Negotiation Strategies Every Small – Scale Entrepreneur Should Know

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By: Site Engineer, Staff

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Negotiation is to bargain and deliberate about a particular issue for the purpose of mutual arrangement.

Negotiation means conferring between parties for the purpose of reaching an agreement over issues on which they differ.

This view-point suggests four different aspects of negotiation:

The above four features are the basic elements in negotiations, but sometime we find occasions when negotiations occur that either do not lead to an agreement. Negotiations can also take place without the parties making any concessions. These facts are very important for the owner of the small – scale business.

It is the nature of interactions that determine whether they are negotiations or some other form of social activity. The essence of negotiations is that parties interest for the purpose of reaching an agreement over issues on which they differ.

For this reason, negotiations need to be understood as:

Acts of strategic conduct through which two or more individuals/parties, who are in a situation of interdependence, attempt to reach agreement in relation to an issue, position or subject over which they differ or feel that they differ.

From this definition we bring out the following characteristics features of negotiation:

1. Negotiations are Acts of Strategic Conduct

Strategic conduct means that the parties act in expectations of the other’s expectations in a way to influence the choices of others. Such strategic conduct may take the form of giving and taking concessions conferring, play acting manipulation, strategy misrepresentations, threats, etc.

2. Negotiations are Between Parties who Depend on Each Other

For negotiations to occur, there must be a situation of interdependence between the parties involved. Interdependence means that each party has something that the other wants. The father may want the respect of the child while the child may want the approval of the father. It is crucial in negotiations that each party has some right to refuse to give consent

Therefore, a stronger party will need a weaker party for a deal to take place. If the stronger party goes ahead to make use of the resources or skills owned by the weaker party without the consent of the weaker party, then force rather than negotiation becomes the key element in the situation. This type of situation will be unstable because it will lack legitimacy.

Differences Between Parties May be Real or Imagined

If there are no real or perceived differences between the parties, there will be no need for negotiations. Differences mean that what one party wants or believes is not the same as what the other party wants or believes. They mean that each party seeks the best for himself or herself, usually at the expense of the other party.

Differences may be in me form of beliefs, attitudes and orientations. Two parties may favor different approaches to the solution of a problem. The differences between the parties may arise as a result of certain beliefs or attitudes of the parties. Whatever the case is, the differences are strong enough, given conditions of interdependence, to motivate parties to attempt to reach agreement.

The Main Purpose of Negotiations is to Reach an Agreement

An agreement means commitment by both parties to a common position and the consequent expectation that each party will honor it. Although agreements are important and in fact constitute the ultimate goal of negotiations, it is important to recognize as we have indicated earlier that not all negotiations lead to agreement.

Negotiations may become stalemated and break down. When this happens, it does not mean that negotiations have not taken place.

Importance of Negotiation Skills for the Owner of the Small – Scale Business

As acts of strategic conduct, negotiations are at the soul of every transaction that a small – scale entrepreneur gets involved in. The owner of the small business must purchase materials, equipment or services. Entrepreneur will need to sell whatever is produced or provided to customers. He will also need to hire workers and specify the work to be done and the conditions under which it will be done. Very often the owner of the small – scale business may need a loan from the bank.

In each of these and other forms of transactions that are important for the operation of the business, the small – scale entrepreneur will need to negotiate, to engage in acts of strategic conduct.

Negotiation skills deal with how well an individual negotiates the degree to which the individual is able to resolve differences and reach agreements that lower his costs in the situation.

Reasons Why Negotiations Skills are Important for the Small – Scale Entrepreneur:

  • The entrepreneur experiences a sense of personal satisfaction in the agreement that he strikes with others.
  • The business is able to operate at lower costs than would otherwise have been the case.
  • The entrepreneur is able to gain access to resources and facilities that would otherwise not have been available.
  • The entrepreneur is better able to plan for contingencies and uncertainty.

Types of Negotiations

There are different types of negotiations. The negotiations between the owners of the book publishers about what types of books to stock in his bookshop will be different from this negotiation with small bookshop with his landlord.

Therefore, the small – scale entrepreneur needs to be able to differentiate between types of negotiations because each type may require a different approach.

Negotiations can be classified in a number of ways – for example:

  • By the number of parties involved;
  • Type of parties involved;
  • The issues over which negotiations take place; and
  • The attitudes/orientations of the parties to the negotiations.

The most important criterion in terms of the consequences for the conduct of the parties is the attitude/orientation of the parties to the negotiations.

By using this criterion, identify two major types of negotiations:

(i)         Win-Lose or Distributive Negotiations

In win-lose negotiations, each part attempts to maximize his/her gains at the expense of the other party. As such, there is a great conflict of interest with respect to the gains of each party. What is available to both parties is fixed therefore what one party gets represents a loss for the other party.

Examples of win-lose negotiations are:

  • Purchase negotiations between a buyer and a seller.
  • Union-management negotiations over wages and conditions of service.
  • Budget allocation between departments.
  • Husband-wife divorce negotiations, which involve a clash of claims over rights to property, alimony or custody of children.

Win-lose negotiations sometimes require the parties to be on alert, not to trust each other and to employ a lot of tactics and strategies.

(ii)        Win-Win or Integrative Negotiations

In win-win negotiations, the problem allows a solution from which both parties can benefit. The gains of one party do not represent equal losses to or sacrifices from the other party.

The followings are examples of win-win negotiations.

  • Negotiations between competitors on restrictive trade and related practices (e.g., price fixing, market sharing deals between competitors).
  • Negotiations between members of the same group in terms of their relationships with external groups or groups seen as the opposition.
  • Interdepartmental negotiations involving company-wide objectives and policies.
  • Union-Management negotiations involving safety, training productivity schemes and procedural matters.
  • Contract purchase negotiations involving kickbacks.
  • Negotiations with agents (e.g., architects) about the design of needed facilities.

In the case of the owner of the small bookshop, win-win negotiation could take place between the owner of the bookshop and book publishers over what books to stock, at what prices they should be sold and even how the books could be packaged and advertised.

Win-win negotiations require the parties to trust each other, share information and collaborate. The strategies in such negotiations are thus very different from those that may be employed in win-loss negotiations.

Stages in the Negotiation Process

Every negotiation passes through a number of stages or phases.

These stages are:

(i)         The Preparation Stage

The first stage of negotiation is preparation during which the negotiator gathers and analyses all information that might be relevant to the negotiation. If the owner of the bookshop wants to buy a vehicle for his business he must gather information about which type of vehicle is most appropriate for his business, the places where the vehicle may be purchased, the prices at which different vendors offer the vehicle for sale, the conditions that may be obtained for buying from the different vendors and so on. The negotiator must also prepare himself emotionally and psychologically. He must try to learn as much as possible about the preferences, needs, strengths and weaknesses of the person with whom he is going to negotiate.

(ii)        The Bargaining Stage

The bargaining stage is when the actual negotiations begin. This stage has a number of phases.

These are:

  • The Orientation Phase: This is when pleasantries are exchanged and personal introductions take place. The parties may engage in small talk as they try to break the ice and get a feel of each other.
  • Agenda and Rules Setting Phase: In more formal negotiations opening statements are made- the agenda and rules that will guide the negotiations are discussed. Sometimes, disagreement can occur about the agenda and ground rules. An important part of this phase is determining the authority of the negotiators. The questions are: does the person you are negotiating with have the final say or will everything she accepts be subject to the approval of somebody else? If so, by whom?
  • Concession Making Phase: In this phase, the parties position themselves and argue their cases. All issues are reviewed in some detail. The negotiators explain and defend their positions, question and attack those of their opponents, probe for soft spots, try so get an idea about what the opponent is striving for. This phase is often characterized by the use of tactics and strategies. It is often also characterized by crisis and deadlocks. This phase can mean the end of the negotiations, but also the search for ways to reach an agreement.
  • Agreement Phase: In this phase, the search for solution starts. The framework of the agreement emerges. The most difficult issues are resolved, agreement is reached, a written contract is drafted and reviewed, and finishing touches are put to the agreement. Sometimes, last minute problems arising out of second thoughts or misunderstandings are solved.
  • Conclusion Phase: if somebody else has to consent to the agreement, the entire agreement is set to the person for endorsement. This phase may require further negotiations in case the person does not endorse all aspects of the agreement.

(iii)       Implementation and Follow-up Phase

At this stage, parties are expected to honor their obligations under the agreement and ensure that the other parties do the same. Differences in interpretations are resolved. Sometimes, unanticipated situations arise and have to be negotiated or re-negotiated.

 

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