dutartre Yash Ruia Damien Canneva Kilian Bus Emilien Allier David Schil Contents Introduction2 What is the Game theory? Theory4 Making commitments: promises and threats4 Basic situation4 Unique Win/Win situation5 Commitments and side payments5 Prisoner’s dilemma7 The Simplest Game: Two Person with a Fixed Pie8 Tacit Barganining8 How to act during a negotiation9 Breakthrough Strategy9 Tactics10 Limits11 The modelisation11 The interpretation12 Conclusion13 Sources13 Introduction Our group decided to work on the topic three: “The use of Game Theory could be a powerful force in negotiation. Investigate the different ways that Game Theory can be used or manipulated to change an outcome in a negotiation”.

The modern Game Theory was created in 1944 with the book “Theory of games and economic behavior” by Oskar Mogenstern and John Von Neumann. It was also developed a lot in the 1950’s with several studies by John Nash. After our seminary about negotiation we thought it would be very interesting to make some research about the Game Theory. Indeed, we made some researches on the Game Theory in our first year in IESEG in our economic classes. That is why we were a bit surprised to see that this theory could be also used in a negotiation process to analyze it.

It seems to be obvious that using the concepts of that theory could change the course of a negotiation and be understood as a manipulation or just a skill to achieve the goals of the agents in a negotiation. We decided to divide our work in three parts. First, we will define the Game Theory and make some examples. Secondly, we will make an synthesis on how to act as a negotiator during a negotiation. Finally, on the third part we will talk about the limits and the interpretation we can make on that subject. Generally, we can say that our goal is to extend the concept of Game Theory.

Indeed, we imagined it only in an economic vision and we want to extend it to a negotiation vision. What is the Game theory? The Game theory is a method to study the strategic decision-making. More formally, it is «the study of the mathematical models of conflict and the cooperation between intelligent reasonable decision-makers. ” An alternative term suggested «as a more descriptive name for the discipline ” is the theory of interactive decision. The Game Theory is mainly used in the economy, the political science and the psychology, as well as the logic, negotiation and the biology.

The subject of the (landed) at first sent zero-sum games, such as the earnings(gains) of a person equal exactly the clear(net) losses of the other participant (s). Today, however, the Game theory applies to a vast range of relations of class and developed in a term of umbrella for the logical side of science, to include both man and non-people, as computers. Classic uses include the direction of the balance in numerous games, where every person found or developed a tactics which cannot successfully better its results, given the other approach.

Theory Making commitments: promises and threats The first assumption to be made is that the goal of any negotiation is to enlarge the pay off for both sides, and in most cases agreements has to be made in order to achieve getting a Win/Win situation. These agreements can be made by making either promises or threats. In both cases, the idea is to benefit from an enlargement of the total pie obtained by making commitments. Basic situation In the following example, both sides are looking forward to getting the better pay off.

At first sight, Neil seems to have a better hand since he is able to have payments by using both of his strategies while Bob can only win by using strategy 1. It is obvious that Neil would better use strategy 1 in order to maximize his payoffs expectations. But Bob would probably prefer using his second strategy than winning less than Neil, though it would result in a Loose/Loose situation. Bob will probably threatens to take strategy 2 if Neil chooses the first one. The only way to obtain a Win/Win situation though is for Neil to make a commitment: he must promise to choose 2 if Bob chooses 1.

This is the most basic commitment example. Unique Win/Win situation In the following one, there is one only scenario which allows the two player to win, but commitments must be made buy both sides in order to reach the best situation for both. Here, Neil will probably initially chose strategy 1 in order to avoid loss, but he won’t be able to gain anything though. Bob would probably choose to maximize his payoffs expectations by choosing the first strategy. Finally, neither Bob nor Neil will get payoffs, so that we obtain a Loose/Loose result, which is not acceptable.

They both have to promise to choose the second strategy in order to win. Commitments and side payments In this last example, it is not possible to reach a Win/Win agreement but by making side payment. Side payments allows to change the total pie, and though to reach the targeted situation. In this particular scenario, initially Neil would choose the first strategy, which is not acceptable for Bob in both cases. Moreover, Bob can’t threaten Neil to choose either a strategy or another. This is a very bad situation for Bob.

He will probably choose strategy 1 in order to minimize Neil’s payoffs, and though gain nothing. But, fortunately he can also promise side payments, which could change the total pie. As a matter of fact, if he pays $2 for Neil to pick strategy 2, we create a Win/Win situation which will allow both sides to get payoffs. Through this part we’re going to apply the concept of promises and threats into a concrete situation of negotiation. We set the situation, we have two participants, one will be selling an apartment two a possible buyer. At first sight, the man in power is the seller as he fixes the price.

Nevertheless, the buyer can use the threat technique, saying he won’t accept the offer. This decision would place our two actors in a lose/lose situation. Indeed, if the buyer is in the situation of losing the negotiation he will choose to make his opponent loose too. Thus in order to obtain a win/win situation, the seller must not be too greedy to convince his customer. In another way, if the seller wants to be sure to succeed, he can promise the buyer an offer that will automatically put the buyer in a state of winning. Prisoner’s dilemma The prisoner’s dilemma is one of the most famous games.

It is quite easy to understand and gives a good idea of different possibilities in negociation and the interest of cooperation. The main idea is that two burglars get caught by the police after a robbery, and they are interrogated separately. They have two options: either they say that the other guy is guilty or they say he’s not. Considering one’s interest separately, the best situation for him is to use the guilty option while the other chooses the not guilty option. In this case, the first guy will get only 1year of jail while the other one will get 5 years.

Therefore it is very risky to choose the not guilty option. If we consider the two as one, the most interesting situation is that both of them choose the not guilty option, whereas the worst is both choosing the guilty option. This is one of the simplest examples of a Win/Win, Win/Loose or Loose/Loose situation. They can both act individually using the guilty option, and get 3 years of jail each, or they can cooperate, use the not guilty strategy and get only 2 years both. The major thing to be remembered is that trust is crucial in negotiations.

It leads to the only Win/Win situation possible and credibility is needed to avoid defection. The Simplest Game: Two Person with a Fixed Pie When think of people negotiating, a very simple scenario comes into mind, where one person wins and the other fails to win. This is a very simple scenario and one of the first that game theory attempted to solve. Let’s take a very simple example where Nathan owes Barbara some money and they can’t decide on how much. Both of them have two options available to them, but the final decision depends not only on what strategy they choose, but also on what strategy is chosen by their opponent.

Nathan will choose to pay a minimum of 40 and Barbara will want to take the maximum of let’s say, 60. This is a very simple scenario and one can easily figure out that the outcome will be 50. 40| 50| 50| 60| However this illustrated a very important concept called the Minimax theorem which tells us to pick the strategy the minimizes the opponents maximum gain. Nathan will pick strategy 2 in order to not pay 60 while Barbara would pick strategy 1 to avoid only getting paid 40. The more variables one has, the more complex the game becomes to solve.

Therefore it is a good idea to have lesser number of variables, similarly we need to have a clear idea of what we need in order to reduce unimportant options. Reducing the number of variables one has is always a good idea, even if one is not really reducing the number of variables it is important to show to the opponent that you only have some variables to win. For example, when a customer asks for something one can refer to standardized guidelines or not having permission from the boss to reduce variables. Tacit Barganining. This term was first coined by Thomas Schelling.

Who did some experimental research and found out the following facts: * When asked to pick any number, 40% chose the number 1. * When asked to pick any amount of money almost all people chose a figure divisible by 10 * When people were told that they had to meet someone else – but had to guess the time – almost all chose noon. We often succumb to a lot of convections even without doing it consciously. It is normal for people to follow the laws of fairness and equilibrium; no one wants to be seen as deviating from the norm.

Therefore its usually a good idea to make the first move in a negotiation so that you can create the framework and make clear that you are precedent. In a negotiation, taking the initiative doesn’t seem to be the best thing to do when you start it. Indeed, when you ask somebody to start negotiations, generally he is reticent to do so. Nevertheless asking the first proposal allows you to be able to negotiate on this basis, that’s why you should do it first. Establish a precedence as we said before is a tool to start negotiating. The thing is, there is always a argaining whereas you don’t even notice it. It’s called the “tacit bargaining”. How to act during a negotiation Breakthrough Strategy In order to reach your goals through using the game theory to negotiate you will need to apply a strategy you will respect during the entire negotiation. That’s why we can use the breakthrough strategy. This breakthrough strategy is based on five steps and permits to solve issues during the negotiation process. Its aim is to offer the two parties the possibility to work together rather than appearing as two adversaries.

Nevertheless, this strategy needs to be remembered and followed as it wouldn’t be the intuitive reaction. These five steps are to firstly stay focused. In fact, the goal is to have your mind clear and not be parasite by your emotions. You need to have an overall view on the entire negotiation and to not get lose on a specific point. Then, you need to accept the counter-party. Indeed, being as empathic as possible is very important throughout the negotiation process as creating a climate of exchange is primordial to obtain a win/win situation.

This can be perfectly illustrated by the prisoner dilemma. Both parties searching for their proper interest without regarding his opponent situation will lead to lose/lose. Thereafter, the participant will reframe the negotiation. It is based on rephrasing the opponent arguments enhancing the common interest. This will permit that both side look for the fairest deal possible. Once again you need to look through the other negotiators eyes in building a “golden bridge. This means trying to understand if, in his situation, you will accept the deal as it is now.

You will therefore see when to finalize the negotiation in order that the counter-party doesn’t feel pushed in the conclusion. Finally, to make it hard to refuse by using the power game as threats or bluff is the most common mistake made at the end of the negotiation. In fact, by using lowering his chance to refuse you also lower his chance to accept the deal. Thus, by having used the four precedent steps, you have create a negotiation climate that will present your golden bridge as the best common interest for the parties. Tactics Tactic is about anticipating what the negotiator is going to do.

You have to prepare several strategies in order to obtain what you want from these negotiations. First, there are the behavioral tactics, whose aim is to differentiate the negotiation in its role of representation of a third person or a company and the person who plays this role. Negotiators when using these tactics can operate in many ways. They can use a spokesman for representation, or the executive person or a delegated representative. You have to create a positive frame if you want to obtain concessions from the person you’re negotiating with.

Moreover, you have to establish limits in your area of negotiation. Anchoring is a tool that has to be established in order to be able to make adjustments between the two parties in the future. Adjustments and anchoring are important because they have an impact on negotiators. They lead them to what is possible and doable during the negotiation. Another mean is to influence the negotiator as an individual. As if, the negotiator is using its unique and common sense during an argumentation. Some tactics can be based on ethic and morality.

If you think the proposition is unfair or contrary to the usual behavior or even illegal, you can use these tactics by pointing up the fact that the proposition is unethical. Tactics is not only about the human and the social part; there is also a part of a negotiation that is about the balance of power between the two parties. The main goal of this tactic is to let the other party know that accepting one request would have an important impact on the cost and that we are going to make them pay for that. The deterrence impact shouldn’t be ignored in a negotiation.

Commitment in a negotiation is of paramount importance. It is one of the three strategic strikes with bluff and threat. The thing is that negotiators have naturally the tendency to commit themselves into the negotiation. Instead of trying to develop its requirements and modifying its position, he will start conflict in order to put pressure on its opponent. It puts the opponent in a tough position; accept our request or he will have to face the failure of the negotiation. And that’s exactly what he wants to avoid. Otherwise, its role would be useless.

This tactic can lead to a dead-end, but it’s a stuck situation that doesn’t consider the balance of power between the two parties. Threats are different from commitment as they are more flexible and have a longer range of existence. They are various as they can be explicit or implicit. They are the direct consequences of the failure of negotiations and can be introduce by the company of the negotiator. They have to be used sparingly because threats without any actions discredited any negotiators and especially its company. In the future, it would have an impact on the approach of the opponent regarding the company.

Limits The study of a complex negotiation situation with the help of a model places two major complementary problems: the modeling itself (the passage of the reality to a version idealized of this reality) and the interpretation (inverse approach) The modelisation Modelisation is a very hard job. We can resume it as the stage of transforming reality problem into a matrix. The modelisation consists in creating a representation simplified by a problem: the model. But as every transformation, problems could be highlight. Some characteristics, some influence can be overestimated or less estimated. How to model the respective influences of the parameters (functional dependence, indeed if such or such parameter exercises one dominating influence or on the contrary, unimportant in first estimate, etc. ) * How measure the values of the parameters (variables of situation or history of the previous negotiations for example) and how fire of a model of the theoretical results (or of experimental simulation). And at least the human factor is very difficult to imagine and to predict. The process of modelisation tries doing it.

But through his experience, his character, his objectives or his approach, each human is different. So a model would try to simplify it but of course will make errors. The interpretation Indeed, we already possess a completely realistic model: it is the real world itself. Yet this model is too much complicated to be understandable. … It is only when a simplifying postulate ends in a model which supplies incorrect answers to the questions which it is supposed to answer that its lack of realism can be considered as an imperfection. … Otherwise, its lack of realism is then a virtue.

In that case, the simplifying postulate allows to isolate certain effects and to facilitate the understanding. How to interpret the results supplied by the model, suppose that there is (problem of adequacy of the model to the reality). Does such result of the model express suitably the real situation, in spite of the simplifications and the untidy parameters? Like the modelisation, Interpretation is a tuff job. The human factor is a hard to forecast. Game theoretic predictions may not be confirmed in experiments (the real life). Is this a fault of game theory? Yes: people are simply not rational … * No: maybe we get the information technology wrong (absentmindedness), or payoffs are not specified correctly (altruism). The advantage of assuming rationality is that we can think through situations (how can irrationality be modeled). The advantage of assuming selfish behavior is that it is “unique” (what means altruism, inequity aversion etc. ). Conclusion As a conclusion we have studied all the aspects about the Game Theory and that helped us to understand that it is a useful tool not only about economic classes but also for negotiation.

Indeed, we have made a link between the different sorts of Game Theory and the different cases you can face during a negotiation process. As it is often the case, we found that one of the strongest conditions to succeed in a negotiation is to be able to adapt your body language and attitude according to the characters and features of your contradictor(s). Using the Game Theory could help you to make a strategy and to adapt your goals to any case which is in front of you.

However, it is never possible to make a perfect prediction of how the person who is just in front of you and it is very important to be cautious enough, that means that you must rank the risks of any strategy you will try during a negotiation. We can take a final example: You start a meeting being sure you will use the theory of the prisoner’s dilemma because you thought you perfectly understood the mood of the other agent. Imagine one second that you made a very big mistake because you don’t know that the person in front of you has just been left by his wife (for example) and he is very upset.

That situation is a good illustration of the risks of using the Game Theory as a perfect and trusting strategy for negotiation. We can finally say that using the Game Theory can be very positive in a negotiation and you can consider it as a very useful tool. However, we have to be very careful because some parts of this theory can be assimilated as a manipulation and this theory is not a miracle solution: every negotiation is different and you can’t always predict the features and mood of your contradictors. Sources * http://dlhoh. hubpages. com/hub/Negotiation-Skill-Dilemma * http://hbswk. hbs. du/item/2773. html * http://www. digitaltonto. com/2009/game-theory-guide-to-negotiations/ * http://www2. warwick. ac. uk/fac/soc/economics/staff/academic/muthoo/publications/bargwc. pdf * http://www. negotiation. hut. fi/learning-modules/IntroToGTAndNego/index. html * http://www. economist. com/node/21527025 * http://www. google. fr/url? sa=t&rct=j&q=negotiation+game+theory&source=web&cd=9&ved=0CHoQFjAI&url=http%3A%2F%2Ffaculty. haas. berkeley. edu%2Frjmorgan%2Fmba211%2FCourse%2520Overview. ppt&ei=vgibT_juBoek4AS8ys2pDg&usg=AFQjCNF5FpD-1CO77pM9Ae0oXFzY0SeGCQ&cad=rja

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Internnational Negotiations Reflective Essay

Final Reflective Essay To begin with, I would like to say that the course of International Negotiations was very important for me. It lasted only two weeks but this time was enough to understand many things, to have good lessons and real negotiations that changed my life. It is not “loud words”; it is what I feel like now. First of all, the course began with meeting people of the group, learning nationalities and understanding what is real international negotiations are. In different tasks of lesson I tried to know more about the way of doing negotiations with different people.

I am convinced that different ways of thinking and cultures make negotiations special. You can know rules of doing negotiations but it is not all. You also need to know a person, sometimes his culture and set of mind. These two weeks showed me that different cultural sets of mind are very difficult to overcome. In some moments I could not do it and I lost because of it. However, this is the point of international negotiations when you are dealing with different people from other countries. First negotiations in this class showed me that I was not prepared well for them.

It was difficult for me, because I was not sure if I was negotiating in the right way or not. I think that when you have real negotiations you have more time to do your homework, to set up your goals and results which you want to get. It is always easier when you know your target, points which you can lose or gain. In my case, I realized how to do it after the third lesson when we tried to negotiate about multiple issues. Negotiations are not simple things. Sometimes you need to lose in some moments to gain in main one.

Now I can see it, I can feel when it is important something for a person or not. In negotiations you always have a chance to know it. If somebody gives up very quickly it means that this issue or moment does not play a great role for him. Moreover, in the beginning of this course I thought that I am a risk-averse person. I did not like to take a risk because of fear of losing more. However, after this course I realized that I can be risk-seeking and I want to take a risk in some moment, but it is very ifficult to negotiate with a person with opposite opinion, especially when you are in one team. Difference in risk attitudes can fail your negotiations. It happened to me after the course. I had the negotiations with the person from other country. I thought that we were in one team, I wanted to take a risk, but he did not. Our negotiations failed, especially for me. I tried to make it works but I could not. I think that we had such kind of negotiations when our bargaining zones did not cross.

We could not to find solutions and ways to make a deal, so it failed. Maybe, if it was more important for us and we could not refuse of it we would make a deal. In conclusion I would like to say that the success of negotiations is in ability to understand the problem in your negotiations. You also need to find ways of solving the problem that are suitable for all partners. It is the most difficult part. To implement your decision you need to know your partner, to know his goals, main issues or moments that he does not care about.

It is very important for me in negotiations to know the person, sometimes his way of thinking, his set of mind. Moreover, after the course I realized that in some moments I want to take risk, I want to be risk-seeking. However, there are situations when negotiations fail. I am convinced that in such cases I need to try more to make it happens, to make a deal. However, sometimes it does not work not because of you, but because of your partner. All partners should put efforts into the negotiations and they will reach the solution.

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Negotiation in Action

Negotiation in Action One of my most substantial accomplishments is that I learned significant concepts and principles of negotiation during the course. Negotiation process and a variety of tactics that I learned in class or through the textbook, Getting to Yes, were definitely helpful for improving my understanding of negotiation and its strategy. Another important accomplishment is that I have learned what I couldn’t have learned from lectures or textbooks through negotiation simulations.

I prepared a lot for each negotiation and tried to follow the strategy that I had set up in advance. After negotiations, I tried to identify what worked, what didn’t and how I could improve next time. I have kept a list of successes and mistakes and I have eventually become more confident in a variety of negotiation situations. While negotiating, I have been more like a soft positional negotiator who emphasizes the importance of building and maintaining a better relationship, trying not to hurt other’s feelings.

My unique set of negotiation skills are : ? polite, positive and active attitude, ? a good listener and ? thinking of the other’s position. During the process of negotiation simulations, I have always tried to listen more actively and acknowledge more carefully what is being said by the partner. If I pay attention more, the partner will also feel the satisfaction of being heard and understood. However, I realized that I need to balance my position better according to different situations.

I have learned that constructively initiating positional bargaining is essential and approaching to solutions according to my position is more effective in negotiation process. In addition, I have learned not only that negotiating with partners cooperatively and competitively is one of the most significant factors for successful negotiation but that cultivating good relationships for the future is very important as well. To do so, I need to effectively manage emotions in disputes and favorably understand cultural differences.

I would like to set two top priority goals for my future negotiation. One is that, thinking about a variety of tactics such as “BATNA”, ZOPA, and etc. , I will always try to find an optimal solution, which is “win-win” for both sides, instead of arguing over my position and pursuing only my own interests. The other priority is that I will establish healthy personal and professional relationships in my life, having a positive and active attitude, understanding people, appreciating their wants, identifying their needs and learning about their background and what makes them who they are.

Recommendation Letter I strongly recommend this course. This course is designed to cover the range of negotiation situations and issues faced by managers and decision makers. This course explores negotiations in many contexts: simple personal transactions, public and private sector collective bargaining, resolving disputes. I was able to develop tactics and strategies for becoming an effective negotiator and have confidence in the ability to analyze negotiations in a variety of contexts and to conduct successful negotiations.