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Referential Answer for the case studies and negotiation simulations

Referential Answer for the case studies and negotiation simulations:

 

Chapter one Negotiation Motives and Key Terminology

 

5. Group discussion: Negotiation: This negotiation is an equal exchange process, in which the both parties share common interests as well as different interests, but in the end they reach a mutually acceptable outcome.

Business negotiation: The content of the negotiation is related to commercial interests, and the issues are specific and clearly expressed. A win-win result is sought for their respective commercial interests, and a binding contract is formed after the two parties reach consensus.

International business negotiations: The parties in the negotiations come from different countries. Such risks and uncertainties increase as different languages, transaction currency, trading conditions, market prospects, and changes caused in the Covdid-19 pandemic have made the negotiations more complicated and made both parties more cautious.

 

6. Read the case study, and consider the questions: What are the major reasons that Chrysler misses its opportunity entering China automobile market? What is the opportunity cost of Chrysler?

Chrysler made a wrong estimation about the development of Chinese automobile market and development of Chinese automobile industry. Chrysler’s interest in selling just a processing line is a strategic blunder. Its opportunity cost is missing the chance of entering Chinese automobile market, the most lucrative and potential one.

 

Chapter Two Negotiation Procedure and Structure

4. Do simulation “An Economic Recession” as required.

Analysis: The interests of the employees are to keep the present job, which is also the bottom line of the employees, and at the same time try to negotiate a rise in their wages. While for the management to tide over the recession and avoid losses are the most important. Comparing the two options, the first one is better choice for the labor representatives, since at least both white-and-blue collar workers’ jobs are kept.

5. Read case study (I) and discuss the following questions:

1)      Do you think the case shows the principle of mutual giving and taking for negotiation?

Yes. The seller also asks the buyer to give their retailing sales cost and the buyer agrees, which is a practice of giving and taking.

2)      How important is the exploration of alternative option in this case?

The cost of producer is proprietary information. The negotiation would have failed if the seller insisted on not giving the information. The seller here shows flexibility by providing an alternative solution that saves the negotiation.

6. Read case study (II) and discuss the following questions:

1)      What are China’s interests and what are US interests in IPR negotiation respectively?

China’s major interest is to get US support to join WTO as a developing country. However it is also for China’s future interest if such an IPR protection system is to be established. US interests are to protect their IPR holders’ interests in China and gain more access to China market.

2)      What are the issues talked about in IPR protection negotiation?

Major issue : IPR protection; Related issue: China’s accession into WTO; China-US trade unbalance

3)      What are the direct and indirect impacts of China’s effort into WTO on the consequence of the IPR negotiation?

China’s effort to join WTO was frustrated by countries like US because of China’s developing country requirement. China makes use of accepting China’s developing country status as a bargaining leverage in exchange for US demand to protection of its IRP holder interest. However China’s WTO entrance is not a main issue of the negotiation, therefore it has both direct and indirect impact on the result of the negotiation.

4)      What are the implications you have learnt from IPR negotiation?

Ask students to answer the question.

 

Chapter Three Negotiation Lubrication

5. Read the case study and discuss the following questions:

(1)    What is your first reaction after you read the Gabon case? Interesting or surprising?

Ask students’ feedback.

(2)    We have a saying in Chinese “seeing is believing”. After you have read the case, do you think the saying is true or not?

Depending on situations. In this case, “seeing is not believing.”

 

6. Do simulation: silk selling

Analysis: the actual result of this simulation is $5.36 per yard, however almost all students doing the simulation, their results are below $5.36 per yard. Discuss with students the reason behind.

 

Chapter four Win-win Concept

5. Do negotiation simulation: Financial Leasing Negotiation

Analysis: The most important interest of the lessee is the length of the leasing, however the length of leasing is regulated by business practices, so the leasing interest rate becomes important for the lessee. Take the reference of the bank interest rate and the benefits gained from reduced income taxes. For the lesser, the most important is leasing interest rate, the higher the better.

In this negotiation, the actual results: the length of leasing period: 5 years; way of payment: equal share approach, Sanfeng Group pays an equal amount at every end of a month, which is about 24.19 million yuan; service fee: 1.5% of 1200 million yuan; leasing rate: 7.76% of 1200 million yuan; additional benefit for Sanfeng Group, the length of depreciation year: reduced from 15years to 5 years, a reduction of 250.8 million yuan of taxes

 

Chapter five Collaborative Principled Negotiation

1. Case analysis

For the buyer and seller, the requirements for the location of their new constructions are highly complementary. The seller needs a quiet location for the construction of the new hotel, while the buyer needs a place where the seller’s hotel is currently located. The mutual needs of the both sides make it easier for the buyer and seller to reach an agreement. Comparatively speaking, the seller has greater bargaining power in the negotiation because of the scarcity of the hotel’s location. Moreover, the seller can require the buyer to make concessions in the price by showing its goodwill to young people, especially students for whom the seller mainly serves.

2. Negotiation results

The first bid of both parties anchored the negotiation range, and the final price was 350,000 dollars, of which 50,000 dollars were given to the seller by the buyer as interior decoration materials of the new hotel. The buyer’s intention is to set up a good reputation among young people. The outcome of the negotiation is a win-win situation because the both parties have achieved their goals and realized their most important interests.

5. Read the case study and answer the following questions:

(1)    In the negotiation, one party uses positional bargaining and the other principled negotiation. Tell who uses principled negotiation and how has he applied it.

Tom practices principled negotiation by not haggling with the insurance adjuster, but by emphasizing “what is the standard for replacement of a comparable car”.

(2)    Has the negotiation produced a winner or a loser?

Everyone is a winner.

 

6. Simulation: Hotel Selling

Tips for the simulation: the actual result of negotiation price for the case is $ 300 000, plus $25 000 donation for hotel’s financial aid fund for those who may not able to pay for their stay.

 

Chapter six Law of Interest Distribution

6. Do simulation “A Dam on the River” as required.

Analysis: The three parties finally came to a solution after a careful analysis of each other’s interests. The agreement includes reducing the original capacity design under the condition that the local people’s electricity demand is satisfied. The modification of the design guarantees enough water flow at the lower reaches, meanwhile maintaining the eco-environment. The agreement also decides to establish a protection fund for American cranes.

It is important to have students realize why reducing the capacity of the dam is a win-win solution and learn not to turn to government for help as Chinese are used to. The option of reducing the original capacity is based on careful survey of the local need for electricity and water need for farmers. The protection fund comes from money saved from original design budget.

 

7. Read the case study and discuss the following questions

(1)    What are the major issues concerned in the negotiation?

Direct issue: market access; related issue: dumping

(2)    Who are the key actors from the American side, and from the Japanese side?

The American side: the Department of Commerce and the US Trade Representative (USTR), The Semiconductor Industry Association (SIA) and individual chip manufacturers were the chief initiators and catalysts of the dispute

The Japanese side: Ministry of International Trade and Industry (MITI), the Prime Minister and Liberal Democratic Party leaders were allied with MITI.

(3)    Compare the American win-sets with the Japanese win-sets and tell which is more specific?

The American win-sets is more specific because they have two targets and are all supported with specific measures and numeral targets; while Japanese win-sets are very general without specific measures.

(4)    Comment on the final results of the Semiconductors case and try to explain why American negotiators could gain what they demanded for?

By the final deadline for settlement set by the US, an agreement was reached. It gave the US everything it had demanded, including Japanese government monitoring of export prices and third-country markets, and provision of firm-specific manufacturing data to the US Commerce Department to determine whether dumping, as defined by the Americans was occurring.

The agreement is a result of American’s specific and forceful measurements, besides, the unification of the government and the industry, and less dispute between domestic producers and end-users made it possible for American side to work for one purpose set by the American negotiators set in the win-set.

 

Chapter seven Negotiating Power and related factors

3(2): One way to reduce dependence is to seek alternative supply sources, such as from India and Russia, the fourth and fifth largest in the world in terms of production. The long-term goal is to achieve industrial structure upgrading, because the steel industry is a capital-intensive and highly polluting industry, and the future development should gradually eliminate low-value-added production capacity and thus reduce the import demand for iron ore. The second goal is to achieve structural upgrading of the manufacturing industry and change the excessive dependence on the steel industry in some regions in China.

 

4. Do simulation “Negotiation on Oil Contract” while considering the following questions:

(1)      Analyze CO company and J&R’s stakes and power.

CO company’s stakes: the estimation of the market for VCM supply is over demand, so successful renew of the contract is crucial for the company. If the negotiation fails, the company may lose 20% capacity, which means that it may have difficulty selling enough VCM to run its plant profitably because CO breaks even at 70% of rated capacity and it is now running at 87% of capacity, including 4% to the spot market. So CO company has a high stake in the negotiation.

CO’s negotiating power:

One of the largest and best known world-wide producers of industrial petrochemicals;

Good reputation for fine quality of VCM, which is important for J&R;

Having its own pipeline to J&R, which ensure the stable supply to J&R, and relatively lower cost of transportation, 5% less of cost compared with suppliers without pipeline

 

J&R’s stake: To sign the contract is also important for J&R, because J&R is expanding its manufacturing operations in the production of plastic pipe and pipe fittings, particularly in Europe. J&R buys a large quantity of VCM and CO is geared to supplying product to J&R’s quality specifications. Interruptions in supply due to unacceptable quality or delayed shipments can force a customer like J&R to cut back production or shut down in two weeks.

J&R’s power:

CO’s second largest buyer, taking 20% of CO’s capacity

The market is getting over supplied.

(2)      Use table 7-1 to estimate the two companies’ negotiating power.

With the changing situation of the supply and demand market, J&R is gaining upper hand in the negotiation.

(3)      What alternatives can you explore? Why?

CO company can sell its VCM at in the spot market where prices and amounts available varied considerably from week to week.

It could replace 100 million pounds of J&R’s 200 million pounds/year VCM demand by selling to four small, new customers. To get these replacement sales in today’s market (June, 1977), you would have to make price concessions which would reduce revenues an estimated $1 million a year below your provisional agreements with J&R. Also the replacement sales would increase CO’s operating and administrative costs $150,000 a year for three years.

Encourage students to work out other alternatives.

(4)      What is your company’s interest in, and your “walk away” position for:

MFNMTCRTR

CO can accept MFN, but not MTC and RTR. MTC would allow J&R to demand CO to follow those supplies who sell VCM at low price but also poor quality. RTR would produce a potential competitor with CO company at VCM market.

(5)      Are the fundamental interests of the two companies in convergent or divergent?

The fundamental interests of the two companies are convergent because CO needs J&R to keep its profit and J&R depends on CO’s stable supply of qualified VCM.

(6)      What concessions or trade-off are you willing to make? Why?

CO company has made concessions on price, minimum quantities, length of new contract  and metering, so in future negotiation, CO company should make no more concession except in MFN.

5. Read the case study and discuss the questions:

(1) What are the sources of the negotiating power of FAW and Volkswagen?

FAW: established its position as the number one automobile manufacturer group in China with a considerable and stable market share in China, its sales volume hitting 450 billion yuan in 2013, Volkswagen relying on China market.

Volkswagen: the number one automobile producer in the world, ranking the first in the world top 10 automobile manufacturers, enjoying high reputation among Chinese consumers, controlling latest technology in developing cars driven by new energy which FAW hopes to acquire, FAW depending on Volkswagen for its support in being listed on the stock market

(2) Who has stronger negotiating power, FAW or Volkswagen?

Volkswagen has stronger negotiating power.

(3) Who has won the long term interests of their own, FAW or Volkswagen?

Both of them have. However, FAW has won less because it does not have any specific return except for things like higher inspiration of the foreign share holders, more potential investment, and confidence for the future.

(4) What is your comment on the length of the contract lasting for 25 years?

25 years is too long. It is possible that FAW’s dependence on Volkswagen will last for another 25 years.

 

Chapter eight Law of Trust

8. Read the case study and discuss the following questions:

(1)    What are the major problems the company confronts?

The major problem is the conflict between modernization and expansion of facilities, essential to the company’s long-term success, and improved profits next year.

(2)    In the case study, between the board and the management are the conflict of present interests and the long term development. What can be done to address such conflicts?

It requires the board and the management to trust each other to address the conflicts. Besides, the management has to trust each other in order to work out feasible measures to satisfy the company’s long-term success, and improved profits as suggested by the high trust group in the simulation.

(3)    The conflicts between the board and the management are quiet common. Try to tell the interests they represent respectively?

The board represents investors’ or share holders’ interests and management represents the firm’s interests.

(4)    The results of two trial groups are quite different. Do you think the results reflect the real situation of the negotiation?

Yes, the results of high trust group and low trust group can be expected and reflect the real situation.

 

Chapter nine Personal Styles vs. Negotiation Modes

7. The point of the simulation is that students should keep their roles as American or Japanese negotiators as required by the simulation. Thus the result of the simulation is not so important.

8. Read case study and answer the following questions:

(1) What is the possible personal style of the Chinese student in the case study?

       Her personal style is avoiding style because she does not state consent or objection openly and resists passively all the time by finding excuses, or changing topics or leaving the matters to others.

(2) Compare the Chinese student’s personality with that of Mr. Wang’s from New York Consumer’s Association. Do you agree that personality plays an important role in negotiations?

       Yes, certainly, but it does not mean that avoiding style has no merits at all. For instance, a person of avoiding style can frustrate efforts of a person of competing style effectively and makes the latter to make concession in the end.

 

Chapter ten Game Theory and Negotiation Application

7. Read the case study and discuss the following questions:

(1)    The case study shows how we can make a decision when we are in a dilemma. Do you think you can apply the method in your negotiation decision making?

Yes , I agree because I will be able to estimate the probability of the other party’s decision against or for me.

(2)    When you are not sure of what to do, do you prefer to play head or tail or to make you decision based on a rational analysis?

I would make my decision based on a rational analysis because to try one’s luck is risky.

 

Chapter eleven Distributive Negotiation and Price Negotiation

7. Read the case study and discuss the following questions:

(1) How did the buyer find out the price of the equipment was overvalued?

The buyer did the cost analysis.

(2) Point out those factors which make it possible for the buyer to make the cost analysis.

They used the drawings of the equipment and broke it down item by item. They then sought two quotes for each item to try to establish a complete material cost. They then obtained the seller’s annual reports for the past five years. Material ratios, labor ratios, overheads, marketing costs and the seller’s profit were calculated, and built into a fiscal model.

 

Chapter twelve Complex Negotiation

5.Negotiation simulation: Green Bank

 Tips for the negotiation simulation: both sides have a common interest of promoting sales of their product, so they may establish a sales promotion team consisting of both product development specialists and sales personnel.

6. Read the case study and discuss the following questions:

(1)      Why did industries in US go up against the government support to rescue the Chrysler Company from bankruptcy?

US is by tradition a market economy, so it is widely believed that market has a final say in determining the fate of a company.

(2)      What was the most powerful point of argument that Iacocca used to persuade other congressmen?

Employment rate. Iacocca declared at the congress hearing that the company had 140,000 employees and their dependents, 4,700 auto dealers and their 150,000 employees, 19,000 suppliers and their 250,000 employees, and all their families. The president of the House of Representatives made his last efforts supporting Iacocca by stating that he would spare no effort for 100 job opportunities not to say over one million jobs.

 

Chapter thirteen Culture Patterns vs. Negotiation Patterns

6. Do the simulation in this chapter. Follow the direction as required by the role and try to experience cultural differences in the course of the negotiation.

The final agreement of the negotiation is reached based on mutual concessions. The World Bank officials agreed not to refer to all detailed information but the most important numbers must appear in the document delivered to the villagers, such as how much they have to pay for the wter tariff. The Chinese project officials agreed to mention of water tariff and the contribution that villagers had to pay.

7. Read the case study and discuss the following questions:

1Why did Mr. Durand decide not to carry the Southern Candles product line?

The reason is due to the mistakes Mr. Picard made.

2Point out Mr. Picard’s cultural mistakes during his Paris visit after a research into the French culture.

a. Picard believed he has a good understanding of the European culture based on his past trips to Europe to attend international trade shows. He was confident that his business experience in the US market would carry over to the European market. Many business men make this same mistake.

b. Mr. Picard was impressed to see the French business cards printed in English and French, which may mean that his business card was printed only English. In today’s global business environment, business travelers should have business cards printed in their own language on one side and the language of the country with whom they want to do business on the other side.

c. Unlike Americans, many cultures take long lunch breaks, but work later in the day. This is true in France as well most other European countries.

d. The French are very social conscious and tend to be formal and reserved. Mr. Picard’s taking off his coat is considered too casual by French standards.

e. The messages conveyed by nonverbal communication must be considered when dealing with people from a different culture. Mr. Picard used the “okay” sign, which is inappropriate because in France the “okay” sign means zero.

f. Mr. Picard’s blunders did not end at the business meeting. They carried over to the dinner party at Mr. Durand’s home. Roses are given at funerals. His mentioning business during the evening is not appropriate either because it is a very casual situation, although the French like to discuss business during lunch.

g. Mr. Picard did not do any research about conducting business in France. Had he done so, he certainly would have realized how nationalistic the French are. This fact alone would have told him that Mrs. Dubois’s Canadian French was not an asset but a liability. When in France, one speaks Parisian French.

Mr. Picard’s lack of cultural awareness and sensitivity led to Mr. Durand’s decision not to carry the Southern Candles products. Mr. Picard came across as bourgeois (middle class), which did not impress Mr. Durand, who was very social class conscious. (Remember, Les Belles Choses catered to an elite upper-class clientele.) Initially Mr. Durand saw Southern Candles as complementing his already exclusive line of products. However, his one-day experience with Mr Picard and his team (professionally and socially) made Mr. Durand realize that Mr. Picard was too uncouth to do business with.

8. Case Study II How Giving Face Can Brew Success

8.  Read the case study two and discuss the following questions:

1How did understanding the Chinese culture help Benjamin achieve the final success of the negotiation? Try to point out the behavior of the Chinese negotiators the Benjamin feels different from his own culture.

To understand the Chinese culture in business fields helps him win the brewery project, and later development in China.

To sum up the differences:

l  Inviting four teams at the same time for them to compete against each other;

l  Chinese team members taking turns to talk with the four teams;

l  Implicit and implied language;

l  Crying poor saying they had a limited budget;

l  Enough patience for long time negotiation;

l  Contract being considered as a ‘discussion document.’ The Chinese expect you to ‘be like bamboo and bend with the wind.’

l  ...

(2)Try to explain the reason why the Chinese take so care of their faces? Do you also think keeping face is very important for you?

Explain from the cultural perspective.

(3)How much do you understand the Chinese negotiation culture? Does reading this case help you know more about your own culture?

 

Chapter 14: Case Study I

CNOOC acquiring Unocal Petroleum Company

1. Case study

The main reason for the failure of this acquisition is, first of all, the political risks in the United States, especially the interference of anti-China forces in the US Congress. In addition, the acquisition involves an important industrial sector in the United States, namely the energy sector. More importantly, CNOOC is China's third largest state-owned oil company, and its state-owned nature has become an important pretext for opposing Chinese enterprises investing in the United States, revealing the fact that the Chinese enterprises are exposed to increasing ideological risks in the United States.

Risks in the economic and trade field, including the trade deficit between China and the United States, the strength of the RMB, the loss of assumed American jobs abroad, the rise in natural gas prices, and China's worldwide acquisition of natural resources, are indirect reasons for the failure of this acquisition.

From the Chinese side, the lack of sensitivity of the senior management of Chinese enterprises to the understanding of the political risks in the United States resulted in CNOOCs entering into the acquisition process rashly. It was only after repeatedly encountering difficulties that it realized that the political resistance in the US was so strong that it was impossible for them to accomplish the acquisition.

 

2. Enlightenment of the case study:

From the economic perspective, CNOOC's acquisition of Unocal was beneficial to both sides, and the result should be a win-win situation. However, with the rapid development of China's economy and the growing strength of Chinese enterprises, the concerns and precautions of US politicians about China have increased. But, at the that time, China's domestic circles from enterprises to academics were not keenly aware of the growing anti-China sentiment in the domestic political circles of the United States, and still believed that the United States was the most open economy, and investment in the United States was only an economic act, until CNOOC encountered a "man-made storm" and the acquisition was stifled. CNOOC's failure also indicates the rise of political risk as a major one for Chinese enterprises engaging in economic activity in the US.

 

 

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Chapter 1  Negotiation Motives and Key Terminology

Knowledge Points for chapter one

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Negotiation

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Conflict

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Stake

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Business   negotiation

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International   business negotiation

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Knowledge points

1.     Negotiation

Key words: negotiation

 A negotiation is a process of communication between parties to manage conflicts in order for them to come to an agreement, solve a problem or make arrangements. Negotiation is a basic means of getting what you want from others. It is back-and-forth communication designed to reach an agreement when you and the other side have some interests that are shared and others that are opposed.

First, the outcome of negotiation is a result of mutual giving and taking.

Second, negotiations happen due to the existence of conflicts; however, no negotiations can proceed smoothly and come to a satisfactory solution without collaboration between the participants.

Third, in spite of inequality in negotiator‘’s strength and power, all negotiators, no matter strong or weak, have the right to saynoto the conditions put forward by the other party, which is a show of equal right of the negotiators.

2.Conflict

Key words: conflict

A conflict is a dispute, disagreement or argument between two or more interdependent parties who have different and common interests. A conflict can block each other’s ability to satisfy their interests.

The definition of conflicts states three points, which can be specified as:

First, parties in conflict are interdependent, which means there remains a kind of relationship developed by interrelated interests and concerns.

Second, both different and common interests coexist, which appears to be illogical.

Third, two parties in conflict will naturally fight for each other’s own interests and make every effort to gain more from the other side, as a result it will reduce gain of interest expected initially.

3.Stake

Key words: stake

Stakes are the value of benefits that may be gained or lost, and the costs that may be incurred or avoided. Stakes are compared to the status quo, options and alternatives, and are expressed as interests, which can be long term or underlying desire and issues articulated for negotiation.

 First, negotiating parties will either gain the interests they expect to win from the negotiation or loose what they hope to attain.

 Second, free lunch is not provided at the negotiation table, in another word, to get what is desired, both parties have to pay for the gaining at either high cost or low cost depending on how well negotiators manage the situation.

 Third, how many stakes can be gained and whether a particular gain is the one that a party desires for are also gauged in view of the current situation.

4.Business negotiation

The business negotiation happens when the negotiation is applied to the business field. Like all other types of negotiations, the business negotiation is also a process of mutual exchange of views and communication, a process of consultation and discussion with each other to achieve their own interests. However, the business negotiation has its own specific properties different from other types of negotiation, which mainly include: Business negotiations focus on the gain and loss of economic interests, Business negotiations pursue win-win results, Business negotiation topics are more specific and clearly expressed, The negotiation parties are wide spread and uncertain, Abiding by the contract is the moral premise of business negotiation.

5. International business negotiation

The international business negotiation shares the generality of business negotiation, but it has its own particularity: Much more complicated international business negotiation environment, Huge differences between international business negotiators, Uncertainty of the international business negotiation results, High risks of international business negotiation.

 

 

Chapter 2  Negotiation Procedure and Structure

Knowledge Points for chapter two

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Procedure

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General   Structure of Negotiations

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Structure   of Business Negotiation

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Knowledge points

1.Procedure

Key words: basic procedure of negotiation

Negotiations, no matter formal or informal, follow a certain format, which are(1)introduction of team members;(2)negotiation agenda and its arrangement;(3)formal negotiation; and(4)wrapping up.

2.General Structure of Negotiations

Key words: general structure of negotiation

 All negotiations are organized within identical framework, i.e. a general structure based on which negotiations are constructed, or general steps that almost all negotiations will go through. Understanding this general structure means having a basic mindset for negotiations. The steps are described as the following:

(1)Determine interests and issues;

(2)Design and offer options;

(3)Introduce criteria to evaluate options;

(4)Estimate reservation points;

(5)Explore alternatives to agreement;

(6)Reach an agreement.

Key words: reservation points or bottom line

The reservation point means the target that negotiators have to achieve for assurance of their basic interests.

Key words: BATNA

Roger Fisher and William Ury put forward an idea ofbest alternative to a negotiated agreement (BATNA)in their work Getting to YesNegotiating Agreement without Giving in. BATNA refers to your last choice between the conditions of the other side and the opportunity for other better results.

3.Structure of Business Negotiation

Key words: Structure of Business Negotiation

The structure of business negotiations follows the same pattern as all other negotiations with one difference in that every phase of a business negotiation is expressed in business jargon:inquiry, offer, counteroffer and acceptance. By making inquiry and offer, the interests and demand of two sides are explicitly expressed and meanwhile options and criteria are introduced. By counter offer and acceptance, alternatives to options are explored and discrepancy is bridged so that final agreement is reached.

 

Chapter 3  Negotiation Lubrication

Knowledge Points for chapter 3

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Knowledge base of   negotiators

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Target Decision

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Collecting   Information

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Choice   of Negotiation Venues

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Knowledge points

1.Knowledge base of negotiators

Key word: M-type knowledge structure

Business negotiation is a knowledge intensive activity. Generally speaking, the knowledge structure of international business negotiators should be M-type, that is, basic knowledge, basic theoretical knowledge of negotiation, negotiation expansion knowledge and practical ability.

2.Target Decision

Key words: Preference of Interests

Interests that each party hopes to fulfill at negotiating table do not have equal weight in the minds of negotiators. Therefore the first important task to be done at preparatory stage is for negotiators to decide which interests to be fulfilled first and which to be obtained at the cost of others.

Key words: level of targets

negotiators, in view of negotiation strategy, will set at least three objective levels, which are desirable target, acceptable target and bottom target. The desirable target is what negotiators wish to attain but in reality rarely reach. The acceptable target is what negotiators make all efforts to achieve.The bottom target is what negotiators will defend and safeguard with all their effort.

3.Collecting Information

Key words: Information

Information is generally esteemed as a valuable commodity in a sense that it has the power to reduce uncertainty. Information essentially has two valuable applications in negotiations:problem solving and strategic planning. Problem solving is the more obvious useapplying information to specific decision-making situations. Strategic planning is a less direct use of information, but is possibly the most important application in the business world. Information is an essential component of making a sound negotiation plan.

4.Choice of Negotiation Venues

Key words: Negotiation Venues

Negotiation Venues means places where negotiations are conducted. Generally speaking, negotiation sites can be divided into three categories:host venues, guest venues,third party’s venues and rotations of guest and host venues.

Key words: Host venue

Host venues can be one party’s own country, city or office building or any other places where the party hosts the negotiation.

Key words: guest venue

When negotiations take place at counterpart’s country, city or office buildings, they are conducted at guest venues.

Chapter 4  Win-Win Concept

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Win-lose model

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Win-win model

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How   can both sides win

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Knowledge points

1.Win-lose model

Key words: Win-lose model

 Win-lose concept refers to the idea that both parties view negotiations either as overwhelming victory or disastrous defeat.

Conventional practice of win-lose model takes the following steps:

(1)Determine each party’s own interests and stance;

(2)Defend one’s own interests and stance;

(3)Discuss the possibilities of making concession;

(4)Reach an agreement of compromising;or

(5)Declare failure of negotiation.

2.Win-win model

Key words: win-win concept

The core of win-win concept is mutual success and convergence of interests. By mutual success, they mean under the condition that one party tries to gain his utmost interests or at least takes action not detrimental to one’s own interests, each party may find one way or another to satisfy more or less the counterpart’s interests as well. Seeking convergence of parties’ interests is to conduct negotiations by exploring mutual benefits so that a better and bigger cake of common interests will be made jointly for mutual sharing.

Key word:Win-win model

Win-win model is expressed as:

(1)Determine each party’s interests and needs;

(2)Find out the other party’s interests and demands;

(3)Offer constructive options and solutions;

(4)Announce success of negotiations;or

(5)Declare failure of negotiations or negotiations in impasse.

A significant point that win-win model differs from win-lose model is that both parties will not only seek means to fulfill their own interests but also hope the interests of the other party to be realized more or less.

3.How can both sides win

Key word: hidden agenda

Hidden agenda refers to the issues of importance to one party is only known to himself, and their importance is seldom of equal importance to the other. In other words, the priorities attached to the various issues that are presented by both sides will always be different.

Key word: Conditional negotiation

Negotiating parties all have different priorities for the arrangement of interests. From their own point of view, each party gains the interests on important issues at the cost of abandoning the interests on non-important issues, so that both parties can bargain, and ultimately both parties can benefit.

 

Chapter 5  Collaborative Principled Negotiation

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CPN  

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Separate People from the Problem

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Focus on Interests Not Position

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Introduce Objective Criteria

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1.CPN

Key word: CPN

A representative negotiation theory is collaborative principled negotiation, also commonly known as Harvard principled negotiation established by Roger Fisher and William Ury, professors from Harvard University.The core of collaborative principled negotiation (CPN) is to reach a solution beneficial to both parties by way of stressing interests and value but not by way of haggling.

Collaborative principled negotiation consists of four basic components:

(1)People: separate the people from the problem;

(2)Interests: focus on interests but not positions;

(3)Gaining: invent options for mutual gain;

(4)Criteria: introduce objective criteria.

The four components are interrelated with each other and should be applied to the whole course of the negotiations.

2.Separate People from the Problem

Key word: Separate People from the Problem

Separate people from the problem is the first component of CPN, which means to treat your partners as human being, rather than dealing with abstract representatives of the other side, because they have emotions, deeply held values, and different backgrounds and viewpoints; and they are unpredictable. To find your way through the jungle of people problems, it is useful to think in terms of three basic categories: perception, emotion and communication.

3.Focus on Interests Not Position

Key word: position

Position refers to the attitude taken in negotiations. Insisting on position means taking side. This attitude of "sideline selection" often leads to deadlock in negotiations. Successful negotiations are the result of giving and taking benefits, not from sticking to their own positions.

4.Introduce Objective Criteria

Key word: Objective Criteria

The objective evaluation criteria should be fair, legitimate, effective, scientific and authoritative, and independent of the will of both parties.

The following points will be considered when telling if a criterion is objective or not.

(1)An objective criterion should be independent of wills of all parties and thus be free from sentimental influence of any one.

(2)An objective criterion should be legitimate and practical. In a boundary dispute, for example, you may find it easier to agree on a physically outstanding feature such as a river than on a line three yards to the east of the riverbank.

(3)An objective criterion should be at least theoretically accepted by both sides, as in the case of MIT model.

Key word: fair procedure

One way to measure whether the objective evaluation criteria are fair and scientific and effective is to judge whether the way to solve the conflict itself is fair, that is, if the procedure is fair .

 

Chapter 6  Law of Interest Distribution

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Needs Theory

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6.1

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Three Levels of Interests at the Domestic Level

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6.3

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Law of Two Level Game

P  

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Knowledge points

1.Needs Theory

Key word: needs theory and negotiation

Abraham H. Maslow, in his book Motivation and Personality published in 1954, argues that there are seven basic human needs. These seven needs provide a useful framework for the study of negotiation-related needs. Demand theory leads us to find out what the needs of both sides at the negotiating table are. The more basic the needs that the options are suggested, the easier it is for them to be accepted in the negotiation.

2.Three Levels of Interests at the Domestic Level

Key word: three levels of interests

Any negotiations occurred at home involve two levels of interests and sometimes three levels of interests: personal, organizational and national interests. Personal interests are represented by individual negotiators who act in negotiations on behalf of organizations and states. Organizations are defined as private or state-owned enterprises, institutions, collective bodies or other kinds of entities. States here refer to all sovereignty countries and independent states. To what extent these interests can be coordinated, integrated and balanced determines largely the progress and outcomes of negotiations.

3.Law of Two Level Game

Key word: Two levels

At the international scene, the outcomes of bilateral and multilateral negotiations have demonstrated that consequences of such negotiations depend on interaction of both domestic interests (Level Ⅱ) and international interests (Level Ⅰ), i.e., variables at two levels. Variables at Level may be represented by such actors as government, government institutions, interest groups and coalitions. Level one is represented by countries or international organizations. American scholar Robert D. Putnam expounds, in his Diplomacy and Domestic Politics: Law of Two-Level Game (1988), how both domestic and international variables interact with each other and jointly influence the result of binational negotiations and thus reveals the law of two-level games.

Key word: law of two-level games

Krauss’ research demonstrates that the more common interests the related parties share, the easier all parties reach a consolidated resolution, thus their negotiating power and bargaining leverage as a whole will be enforced and the possibility of success will be increased in negotiation with another country (at Level Ⅰ). This is because a specific and narrowly ranged acceptability-set at domestic level will fundamentally shape conditions, strategies and dynamics of international negotiations: no agreement will be ratified by the key actors at home without theseand all theserequirements included.

 

Chapter 7  Negotiating Power and Related Factors

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Negotiating Power and Sources of Negotiation Power

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7.1

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Factors   Causing Changes of Negotiating Power

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Application   of Negotiating Power strategies

P  

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Knowledge points

1.Negotiating Power and Sources of Negotiation Power

Key word: power and negotiating power

power is a social phenomenon, which endows people with control over other people or events or activities.

Negotiating power is the ability that one negotiator can make use of to control over and affect the other side’s decision making and to resolve the dispute and attain the target of negotiation.

Key word: sources of negotiating power

Some of the basic considerations that provide sources of bargaining strength are set out here: the state of the market, market share, information, time, corporate size and structure, reputation, and product life.

2.Factors Causing Changes of Negotiating Power

Key word: motivation

Motivation is defined as desires and incentives for gaining interests and stakes. A party’s power is increasing with decreasing of its motivation or the greater a party’s motivation is, the weaker its relative power is.

Key word: dependence

Dependence is a constant and regular need that someone has for something in order to be able to survive or operate properly; while in negotiation, dependence is the need one party has from its counterpart for realizing its goals. A party’s power is diminishing with increasing of its dependence on the other party.

Key word: substitute

Substitutes are alternatives one party can explore instead of other things and moves one party takes to reduce its dependence on the other party. Obviously, one party’s independence increases and thus its power is strengthened when there are more substitutes available for consideration.

3.Application of Negotiating Power strategies

Key word: Power strategies

 A party standing in stronger position tends to apply power tactics in negotiation for purpose of placing pressure on the counterpart to make concession. Such tactics often explored include:

(1)Time pressuresetting a deadline for acceptance of conditions put forward, otherwise punishment of either economic or military actions would be taken;

(2)Appearing firmkeeping high assertiveness in expectation of other’s submission;

(3)Ridiculing other’s positionmaking others give up their stance by belittling or showing disrespect to their position;

(4)Building prominence of your offeraugmenting significance of your offer to impel the other to make yielding; and

(5)Threatening the relationshipwarning possibility of relationship breaking down, a pressure on the other who has a high degree of dependence on you.

 

Chapter 8  Law of Trust

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Trust and its Interpretation

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8.1

2

Factors deciding trusting and  Trusted

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8.2

3

Factors deciding a person’s trustful behavior

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8.3

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Effects of Trust

p

8.4

Knowledge points

1.Trust and its Interpretation

Key word: trust

American professor Dale E.Zand elaborates the meaning of trust in his publication of Trust and Decision Process and points out that trust means increasing your vulnerability to another person whose behavior is not under your control in a situation in which the penalty, loss or deprivation you would suffer if the other person abuses or fails to protect your vulnerability is substantially greater than the benefit, reward or satisfaction you would gain if the other person fulfills or protects your vulnerability.

2.Factors deciding trusting and Trusted

Key word: information

A person shows trust when he reveals information he need not disclose.He increases his vulnerability by telling others his goals, purposes, plans, alternatives or his problems.Others may make use of the information to impede or undermine his efforts.

Key word: influence

A person shows trust when he allows others to influence his decisions since he increases his vulnerabilities by asking for others’ advice which may deliberately mislead him.

Key word: control

A person shows trust when he delegates and permits others to act on their own on his behalf.

3.Factors deciding a person’s trustful behavior

Key word: unchangeable elements

In negotiation or in people’s daily life, elements affecting a person’s trustful or mistrustful behavior can be divided into two categories:unchangeable elements and changeable elements.Unchangeable elements come from two main sources:childhood education and professional or special training.

Key word: changeable elements

Changeable elements come basically from people’s experiences and perceptions: past credit record, competence of others to perform a task, Intentions of Others, and reward system.

4.Effects of Trust

Key word:

Studies show that trust stimulates intellectual development and originality, and leads to greater emotional stability and self-control.Trust facilitates acceptance and openness of expression.Trust encourages cooperation and mutual understanding, and it is fundamental for establishing sound relationship among negotiating team members as well as between negotiating parties.

 

Chapter 9  Personal Styles VS Negotiation Modes

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Negotiators’ Personal Styles

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Personal Style and AC model

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Personal Styles VS Negotiation models

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Knowledge points

1.Negotiators’ Personal Styles

Key word: personality styles

A personal style check designed by K.W.Thomas and R.H.Kilmann makes it feasible for those who want to find out their own personal styles (Do the personality test in the exercises).The test, according to degree of one’s assertiveness and cooperativeness in negotiation, divides personal styles into five modes:competing, collaborating, compromising, avoiding and accommodating, arranged from highest assertiveness to lowest assertiveness and from lowest cooperativeness to highest cooperativeness.

2.Personal Style and AC model

Key word: AC model

A represents assertiveness and C represents cooperativeness. Different personal styles are expressed by the degree of negotiators’ assertiveness and cooperativeness in negotiations, two primary factors in relation with personal styles and negotiation outcomes.Figure 91 shows how personal styles combine different degree of assertiveness and cooperativeness.

3.Personal Styles VS Negotiation models

Key word:Personal Styles VS Negotiation models

Each type of personality has its own mode of behavior in negotiation, and different behaviors will have different effects on the process and result of negotiation. If the performance of the five personality patterns is described in a corresponding way, the result will represent a negotiation mode.

Personal style related negotiation modes includes: ways to achieve negotiation objectives, attitudes towards negotiation issues, information related to negotiation, negotiation conditions, differences in negotiation, tactics and means, difficulties in negotiation, relations between negotiating parties, time required for negotiation, requirements of negotiating parties and mutual assistance and support.

Key word: competing

Persons of competing style tend to use high pressure such as deadline, ultimatum and sanctions.They show little concern to other’s interests and force the other party to surrender to their demands.

Key word:collaborating

As for collaborating kind of persons, as they are so named, cooperation is an outstanding feature in their negotiating activities.They show concerns and understanding to both parties’ interests, difficulties and satisfactions, which explain the reason why they can share information, trust the other party and offer help needed in negotiation.

Key word:compromising

Seeking middle ground is the representative feature of compromising style.They cooperate with the other party on some items but refuse to collaborate on other items.They treat assistance, information and trust as commodities; hence they look for trades with the other party.I won’t give you anything unless you can provide me with what I wantis the typical feeling of compromising style.

Key word:avoiding

Persons of avoiding style are never willing to cooperate with the other party, nor do they state their consent or objection openly.They resist passively often by finding excuses, or changing topics or leaving the matters to the other party.

Key word: accommodating style

People of accommodating style are the other extreme of competing style.They habitually cater to the other’s desires and requests.Harmony is their motto.They avoid hurting feelings, damaging relationship and disturbing peaceful atmosphere, so they try to be very helpful and care a lot for the others ideas.

 

Chapter 10  Game Theory and Negotiation Application

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Game Theory, its Assumption and Rules

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Matrix   Display and Consequences

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Prisoners’   Dilemma

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10.3

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Direct   Determinants of Coordination Goal


10.4

Knowledge points

1.Game Theory, its Assumption and Rules

Key word: game theory

Game theory studies how rational actors ought to behave when their separate choices interact to produce payoffs to each player.We refer to game theory as interactive, separate decision making because by definition the players make their decisions independently of each other (there is no collusion), but these separate choices interact to determine a pair of payoffs for each side.

Key word: assumption of game theory

Let’s start by defining the assumptions that game theory makes in structuring situations for analysis:

(1)You have to act(Doing nothing is an act);

(2)Your payoff depends both on what you do and on what other designated players do;

(3)You do not know what they will do,but you know what they could do;

(4)They do not know what you will do.

2.Matrix Display and Consequences

Key word: payoff

Payoff means the player’s utility value associated with the resulting consequence.Each pair of strategy choices results in a pair of associated utility payoffs.

Key word: dominance

Dominancerefers to a situation in which one strategy has a higher payoff for the player choosing it, regardless of the other player’s strategy.In other words, Strategy X dominates Strategy Y if you are always better off with X.

Key word: equilibrium

Neither player is better off by changing as long as the other stays put.In either of those boxes we would say that the players are in equilibrium (indicated in the matrix by asterisks in the appropriate boxes).This is a very important concept.Much of game theory is devoted to finding strategy pairs in equilibrium.They are important because many stable economic situations in the real world are thought to result from equilibrium dynamics.Situations only remain stable when no critical player wants to change his choiceprovided, once again, the other holds fixed.

3.Prisoners’ Dilemma

Key word: Prisoners’ Dilemma

One important factor determining the consequences of negotiations is whether there is mutual trust and thus cooperation among members of a negotiation team and between negotiating parties.The question here is whether spontaneous cooperation is possible among egoistic individualism. Sometimes, the individual benefit seems to conflict with the benefit of the community as a whole, even though the community includes this very individualism.One such example has been formulated as the prisoner’s dilemma

Key word: C response

C represents coordination. The C response is mainly motivated by the goal of achieving coordination, since coordination is by definition a joint activity.In interpreting the literature on the prisoner’s dilemma, we shall assume that any condition producing the C response is an antecedent of either the goal of coordination or trust.Where two variables interact multiplicatively to produce the C response, one will be assumed to be an antecedent of the coordination goal and the other an antecedent of trust.

4.Direct Determinants of Coordination Goal

Key word: Perceived Opportunity for Exchange

The structure of the situation sometimes makes it seem that each party has something of value to offer the other at a minimal cost to the self.This suggests the possibility of negotiating an exchange of favors and hence of coordination.

 

Chapter 11  Distributive VS Integrative Types of Negotiations

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Distributive Negotiation

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Price   Negotiation and Negotiation Zone

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Integrative   Negotiation

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1.Distributive Negotiation

Key words: Distributive Negotiation

Distributive negotiations,are also named aszero-sum gamesbecause the sum of the two parties’ interests are constant, which means A’s gain is at the expenses of B’s interests.

2.Price Negotiation and Negotiation Zone

Key word: price Zone

For price negotiations, two fixed targets have to be set:a first offer and a bottom offer. The two targets set up the buyer and the seller’s price zones respectively.

Key word: zone of possible agreement

The overlapping zone between the bottom lines of the seller and the buyer is called the zone of possible agreement.

Key word: Value Division of the Zone of Possible Agreement

Value Division means how to divide the value of the zone of possible agreement.

3.Integrative Negotiation

Key word: integrative negotiation

The word integrative by concept implies some cooperation, or a joining of forces to achieve something together. Integrative negotiation usually involves a higher degree of trust and a forming of a relationship.

 

Chapter 12  Complex Negotiation

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Complex Negotiation and their Properties

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Involvement   of Third Party

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Coalition,   Multi-party Negotiation

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Knowledge points

1.Complex Negotiation and their Properties

Key wordComplex Negotiation and their Properties

A negotiation turns into a complex one when the negotiating parties want to bring in a third party or when other parties want to join the on-going negotiations. A complex negotiation is so called because it has the following properties: a number of parties, a number of issues, a number of interests and different Interests.

2.Involvement of Third Party

Key word: third party

A third party is the one besides the original negotiating parities. They may be called in by one or both sides or imposed by law or the terms of a prior contract. They may also intrude themselves. According to the degree of their involvement in negotiation can be further grouped into five categories: conciliator, facilitator, mediator, arbitrator and executives.

 

Key word: conciliator

A conciliator’s role is very simple, just bringing two parties together, which is similar with the function of a go-between or a matchmaker.

Key word: facilitator

A facilitator is process-focus-oriented. A facilitator is a helper and should be neutral. The key point to be memorized by a facilitator isto ask them to doall necessary steps till the very end of the negotiation.

Key word: mediator

A mediator often takes more active roles than those just described. He combines both process focus and content focus. A mediator should work together with the two negotiating parties throughout the whole process of the negotiation, to settle the dispute.

Key word: arbitrator

An arbitrator is content-focus-oriented. An arbitrator is usually independent of the interests of both parties and be a sheer outsider so that he can be upright and objective when hearing the case and arrive at a fair resolution.

Key word: executives

An executive will decide and take actions based on his own judgment of the situation when it is necessary for him to interfere in the negotiation, and his decision is indisputant by virtue of his position and authority.

3.Coalition, Multi-party Negotiation

Key word: Coalition

A coalition is defined as two or more parties from different political, social or economic groups who coordinate their actions or combine their resources to achieve a particular aim because they believe that together they will have a better chance of reaching their goals than separately.

 

Chapter 13  Culture Pattern vs. Negotiation Patterns

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Definition   of Culture

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Culture   Patterns

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Hofstede   cultural study

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13.3

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1.Definition of Culture

Key word: culture

Common ways of thinking and behaving that are developed are then reinforced through social pressure. Culture is also multidimensional, consisting of a number of common elements that are interdependent. Culture is also defined as an integrated system of learned behavior patterns that are characteristic of the members of any given society. It includes everything that a group thinks, says, does, and makesits customs, languages, material artifacts, and shared systems of attitudes and feelings.The most fundamental component of national culture consists of values.Other components of national culture are more superficialthat is, visible, conscious, and easy to learn, even by adults. They include symbolswords, gestures, and objects that carry a specific meaning in a given culture.

2.Culture Patterns

Key word: culture patterns

Every person is encultured into a particular culture, learning theright wayof doing things; as a result, everyone bears strong identification and marks of his own culture.

Key word: communication model

Words and actions are symbols selected by individuals to transmit images, concepts, ideas, and perceptions from themselves to others. As such, both the sender and the receiver play an active role in the transmission and reception of messages.Cross culture communication is difficult not solely because of different languages but also due to different ways of conveying messages.

Key word: high context culture

Verbal communication, in accordance with cultural patterns, consists of two models: high context* model and low context model. In high context cultures, context is at least as important as what is actually said. The speaker and the listener rely on a common understanding of the context.

Key word: low context culture

In the low context cultures, however, most of the information is contained explicitly in the words.

3.Hofstede cultural study

Key word: Hofstede cultural study

In the field of business cultural value study, the most influential one is done by Dutch scholar Geert Hofstede. His research sets four cultural dimensions closely connected with business cultural values including power distance, individualism, masculinity, and uncertainty avoidance.

Key word:Power distance

Power distance, that is, the extent to which the less powerful members of organizations and institutions (like the family) accept and except that power is distributed unequally.

Key word:individualism

Individualism on the one side versus its opposite, collectivism. This describes the degree to which the individuals are integrated into groups.

Key word:Masculinity versus femininity

The analysis of the IBM data revealed that:(a) women’s values differ less between societies than men’s values; (b) if people restrict themselves to men’s values (which vary more from one country to another), they contain a dimension ranging from very assertive and competitive and maximally different from women’s values on the one hand, to modest and caring and similar to women’s values on the other. The researchers have called the assertive polemasculineand the modest, caring polefeminine.

Key word: uncertainty avoidance

Uncertainty avoidance indicates the extent to which a culture programs its members to feel either uncomfortable or comfortable in unstructured situations.Unstructured situationsare novel, unknown, surprising, and different from the usual. Uncertainty-avoiding cultures try to prevent such situations by strict laws and rules, safety and security and, on the philosophical and religious level, by a belief in absolute truth.

Key word:The Bond Study

Michael Bond of the Chinese University of Hong Kong studies basic values for Chinese people, which is made up of the following values.

On the positive side:

· persistence (perseverance);

· ordering relationships by status and observing this order;

· thrift;

· having a sense of shame.

On the negative side:

· personal steadiness and stability;

· protecting one’sface;

· respect for tradition;

· reciprocation of greetings, favors and gifts.

Key word: Confucian dynamism

      All of the values listed above are to be found in the teachings of Confucius, dating from 500 BC. However, the values on the positive side are more oriented toward the future (especially perseverance and thrift), while those on the negative side are more oriented toward the past and present.Bond has, therefore, called this dimension Confucian dynamism.

 

Chapter 14  Negotiation Risk and Management

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Identification of the sources of   risks

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External risks

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14.2

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Internal   Risks

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14.3

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Risk   Management

P

14.4

Knowledge points

1.Identification of the sources of risks

Key word: Identification of the sources of risks

A common definition of the risk is the possibility that an event will occur and adversely affect the achievement of an objective or a deviation from an expected outcome. So risks involves interaction with uncertainty. The negotiation risk is defined as the possibility that negotiators are unable to realize their objectives fully or partly due to the uncertainty occurred in the process of negotiation and in the implementation phases.

2.External risks

Key word: External risks

External risks are referred to as general risks, which come from outside sources. This book chooses those which have high correlation with negotiations and puts them into four categories as political risks, market risks, social and cultural risks and environmental risks.

3.Internal Risks

Key word: Internal Risks

Internal risks refer to those risks specifically occurring in the process of the negotiation and have direct impacts on the result of the negotiation. Internal risks include: information symmetry, fraud, failure of negotiators to implement the agreement, the other party not be trustworthy, negotiators’ personalities and communication barriers.

Key word:Information asymmetry

One single most important source of risks for negotiators is information asymmetry, which deals with the study of decisions in transactions where one party has more or better information than the other.

Key word:Adverse selection

Adverse selection refers generally to a situation where sellers have information that buyers do not have, or vice versa, about some aspect of product quality.

Key word: Fraud

The worst case of information asymmetry may occur when one party intentionally cheat the other party in the negotiation. In law, fraud is deliberate deception to secure unfair or unlawful gain, or to deprive a victim of a legal right.

4.Risk Management

Key word: Risk Management

Risk management is the identification, evaluation, and prioritization of risks and economical application of resources to minimize, monitor, and control the probability or impact of unfortunate events or to maximize the realization of opportunities. Risk management’s objective is to assure uncertainty does not deflect the endeavor from the business goals.

Key word: Risk sharing

Risk sharing is briefly defined as “sharing with another party the burden of loss or the benefit of gain, from a risk, and the measures to reduce a risk.” Insurance and outsourcing are examples of sharing risks with another party.

Key word: Risk retention

Risk retention involves accepting the loss, or benefit of gain, from a risk when it occurs. It is a method of self-insurance whereby the negotiating parties retain a reserve fund for the purpose of offsetting unexpected risks.






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