As part of our „mini-series“ on international negotiation, we looked at the following in the last Article We discussed the objectives of the negotiation, as well as effective preparation and argumentation. Today we will be looking at further key aspects of international negotiation using a case study.

Peter H. is holding talks today with representatives of the Australian company Smith Ltd., a competitor in the V-belt sector. Smith Ltd. wishes to improve the quality of its products and is negotiating with Peter H. regarding a licence for technical know-how. As it is not viable for Peter H.’s company to manufacture in Australia itself for various reasons, he is also interested in granting a manufacturing licence.

Smith Ltd. is seeking an exclusive manufacturing licence for Australia. They need to invest heavily to implement the know-how and therefore wish to be protected in Australia. Peter H. is keen to secure a steady income from licence fees. He is concerned about losing money, as if Smith Ltd. is unable to implement the know-how as planned, his licence income – which is linked to Smith Ltd.’s turnover – will remain low. Peter H. intends to grant a non-exclusive licence so that he can, if necessary, sell a licence to another company.

Failure seems inevitable. Both parties are sticking to their positions and the atmosphere of the negotiations is deteriorating. The problem boils down to whether the manufacturing licence should be exclusive or non-exclusive. Even if the parties agree on the other issues, the licence becomes the key issue. A position-based approach to negotiation not only leads to disagreement on the substance of the matter, but also to a blurring of the lines between the issue at hand and the personal dynamics involved.

How can this problem be resolved? Peter H. must try to negotiate objectively and with a focus on mutual interests. Firstly, the unresolved issue of the „licence“ should be recognised as a problem shared by both parties. Furthermore, a framework should be developed to identify where interests lie and where they overlap. Ideally, this would have been drawn up in advance by one of the parties and could look like the diagram below:

A closer analysis of these structures reveals that the interests of both parties converge at a certain point: Peter H. grants Smith Ltd. an exclusive licence on the condition that, following a specified start-up period, a certain minimum annual turnover is achieved. This ensures a minimum licence fee. As long as Smith Ltd. achieves this minimum turnover – which may be staggered over the years – the licence may not be granted to third parties in Australia. Exclusivity is therefore linked to a minimum turnover – the licence is thus effectively exclusive, and Smith Ltd. remains unrivalled in its own country.

As a rule, both parties make concessions to one another during the course of the discussions and move closer together in their positions. It is also important to negotiate the terms of each individual concession. A shrewd negotiator will, where possible, only make a concession if the other party is prepared to make a concession in return. The better you understand your own interests and those of the other side, the greater your scope for making concessions.

Key considerations in international negotiations:

Level of communication

Analyse the other party’s understanding of the language, i.e. how thorough and detailed their knowledge of the language is, and to what extent there is overlap between what you say and what the other party responds with. The more accurate your analysis is, the better you will be able to assess whether the statements made by both parties are consistent.

Active listening and asking questions

Interests must be explored through attentive listening and asking questions. The ability to listen is a key asset in this age of globalisation! Anyone who lets their negotiating partner finish speaking, puts themselves in their shoes, asks targeted questions and refrains from lecturing stands a good chance of gaining as comprehensive a picture as possible of the other side. After all, listening and understanding are far from the same as agreeing with a specific opinion. It also gives you the opportunity to uncover contradictions that are based solely on the other party’s presentation. You can then beat them at their own game – that is, using their own arguments.

Definition of key terms

In many negotiations, it is a good idea to define key terms relating to the deal together in advance. This helps to minimise misunderstandings from the outset and gives the negotiation a clear structure.

Interests rather than positions

Positions are often associated with negative assumptions and reflect personal attitudes. It is difficult to move away from such a standpoint without, at least to some extent, losing face. It is better to explore the interests hidden behind the obvious positions and to discuss them.

Interest-based negotiation helps to de-escalate situations and demonstrates how to identify the underlying views of both parties and find potential common ground.

If you are aware of the other party’s interests, you are better placed to respond appropriately and effectively. Anyone who manages to summarise the other party’s position effectively and then explain their own viewpoint significantly improves their chances of success.

Extension of the scope of the negotiations

Once you have explored both your own interests and those of the other side, new, previously unrecognised possibilities for a solution emerge – thereby broadening the scope of the negotiations.

Contract Coordinator

It is often helpful to appoint a contract coordinator on both sides. If this approach has not previously been common practice with your business partner, you should explain to them the benefits of an effective working relationship. Taking all intercultural considerations into account, emphasise their obligations to cooperate in order to ensure the necessary groundwork is carried out for the contract negotiations. Propose the next steps and work with your partner to draw up the individual implementation steps or milestones: Who? When? With whom? How? Also specify who is responsible for meeting the milestones. This ensures that the enthusiasm following a jointly achieved negotiation outcome does not fizzle out, but that the next steps proceed efficiently, quickly and purposefully with the help of a contract coordinator.

To the last article Rules for Conducting International Negotiations (Part 1)

To the lasttop articles Rules for Conducting International Negotiations (Part 3)