The Role of Negotiation Tactics and Skills in Commercial and Contract Issues

Module: Commercial and Contractual Issues (CETM 10) Assignment

Title: The role of negotiation and negotiation tactics and skills when negotiating commercial and contract issues related to large projects.

Introduction

International project negotiations have drawn the attention of tremendous research, and many researchers have given a reasonable framework to look at how environmental aspects impact the negotiation settings, negotiator attributes, selection of negotiation strategy and the outcome (Fang et al. 2008). Fang et al. (2008) also argued that the environmental change in cultural, political, legal and economic environments affects the success and failure of large project negotiations.

In the last two decades, most countries have experienced exponential growth in their economies. Their continual investment partnerships partly influence this with other countries. The number of fast-growing economies in some countries in which they have invested the number of resources has increased trade relations between one another. For example, the UK nuclear power deals with China. Ting-Toomey and Chung (2012) stated that trade between other nations and China will continue to grow in the coming years. Unfortunately, scholars have quickly noticed that the trade relations between China and other nations are hugely skewed in favour of the former. There are some risks of missing out on the potential opportunities with the large projects’ negotiations unless the negotiators adopt favourable negotiating tactics and skills. This report seeks to demonstrate the role of negotiations and the tactics and skills organisations use to negotiate large projects.

The Role of Negotiation in Large Projects

Negotiation is a communication process used by legal practitioners to resolve arguments and finish business transactions for clients on-behalf (Guthrie and Robbennolt 2015).

Many organisations have found it difficult to negotiate for large projects today. This has often been attributed to how most project negotiations are done, which is highly tied to cultural values. Some countries host some of the world’s oldest civilisations based on ancient philosophies, thus differentiating the negotiation traditions from any other country (Dussel, 2009). Despite their unique business culture, most countries have made tremendous progress in learning the cultures in various parts of the world, and this has helped their growth in different parts of the world. Before getting into any large project contracts, negotiations have to be carried out as they set the terms of that agreement and this is not just for a specific project but also in any other business setting, in order to reach a win-win conclusion where the two sides feel they have achieved their aim of negotiation and their views are taken into consideration. The trick with negotiations is that the cultural backgrounds of the parties to the agreement shape them. Most countries have followed the modern style in project negotiations while some have retained their own style of negotiation. This complicates the negotiating process in some countries as cultural differences enhance the risk of negotiations failing due to cultural misunderstandings (Robbins et al., 2013).

There has been increased research on large project negotiations as academic scholars seek to solve the problem of failing negotiations. A majority of the existing academic thinking has looked at negotiations in a commercial setting in some countries without looking at the subgroup cultural factors such as the age of the negotiating parties, or whether it is employees or corporations involved in the negotiations. For purposes of this study, the negotiations will be researched from the perspective of the corporations since they are the ones that have commercial and more detailed large project contracts when compared to the perspective of the employees. In order to understand the negotiation in large projects, it is important to understand the negotiation strategies that negotiating parties use as well as the impact of culture on these negotiations (Duan, 2012).

Communication in Commercial Negotiations

Chuah et al. (2014) Cite negotiating contracts with some business partners as one of the most daunting challenges that negotiators can face. For westerners, the stark cultural disparities pour into large project negotiations and overcoming the associated challenges requires a good understanding of these disparities (Chan and Shing, 2016). The first challenge that needs to become is the obvious language barrier. Even in a competent translator’s presence, there is a real danger of meanings being lost in translation. Farquhar and Fitzsimons (2011) recommend the use of more than one communication channel by having more than one person in the negotiating team who can speak different languages. When delivering a speech or presentation, it is wise to use straightforward language, as jokes or dramatic presentations may fail to come out clearly in the translated delivery (Farquhar and Fitzsimons 2011). A distinct quality of some people and their culture is that friendship and business tend to overlap seamlessly (Chuah & Hoffmann, 2014).

As such, the “friendship first, business later” approach that is almost taboo in the West is the natural course of business transactions in some countries. During meetings, especially early ones, a lot of seemingly irrelevant discussions touching on issues like family, leisure and hometowns tend to come up quite frequently. Rather than skirting such discourses, it may be beneficial to encourage the client/team as they begin forming commercial connections in some clients’ business cultures. Moreover, successful negotiations are followed by prolonged sessions of socialisation. Despite this seemingly casual approach to large project negotiation, negotiations tend to be very fast as singular issues are not given too much time. Some negotiators focus more on the whole package than the details. Rather than dwelling on unresolved issues, they prefer to move ahead and come back to polish up on these later. They prefer to begin the negotiation as swiftly as possible, and any unresolved issues are usually catered for by a memorandum of understanding (Chan and Shing, 2016).

Social hierarchy is an important aspect of some cultures (Stark et al., 2005). As such, the working level of the negotiators sends an important message to the client/stakeholders regarding the other party’s regard for the project. Therefore, it is wise to send at least a few high-level executives as part of the negotiating team and ensure that negotiations are carried out with top decision-makers (Ghauri and Fang, 2001). Bargaining and tough negotiation are part of the business approach. However, harmony is a valuable concept among many clients, and negotiators take special care to avoid conflict. Concessions from both sides are usually encouraged as part of the process to smooth things over and stay on good terms. Disputes rarely deteriorate into legal action, and where this does happen, legal redress tends to be a protracted and often biased process that is best avoided. Mediation through third parties is more common (Stark et al., 2005).

Negotiation Tactics and Skills

According to Wang and Zhang (2015), Team members selection is an important factor when negotiating large project contracts, stating that numerous organisations now focus on selecting team members with the aim of creating a win-win team that will work together in a negotiation process to achieve a specific goal bilaterally. In addition, added that the team leader or the team manager needs to maximise the team’s benefit by choosing from the available candidates; the best people for the team. However, the paper highlights that team members’ personal opinions haven’t been considered in forming the win-win team process.

Importantly, Wang and Zhang (2015) highlighted in their research that in order to consider the decision bilaterally between the team leader and members of the team, firstly there has to be a negotiation-based team; and has to be defined where the balance of the benefit requirements of the leader and the team members is addressed (considered).

In addition, problem-solving was discussed as a process of negotiation between the team members and their leader. One needs to consider team selection and the collaborative decision-making process. However, as cited in Wang and Zhang (2015), (Wi et al., 2009 and Tavana et al., 2013), together agreed that it is important in the selection of win-win team members to consider or, take into account team members’ capabilities in terms of collaborative competencies and knowledge competences as the team members’ personality has a huge impact on the success of negotiation.

On the other hand, Liu and Low (2009) pointed out that there are two negotiation processes which include symbiosis and predation. The two processes can also be referred to as cooperation and competition respectively. The theory of social exchange informs the cooperation/symbiosis process of negotiating. The theory asserts that relationships are best established through open communications, revealing all the underlying interests that inform various positions, and through the fulfilment of mutual gain solutions. On the other hand, the competitive process does not consider meaningful relationships as a priority when it comes to negotiations. The approach involves the use of power as opposed to the interest of a particular issue which means that the outcome of the negotiation has an outright winner and a loser. These processes will work differently depending on the cultural context. Chen et al. (2013) mentioned that culture is a set of shared and lasting meanings, beliefs, and tenets that identify a particular national, ethnic, or any other group of people. Parties in a contract are always people who have a certain cultural background. This means that the parties may also have differing assumptions, differing perspectives and thoughts, and differing behavioural models. Failure to comprehend these cultural undertones sets, the negotiation process up for failure.

The behaviour of some people in negotiations can be deduced through a thorough identification of the unique aspects that shape their cultural identity. Some of the unique aspects include the communist political ideology. Lai et al. (2004) stated in their research that socioeconomic and political culture makes some people (clients) averse to risks and will be unwilling to accommodate any contract that exposes them to risks. They are also very careful not to make mistakes and will want to negotiate every aspect of large projects leaving no room for errors. Some of them whose belief is moral ethics tend to be highly sceptical about outsiders and are slow to trust anyone they are not familiar with. The foundation of commercial relationships in some countries was founded on social capital, as opposed to the legal framework. This is also explained by the fact that their philosophy does not have as much regard for legal systems as it does for self-regulation. Most individuals are expected to be honourable so as to save their face and protect themselves from shame. Shame and face are highly regarded in some countries (Feng and Lu, 2013).

Most organisations are very careful when deciding on a contractor who will deliver on any large projects and this is even more significant when it involves long-term contracts. A number of factors including the reputation of the contractor, the price agreement, the schedule for completion of the project and other factors inform the choice of a contractor in any organisation. This means that in some organisation settings, the concern is not just the ability to complete a project but proof of similar successful projects carried out by the contractor. Having a good record and having a fair price is likely to result in the award of the contract as this is aimed at ensuring that the award of tenders and contracts is done on merit and in a manner that does not accommodate the corrupt elements.

The process of selecting the right contractor is regularly reviewed in the country’s law to increase project procurement efficiency. However, the general trend is to pick the contractor who has the lowest price as well as confirmation of the ability to complete the project within the required time length and in the highest possible standards. The contractor’s ability is measured using the assets’ base, the level of expertise in the firm, the management skills used at the company, and a positive reputation. Selective tendering is also common in long-term and high-value tenders. In this type of tendering, the client invites a number of well-reputed firms for a competitive tender (Richards 2014).

Ordinarily, the negotiation must be done in such a manner that project goals are explained in the tender documentation, followed by submitting tenders that align with the requirements in the tender documents. The bids submitted are usually intended to serve as a distribution that details how the contractor will get the assets needed to complete the project, thus providing contractors with an opportunity to prove their competitiveness (Firth et al. 2010).

A quote from the art of war proclaimed, “Strategy without tactics is the slowest route to victory, and that tactics without strategy is the noise before defeat”.

Contract Issues

If the contracting and negotiating process are not well understood, there is the risk of issues arising after the contract has been signed. To avoid such issues, it is expected that the contract is well explained especially when dealing with contract novices or if the contractor is foreign to the processes of where the project will be carried out. The contract should be well explained, simple, precise, and flexible but detailed while at the same time, it should be conclusive (Stark et al., 2005). If the terms of the contract are not well documented, there is the risk that the parties may take advantage of each other and create misunderstandings that make implementation difficult. Some issues that often arise when most organisations deal with foreign partners include language barriers, different legal frameworks, and regulations.

Some organisations have been part of some foreign-invested business partnerships in other countries. Foreigners seeking partnerships in some industries may require special approval from relevant government agencies aside from the usual process that involves registering with a local branch of the State Administration of Industry and Commerce (Chan and Shing, 2016). Selecting a partner particularly in restricted industries presented a huge challenge. Factors such as good reputation, legal standing and alignment of strategies and goals are critical universal qualities that are sought after when selecting a partner. For example, for investors in the automotive industry in China where partnerships are restricted to state-owned entities, such qualities may be extremely limited among legally qualified parties. Lin and Zou (2010) encourage foreign partners to be involved in operations, manage diversities in culture and values, and be open to conflict resolution early in the process in order to make headway in their partnerships.

Commercial Issues

The tensions that have characterised other countries’ commercial relationships with western economies tend to spill over into business relationships between non-state parties. Shi and Wright (2003) argue that some foreign clients are easily affected by national feelings of dignity and pride in handling individual-to-individual business relationships. Although it is a highly subconscious effect, it is a very strong factor, and the authors encourage western negotiators to divide the relationship into micro and macro dynamics. The micro section would encompass short-term social aspects of the relationship while the macro section would include aspects touching on the wider national good. For example, Chinese business transactions and relationships are generally built on the handshake principle, known to the Chinese as ‘Guanxi’. Westerners are more inclined towards legally binding agreements, and this disparity often leads to conflict in Sino-western business transactions (Shi and Wright, 2003; Ghauri and Fang, 2001). The demand for legal by some investors is often misconstrued as a sign of distrust by other foreign counterparts who are used to informal setups. The principle of conflict avoidance means that emerging issues are easily ironed out as they arise through incremental concessions that may see both parties lose significant ground on their initial bargaining stance. On the other hand, some investors tend to maintain a rigid stance, and aggressive legal redress is an often-followed course even for minor conflicts (Ghauri and Fang, 2001).

Conclusion

Cross-cultural business negotiation presents a challenging hurdle to all parties involved. Owing to vast cultural and value-based disparities, most investors approach large project negotiations in a very different manner from other foreign counterparts. While most value patient and non-confrontational negotiations, some negotiators are used to a more aggressive and incentivised approach. Without a proper understanding of these disparities, foreign investors looking to score large project contracts in certain countries are unlikely to succeed. The laws on bidding and tendering are changing dramatically in recent years to reflect increasing openness to foreign input in their economies. Various subtle negotiating tactics and skills such as conflict resolution, the selection of team members, concession making and incentivisation are particularly effective when negotiating for large project contracts.

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