Negotiation Strategy and Negotiation Plan - Literature review Example

Negotiation Strategy and Negotiation Plan Table of Contents Introduction 4 Literature Review 4 Theoretical Approaches used in Negotiation Studies 5 Bilateral Monopolistic Theory Approach 5 The Game Theory Approach 5 Negotiation Strategies 5 Yielding 5 Competing 5 Compromising 6 Problem-Solving 6 Negotiation Styles 6 Competing Style 6 Accommodating Style 6 Avoiding Style 7 Compromising Style 7 Collaborating Style 7 Negotiation Plan and Process 7 Negotiation Plan Devised by XFM Management 7 XFM Management’s Negotiation Process with Beaufort’s Management 8 Five year Contract 8 Labour cost 8 Performance based Incentive 8 Rejection Rate 8 Quality Standards 9 Beaufort’s Management Negotiation Process with Unity Management 9 Negotiation Styles 9 Competing Style 9 Collaborating Style 9 Reason for the success of XFM Management in the Negotiation Process 10 Self Reflection 10 Reference List 12 Introduction Negotiation strategy is referred to the primed plan of action or a prearranged approach to attain a specific objective or purpose to possibly find as well as make a contract or agreement in arbitration with other parties (Dietmeyer and Kaplan, 2004; Kraus, 2001). While pursuing a business, people do not have an option as to negotiate or not, the only option they have is how well they negotiate to keep their point. The negotiating skills are used by supervisors to encourage and motivate workforce and are used by employees for promotions (Sarkar, 2010). Negotiation styles forms a keystone in any of the conflict resolving method. Individuals differ based on their negotiation styles. There are five types of negotiation styles such as accommodating, collaborating, avoiding, compromising and competing (Gosselin, 2007). The main purpose of this paper is to focus on the negotiation plan and negotiation strategy devised by XFM management, which is a footwear production facility in China. The essay includes the negotiation process which takes between three parties i.e. Unity management, XFM management and Beaufort’s management. Beaufort and Sons is a footwear company founded in the year 1912 and situated in Northampton, United Kingdom. The company manufactures top quality shoes for women and men. Usually, the company sold its products chiefly in the British markets and some parts of Europe, but with the changing environment they deemed to expand their business either in United Kingdom or China. So, this essay includes the negotiation process which took between the three parties and focuses on XFM Group’s and Unity Group’s approach towards Beaufort and Sons, which it needs to consider to expand its business in either countries. Literature Review A negotiation is generally a communication practice in which various parties discuss their problems as well as try to work out on them through conversation to reach at a resolution. There are various theoretical approaches which are used in the studies of negotiation, such as the “bilateral monopolistic theory approach” and “game theory approach” (Nieuwmeijer, 1992, p.14). Theoretical Approaches used in Negotiation Studies Bilateral Monopolistic Theory Approach The theorists of bilateral monopolistic approach address themselves to actual negotiation problems; however, their designs of research do not reveal this progress in their understanding or knowledge. The notions of such theorists can merely be placed into function with difficulty and most of the variables which are present in practice are strictly controlled or omitted in this type of research (Giocoli, 2003). The Game Theory Approach Game theorists lay more emphasis on the fixed-sum problems, where there are just losers and winners. Though, in the real world, this hardly happens as there are normally shared losses and gains (McAdams, 2014). Usually, in the process of negotiation, communication which takes place among the members frequently changes the expectations, preferences and objectives of participants. However, this approach does not permit for such alterations, where goals are placed or set in advance. For all these reasons, the approach of game theory has more drawbacks than advantages (Cressman, 2013). Negotiation Strategies Yielding A yielding strategy refers to not to do negotiation. An individual, who yields, agrees to the initial offer. A general reason an individual yields is to stay away from inner uneasiness which arises from idea of taking benefit of other. Other reason is the fear of conflict and unpleasantness (Shell, 2006). Competing It is a more aggressive and classic approach which considers in taking negotiation/arbitration as a zero-sum game (Cavusgil, Ghauri and Agarwal, 2002). People or groups who take competing approach often believe that they are better and superior than others. They employ any tactics of negotiation, comprising of the more unreliable ones and also consider the tactics which are not at all correct because they completely involve themselves in negotiation and always want to win (Guasco and Robinson, 2007). Compromising This strategy looks for some fair stability where both group appear to obtain an impartial deal. A typical method employed by individual who implement this strategy is to ‘split the dissimilarity’, which is not inevitably the best method when others are using strategy like highballing or requesting for likes, wants and needs (OConnor and Carnevale, 1997). People who are employing a compromising strategy assume other decision as worthy and therefore consider their viewpoint also. They understand that no one can get or obtain everything they need and ask for a fair agreement. They are concerned about others perceptions but have higher self-respect and also view themselves in the same position as others (Walton, Gershenfeld and McKersie, 2000). Problem-Solving This approach is similar to compromising strategy and it begins with giving respect to other party (Adair et al). A person who is employing this strategy does not view others as threat towards themselves or as a rival, but to a certain extent as an individual who has genuine requirements and wants. The objective of this negotiation is to work jointly on a reasonable or equitable solution (Corvette, 2006). In general, a person who wants to solve the problem will try to know the situation of other person and will also elucidate their own dilemma and then look for an answer or solution where both the groups can obtain what they want. A person who use problem-solving strategy listen more and then discuss the circumstances before exploring alternatives and ultimately proposing solutions (Beach, 2005). Negotiation Styles Competing Style The competing style of negotiation is considered as the most unfavourable style. The people who are involved in this style see negotiation in terms of competition rather than discussion (Ma and Jaeger, 2005). Accommodating Style It is regarded as a compliant style, where the accommodators are willing and prepared to provide information as well as to make compromise or concessions. People, who are involved in accommodating negotiation style, let other group to do well in negotiation. Avoiding Style Avoiders are generally honest and less transparent towards certain point and simply stay away from the situation instead of making accommodations (Wood and Bell, 2008). Compromising Style Under compromising style, both the sides are involved in making some compromises or concessions. This style is employed most frequently in the positional bargaining. Ultimately, there are no obvious winners but what they believe is that they get the fair result. Collaborating Style This style ascertains that needs of both the parties are met. Parties come up with the ideas of how to generate mutual value as well as think on working together on a solution (Ma, 2007). Negotiation Plan and Process There are three groups i.e. Beaufort’s management, Unity management and the XFM management; who are involved in the negotiation process. The traditional markets of Beaufort’s management are not doing well because of the intensified competition. Beaufort’s management are having niche market for footwear and therefore they need to show ingenuity in drawing customers. As the company was hit by recession and saw certain downfall, so, they decided to seal the older site and offshore their production in China to the XFM management. The main objective of Beaufort’s management is to maintain the quality standards and at the same time driving down the cost of production. The essay will focus on the negotiation process and strategy which took place between the three groups and will also explain how XFM management won the negotiation and the Unity management lost it. Negotiation Plan Devised by XFM Management XFM management is a shoemaking/footwear company in China, who entered into negotiations process with Beaufort’s management in order to view if it is possible to hold on to the contract or not. They already had conversations with the ‘Federation of Trade Unions’ about the likelihood of partnership contract to enhance the working standards mainly in the manufacturing industry. The negotiation plans developed by XFM management are that they want to enter into the contract of five years with Beaufort’s management. The contract include certain terms as well as conditions such as supply of cheap labour from China to Beaufort’s management, which is situated in the United Kingdom; labour cost should be increased as the footwear industry is booming and incentives should be provided to the skilled labours. XFM management wants Beaufort’s management to provide 8% incentive to their labour depending on their performance. They argued that they have other contracts also, so they can share the labour cost from other parties then it will be cheaper or otherwise Beaufort’s management have to provide high wages to the Chinese labours. Their negotiation plan states that they have ‘Free Trade Agreement’ with the government of China. They also negotiated on the matter that each year the labour cost increases by 8% as per ‘International Labour Law Organisation’ but China requires more now as there are more competent labours who perform at low cost. Therefore, the labour force of China requires more incentives to show their expertise in the respective field. XFM Management’s Negotiation Process with Beaufort’s Management Beaufort’s management focuses on two main things i.e. to maintain the quality standards and at the same time driving down the costs of production. They want that the labour which will be supplied from China should preserve the quality of the products, while maintaining the costs of production. Five year Contract Both the parties entered into the contract of five years. The market of China is booming so, Beaufort’s management need some assurance that what percentage of profit they will achieve in 2-5 years. They also want assurance from XFM management that their business will expand in China with the help of their skilled labour. Labour cost XFM management negotiated that every year the labour cost is increasing in China so, Beaufort’s management need to pay high wages to the Chinese labour. Performance based Incentive Beaufort’s management negotiated that though the contract is for 5 years, the first two years they will not increase the wages of the labours but will provide incentive according to their performance. Rejection Rate Beaufort’s management negotiated that the rejection rate should be 3%. It means that if there will be a defect in the product and if the defect is more than 3% then XFM management will have to bear the cost i.e. Beaufort’s management will not pay for it. So, the rejection rate should not exceed 3%. Quality Standards XFM management offered competent labour to the Beaufort’s management with a guarantee on the quality standards. Beaufort’s Management Negotiation Process with Unity Management Unity management is a trade union representing Shoemaking Company in Britain. They negotiated that they will offer cheapest rates for the Beaufort’s management’s factory location. It has been also mentioned that the ‘Manufacturing Advisory Service’ supports medium and small sized companies to become globally competitive. The government supports the UK companies through Trade Envoy schemes and new add-ons to the Company or Business Ambassador. Unity management also negotiated that the service obtained from overseas suppliers or providers is not that good as compared to the service obtained from the UK suppliers. They tried to convince Beaufort’s management for expanding their business in the UK by stating that the labour cost in the country is less than that of China. At present, the labour cost in the UK is 104.8 (Tradingeconomies, 2015a) and that of China is 105.7 (Tradingeconomies, 2015b). However, Beaufort’s management did not consider their offer because the unemployment rate in UK is 5.5 (Tradingeconomies, 2015c) which is more than China i.e. 4.1 (Tradingeconomies, 2015d). So, it will negatively have an effect on their business. Moreover, the GDP of China is continuously rising since 2006 and at present it is 9240.27 (Tradingeconomies, 2015e) which is very high as compared to that of UK’s GDP of 2522.26 (Tradingeconomies, 2015f). Negotiation Styles Competing Style Beaufort’s management argued that Unity management have adopted the competing style of negotiation because they are viewing negotiation in terms of contest rather than discussion. Collaborating Style Beaufort’s management have adopted the collaborating style of management because they are considering their own ideas as well as the ideas of other groups also. They are thinking on working together to arrive at a mutual solution. Reason for the success of XFM Management in the Negotiation Process The reason that XFM management won the negotiation is that they consider the ideas of both the parties i.e. their own idea and the idea of Beaufort’s management i.e. they adopted the collaborating style of management. They did not overrule the proposal of Beaufort’s management; accepted some of their proposal and added some of their own. Footwear industry is booming in China and the XFM management also received the support from the local government in pursuing the business. They offered collaboration to Beaufort’s management to work with them mutually and also ready to help by means of monetary system to help improve their operations. XFM management kept their point of providing assistance by stating that they have a good business relationship with UAE and South East Asia. So, Beaufort’s management will also get an opportunity to expand their business in those regions. Moreover, the labour cost is less in China as compared to England. XFM management gave guarantee to Beaufort’s management that their business will be more profitable if they will choose China to expand their business. Self Reflection What I learned from the negotiation process is the strategies and styles of negotiation. It has been analysed that we should not become aggressive during the negotiation process. Our group has observed the negotiation strategies developed by the remaining two groups. The Beaufort’s management has adopted the collaborating style of negotiation. They listened the proposal of other two groups and then kept their conditions for the expansion of their business in their countries. Our group; the XFM management has became successful in convincing Beaufort’s management about carrying on their business in China. Initially, they were not agreeing on the contract of five years because they did not understand that what profit they will receive after five years. Though, after making them understand the benefits of carrying their business in China, they agreed to the contract of five years. We have applied the collaborating style of management because we also consider the ideas of both the groups and believed to work together in order to reach at a communal solution. I came to know that labour costs, unemployment rate and the GDP of a nation play a significant role while determining on the expansion of business in particular country. The low unemployment rate and the high GDP of China motivated Beaufort’s management to collaborate with us. We also offered several benefits to Beaufort’s management and guaranteed success of their business. Unity management was also offering land at concessional rate for the Beaufort’s management’s factory location and tried to convince them by mentioning that the labour costs are low in UK as compared to China, but Beaufort’s management’s did not accept their offer because they found their negotiation style as the competing one. Moreover, Unity management are not providing as much benefits as we are providing. What I found interesting in our negotiation process is that we did not override the proposal of Beaufort’s management, but tried to find solution in a mutual form. I also came to know that in the negotiation process we should be very careful about the words we use and keep in mind that it should not hurt the sentiments of others. We should think positive and should set the plan of negotiation in advance. While negotiating, we should be capable to recognise the tactics used by other groups. As per my knowledge, it is very important to stick together while working in groups. It helps to win the negotiation process. We won the negotiation because we offered more benefits than Unity management and also kept the atmosphere calm during the negotiation process. Reference List Adair, W., Brett, J., Lempereur, A., Okumura, T., Shikhirev, P., Tinsley, C. and Lytle, A., 2004. Culture and negotiation strategy. Negotiation Journal, 20(1), pp.87-111. Beach, L.R., 2005. The psychology of decision making. London: SAGE Publication. Cavusgil, S.T., Ghauri, P.N. and Agarwal, M.R., 2002. Doing business in emerging markets: Entry and negotiation strategies. 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