Commercial Negotiation15th March 2021
Commercial negotiation is the process by which two parties with different agenda agree on the price of the business transaction they are involved in. It is marked by the communication of each party’s interests and what they are expecting from the deal. Negotiations mean finding a leeway in the other’s list of demands and getting themselves more elbow room. A negotiation becomes successful when each side concurs with the other’s needs. The agreement usually happens only if both the sides find the deal has something in it for them, that is, if the agreement is mutually beneficial. This is a standard feature in all the business transactions.
The person conducting the negotiations must always be a few steps forward. It is essential for the person to have a vision of the company’s future and how important the present deal is for that. It is necessary to have clarity of what one is looking to achieve from the deal and how important it is to make it. This way, you can create the changes you want to bring. By planning, the negotiator can decide on the strategies to follow. While this may seem contrary to the improvising bit about negotiations as mentioned above, the fact is that a successful negotiation is a little bit of both.
Thinking on one’s feet:
Negotiations happen spontaneously. There is no single way to do it. There is, of course, the theory behind it. One can always think it through and do the homework. But when on the field, things may not go exactly as planned. Since, the person is on their own, representing the company, she/he have to be on their toes. Practices can bear no fruit if one fails to improvise. One has to continually change tactics according to the need of the moment and make it up as it as one goes along. This is crucial as the weight of the company is on the shoulders of the person negotiating on behalf of the whole organisation.
While it is far-fetched to say that a person negotiating can pull someone into a deal just by appealing to them, it is true that the charisma of the negotiator works in their favour. It is not possible to charm someone into a deal, but it is possible to win their hearts and favour. The logic is pure and simple. If you can create an impression on the minds of your adversary and get into their good books, it is likely that you can also influence their decision and have them come around to your demands.
While in talks with an adversary to form a deal, it is important to appear confident and self-assured. It has a subtle psychological impact on the people watching. To make someone buy your proposal you have to sell it with conviction and confidence. The people who look like they know their stuff will have more takers for their proffered deal. Also, speaking with elegance has an edge. If the negotiator fumbles for words, it will come across as lack of confidence. As a result, the people who are engaging in the deal might not feel comfortable getting committed to the agreement. To gain the trust of the people at the other end of the contract, the negotiator should look competent and sure-footed.
- By getting a profitable deal from the suppliers. With negotiations, you can bargain for lower costs of raw materials and products. This will, in turn, increase the revenue and raise the profit of the business.
- Negotiations set the stage for the future relationship between the two parties. It is a binding which both the parties have conceded to. Therefore, it forms the basis for resolving any dispute or conflict that unravels on their journey together.
- The whole point of conducting negotiations is to win good contracts for the company. Good contacts guarantee and protect the rights of the parties involved. Also, it stands the test of time without raising any disinterest or conflicts.
- While getting into an agreement, negotiations are the way to protect the intellectual rights. Before sealing the deal, the two parties must clarify on the ownership of the intellectual property rights so that no copyright infringement case may surface in the days forward.
Commercial negotiations process:
- Prepare carefully:
- Engage the right people within your organisation, define your objectives clearly, and review any history of dealings with your counterparty.
- Learn all you can about your negotiation partners and the reality of the commercial context in which they operate. Imagine their likely interests, priorities, limitations, and scope of authority.
- Be ready to explore with your counterparty the various legal rules available to govern your deal.
- Take cultural differences into account:
- Educate yourself on the local business practices of your negotiation partner.
- Be sensitive to your own culturally-rooted habits and assumptions about how to conduct business.
- Develop a practice that encourages you continually to question your assumptions and probe for assumptions your negotiation partner may be making about you.
- Keep in mind the value of being able to deal well with difference.
- Make early agreements with a negotiating partner about a process to guide the logistics of the negotiation, which paves the way for making agreements about more substantive topics:
- Decide early with your negotiating partner on procedural questions such as timelines, venues, agendas for meetings, language of proceedings, attendees at meetings, and drafting responsibilities.
- Allocate appropriate human and technical resources to a negotiation:
- Anticipate the people you will need to have in the room or on standby to support negotiations, such as people with decision-making authority on issues at hand, specialised technical experts, translators, legal drafters, tax advisors, and local counsel.
- Aim to maintain consistency on the negotiation team – avoid presenting a revolving cast of characters.
- Aim to develop an open and reliable working relationship with a negotiation partner:
- Deals are often on-going commitments that evolve over time as circumstances change. A good working relationship between the parties will make it easier to address both sides’ future needs efficiently and effectively.
- Acting with transparency and the genuine desire to understand and find solutions can help focus discussions on substance.
- Negotiation partners do not need to be friends to create a productive working environment.
- Behave with integrity:
- You do not need to reveal everything, but everything you say should be true.
- Lying or misleading imperils the deal, the working relationship at hand and your reputation in the trading community, and may ultimately lead to legal sanctions.
- Your willingness to bring your values and integrity to the table is a signal to your negotiating partner of how seriously you are approaching the negotiation.
- Manage your emotions:
- Act rather than react modeling that you are acting independently of a counterparty’s provocation is powerful.
- A counterparty that views you as reasonable may ask for help, allowing you to collaborate on a solution, rather than hiding information out of pride or fear, which may lead to an unrealizable agreement or no agreement at all.
- Be flexible:
- Be open to thinking creatively with your negotiating partner about how your interests may complement each other and be satisfied without diminishing value for either party.
- Only a mutually beneficial deal will be sustainable over time if one party receives disproportionate benefit, the other party may be unable to implement the agreement.
- Understanding the difficulties your negotiating partner may be facing is an important element in building a realistic, durable deal.
- Make realistic commitments:
- Agree to only those things you genuinely intend to undertake, as you would expect your negotiating partner to do.
- Clarify your negotiating partner’s scope of authority people may overstate their authority and make commitments they cannot make or keep.
- Know your alternatives, and know when to leave the table because you can find a more suitable deal elsewhere.
- Confirm the agreement to ensure a common understanding:
- Review carefully what was agreed with your negotiating partner at the end of a negotiating session, resolving any details on which your views diverge.
- Be ready for the case where negotiations do not succeed:
- Negotiations may not reach conclusion for a variety of reasons, either within or beyond the control of the parties.
- Anticipate such situations, prepare and be ready to discuss alternative options with your negotiating partner.