Speaker 1: Hello everyone, welcome to Business School 101. Did you know that on a daily basis, business managers normally spend 50% or more of their working hours on meeting different people and handling various types of negotiations? These negotiations, if handled correctly, contribute significantly to business success because they help companies build better relationships, deliver lasting, quality solutions, and avoid misunderstandings and conflicts. So what are business negotiations? How many steps are included in a typical business negotiation? Are there general guidelines or tips to handle business negotiations? In this video, I will answer these questions for you. Section 1. What is Negotiation? Negotiation is a process where two or more parties with different needs and goals discuss an issue to find a mutually acceptable solution. Negotiation skills are important in both informal, day-to-day interactions, and formal transactions such as negotiating conditions of sale, lease, service delivery, and other legal contracts. People enter into business negotiations for a multitude of reasons, but the nature of the goal determines what kind of negotiation will take place. Generally, there are two major types of negotiations. First, distributive negotiations. Distributive negotiations occur when two parties with opposing goals compete over a set value. Consider a person who passes a street vendor and sees an item they like but considers the price or set value a bit steep. The goal of the buyer is to procure the item at the lowest price, getting more value for their money, while the goal of the seller is to collect as much as possible to maximize profits. Both are trying to get the best deal, but what translates into a gain by one side is usually experienced as a loss by the other, otherwise known as a win-lose situation. Participants of distributive negotiations normally focus on the individual and are based on a short-term interaction. More often than not, the individuals involved are not friends or at least their personal relationship is put aside in the matter. Information also plays an important role, since you do not want to expose too much and be vulnerable to counterattack. Second, interactive negotiation. Interactive negotiation involves cooperation between the two groups to integrate interest, create value, and invest in the agreement. Both groups work toward maximizing benefits for both sides and distributing those benefits. This method is sometimes called the win-win scenario, which does not mean that everyone receives exactly what they wished for, but instead that the compromise allows both sides to keep what is most important and still gain on the deal. The relationship in this instance tends to be more long-term, since both sides take time to really get to know the other side and find what the motivators are. The focus is on the group reaching a best-case outcome where everyone benefits. Section 2. The Negotiation Process. Generally a typical negotiation process includes five steps. Step 1. Planning. Regardless of the issues or personalities of the party involved, this process typically begins with planning. Planning starts with the negotiators identifying the objectives they would like to attain. Then they explore the possible outcomes for reaching these objectives. Step 2. Interpersonal Relationship Building. The second phase of the negotiation process involves getting to know the people on the other side. This feeling-out period is characterized by the desire to identify those who are reasonable and those who are not. Step 3. Exchanging Task-Related Information. In this part of the negotiation process, each group sets forth its position on the critical issues. These positions often will change later in the negotiations. At this point, the participants are trying to figure out what the other party wants to attain and what it is willing to give up. Step 4. Persuasion. No side wants to give away more than it has to, but each knows that without giving some concessions it is unlikely to reach a final agreement. The success of the persuasion step often depends on how well the parties understand each other's position, the ability of each to identify areas of similarity and difference, the ability to create new options, and the willingness to work toward a solution that allows all parties to walk away feeling they have achieved their objectives. Step 5. Agreement. The final phase of negotiations is the granting of concessions and hammering out a final agreement. Sometimes this phase is carried out piecemeal, and concessions and agreements are made on issues one at a time. Section 3. General Guidelines in Negotiations. There are four general guidelines for negotiating with negotiators. First, separating the people from the problem. Often when managers spend so much time getting to know the issue, many become personally involved. Therefore, responses to a particular position can be interpreted as a personal offense. In order to preserve their personal relationship and gain a clear perspective on the issue, it is important to distinguish the problem from the individual. Second, focusing on interests over positions. Focusing on interests gives one insight into the motivation behind why a particular position was chosen. Digging deeper into the situation by both recognizing your own interests and becoming more familiar with others' interests will put all active partners in a better position to defend their proposal. Third, generating options. Managers may feel pressured to come to an agreement quickly for many reasons, especially if they come from a country that puts value on time. If negotiations are made with a group that does not consider time constraints, there may be temptation to have only a few choices to narrow the focus and expedite decisions. It turns out, though, that it is better for everyone to have a number of options in case some proposals prove to be unsatisfactory. Fourth, using objective criteria. In cases where there are no common interests, avoid tension by looking for objective options. Legitimate practical criteria could be formed by using reliable third-party data, such as legal precedent and historical industry records. If both parties can accept being bound to certain terms, then chances are the suggestions were derived from objective criteria. Section 4, Tips on Negotiations. Here are five practical tips for negotiations. First, be prepared. One of the most effective negotiation strategies is preparation. Research the person with whom you'll be negotiating, from the organization they're representing to the deals they've made in the past. If possible, seek out colleagues who have negotiated with the same individual or group before to gain insight into what you should expect. This part is especially important if you are negotiating with people from a different country or with different cultural backgrounds. Second, know your bottom line. Before going into negotiations, be sure to determine your desired outcome and make a pact with yourself and others, if applicable, not to stray from it. Setting a bottom line will enable you to know when to step back from negotiations and when to move forward. Third, use a friendly approach. When it comes to business negotiations, warmth and friendliness go a long way, even as you're aware of the need to be cautious and not too open. Take time to smile and exchange pleasantries. You may be surprised by how small talk can lead to shared common ground, which can lead to smoother negotiations and a better outcome for everyone involved. Fourth, don't sound desperate or excited. The easiest way to lose points in negotiation is to sound like a desperate client or seller. If the offer is great, control your nerves, or even if the seller or client is reputed and you are excited to work with them, don't show the excitement. Take your time, control your tone, and continue to negotiate as if you didn't like the offer. Fifth, listen to others. The most important negotiation tactic is one many of us were taught early in our lives, but are likely still trying to master. Listening. When you're eager to make a business deal, it's easy to get caught up in your talking points. The most effective negotiators follow the 80-20 rule. Listen 80% of the time, and talk 20% of the time. So, what do you think about international business negotiations? Please leave your thoughts in a comment below. If you enjoyed this video, then please be sure to give it a thumbs up and subscribe to the channel. Thanks for watching, and I will see you next time.