Negotiations are so common in business
that managers often fail to recognize the
elements of negotiations in their proce-
sses of interaction. The development of
the necessary negotiation skills among
managers is also neglected. In the USA
and other advanced countries, academics
actively study negotiations as an art and
a science. Managers take training pro-
grammes to improve their negotiating
skills.
In this article, Bhupindar Singh,
based on his study and extensive experi-
ence in both the public and private
sectors, provides a blueprint for effective
trade negotiations. He illustrates the con-
cepts and tactics from actual cases.
Bhupindar Singh is Executive
Director, Minerals and Metals Trading
Corporation of India Limited, New Delhi.
Negotiations are common in life, be it business,
trade, or personal matters, agreements and under-
standings are reached daily. Often such under-
standings are not explicit.
In business, explicit negotations are held
when trade, personnel, or project finalization mat-
ters are involved. This article restricts its scope to
trade negotiations. The objective is to reach an ag-
reement satisfactory to both the parties, ironing
out all the differences. One of the objectives of
negotiations should be to build a relationship
which will endure over a long period of time, with
business coming as a "fall out" of the relationship
built.
If you want to deal effectively with people,
convince them, persuade them, your approach to
people should be based on their needs. And that is
what negotiations are all about.
Negotiations cannot be held when terms and
conditions are controlled by regulations. We can-
not negotiate, for example, in a ration shop, while
buying a railway ticket, when paying statutory
levies, or while fulfilling the requirements of a
wage act. But in competitive markets, where vari-
ous alternatives are available, negotiations become
the most important aspect of contracting and
finalizing agreements. Both parties endeavour to
obtain the best possible terms and conditions
through negotiations.
Because negotations take place all the time, im-
plicitly or explicitly, the skill required for conduct-
ing them is not studied and cultivated adequately.
The skill involves both the use of data and intui-
tion. Personal equations among the negotiating
teams also play a very important role. Negotiations
lend themselves to intricacies of a game of chess,
but unlike chess, negotiations are successful when
both parties win. They can be successful when their
nature is understood and planning and implemen-
tation of strategy and tactics are comprehended.
Negotiation situation is one in which:
• two or more parties have to make a decision
about their interdependent goals or
objectivies;
• the parties are committed to peaceful means
for dissolving the dispute, and
• there is no clear or established method or pro
cedure for making a decision.
In other words, are negotiations a dynamic process
by which two parties, each with its own objectives,
confer to reach a mutually satisfying agreement on
a matter of common iterest.
The process of negotiations takes place within
a defined time scale which imposes limitations on
the objectives of the negotiations. This time scale
can include the next occasion when the parties
contemplate doing business. In any negotiations,
since the time scale is fixed, it is essential to main-
tain equilibrium and get increased productivity
per unit of time. It should be ensured that the de-
sired objectives are reached within time available.
• It must be noted that each party will have its
own objective which it must try to achieve.
• The parties must be motivated towards reach
ing an agreement which is recognized by both
as satisfying their essential needs. Imposition
of the stronger party's will on the weaker party,
regardless of the latter's interest, cannot be
deemed as negotiations.
• The end-product of the negotiations is a matter
of common interest.
Types of Negotiations
Negotiations is bargaining which could be of two
types, distributive and integrative bargaining.
Distributive Bargaining
It is a process in which two parties bargain over
the allocation of a fixed resource between them.
Their interests conflict since the gain to one is a
loss to the other. Bargaining between an employer
and a union over a simple pay increase with no
productivity strings attached or between a buyer
and a seller for the price of an article are examples
14
of this type.
Integrative Bargaining
When the parties find a solution through a joint exer-
cise to a problem which benefits both, integrative
bargaining takes place. The negotiations of the Met-
als and Minerals Trading Corporation (MMTC) for
the sale of iron ore to Japan in 1986 is an example of
integrative bargaining. The market for iron ore is a
highly competitive market. Steel production in
Japan was expected to be lower in 1986 (96 million
tonnes) than it was in 1985 (105 million tonnes). The
European market had already applied a cut on the
prices for procuring ore from Australia and Brazil,
the major producers and suppliers of iron ore. Thus,
before MMTC began negotiations with the Japanese
steel mills, the downward price trend was es-
tablished. MMTC, through its negotiations, did ag-
ree to reduce the price but only against an increased
share of the market when consumption was falling.
Both parties gained: Japan, by reduction in the
prices, and MMTC, by getting a larger market share.
The salient features of these negotiations are given
later while discussing negotiating strategies.
Progressive Commitments
Negotiations are an exercise in progressive commit-
ment. This is the most interesting part of the negoti-
ations. With each move, both parties leave their ini-
tial positions. They cannot retrace their steps. Each
new position becomes the starting point for the
next move. With every move, the area remaining for
further movement is reduced; with every step ta-
ken, the next step becomes tricky and delicate. As
negotiations advance, more caution is needed.
Monitoring and review, therefore, play an im-
portant part. Each move of the other team has to be
thoroughly assessed. Only rarely will a negotiator
be able to increase his area of movement while
withdrawing from a position he had previously
conceded. A step once taken, can be retraced only
at the cost of personal and organizational credibi-
lity. Each move, therefore, should be made after de-
termining the degree to which the company is wil-
ling to commit itself.
Planning Negotiations
Success in negotiations depends primarily on the
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skill and care with which the negotiating plan has
been prepared. Tactics at the negotiating table
help, but they too need to be planned in advance.
Planning should commence before making an offer
or responding to it. Planning has to continue all
the way through the negotiations till a final agree-
ment is reached and recorded.
There are three stages in this activity: plan-
ning, action (which are successive stages of a
single process), and monitoring and review.
(Figure 1)
In the course of a single negotiation, the activity
cycle will be repeated many times. The review and
planning stages may be subjects for formal review
meetings held away from the negotiating arena, or
there can be quick review meetings, each lasting a
few minutes during the adjournments of the
negotiation sessions. Whatever the form, the
purpose of such meetings must be to ensure that
• The timing and extent of movement are in
accordance with the degree to which the
management of the company is willing to be
committed.
• At all stages, the moves have been fully pre-
pared for in advance, the facts established,
and the best strategy selected.
If these cannot be ensured, then the
negotiators should not continue negotiations, for
if they do, they will be driven into making un-
scheduled concessions or creating unwanted prece-
dents. A note of caution is needed here. Adjourn-
ment during the negotiations should be utilized
for discussing and chalking out a strategy for the
immediate future. Frequent adjournments may
give rise to a feeling that the team is not fully pre-
pared or cohesive. The reactions of the other party
on such occasions are important indicators for
further movement.
Vol. 12. No. I, January-March 1987
Selection of Objectives
The starting point for the preparation of any
negotiating plan should be an explicit statement of
the objectives. The objectives should be specific in
terms of price, quantity, payment terms, shipment
schedule, port of arrival and shipment, etc. Select-
ing such objectives calls for detailed and careful
analysis. For instance, when MMTC had to
negotiate for the procurement of copper canalized
for import through MMTC, before commencing
negotiations, it had to answer the following
questions:
• What does it want: a long-term or short-term
contract? Does it want producer-trader mix?
• What should be the basis for pricing? Which
prices should be used: those for the month of
shipment, the previous month, or the follow
ing month?
• What should be the schedule of arrivals in the
country? At which ports should the goods
arrive?
• What is the quantity to be covered by the con
tract? (This had to be decided keeping in view
the government guidelines, indigenous pro
duction, inventories, anticipated demand,
and replenishment imports.)
• What should be the preferred payment terms:
cash against delivery, letter of credit, or credit
terms?
The objectives decided should be analysed
with reference to the factors that will affect their
achievement such as the strength of its own
negotiating position and that of its competitors
and constraints imposed by the government policies
or inter-governmental relations and under-
standing.
Constraints arising out of governmental
policies often reduce negotiating strength, for in-
stance, when negotiating for import from rupee
payment areas. When a country in the rupee pay-
ment area is offering the material, maximum ef-
forts have to be made to procure the material from
it to save free foreign exchange even if a margi-
nally higher price has to be paid because these
countries are to be accorded priority as per the
government policy. The objective to buy at the
most competitive price loses some of its value.
Overall interest of the country becomes paramount.
15
 Thus, establishing clear objectives calls for a
proper definition of one's own needs and the inter-
national market trends. Once clear objectives are
established, a negotiation strategy can be
formulated.
Choice of Negotiating Strategy
The choice of strategy will depend on the business
environment at the time of negotiations, objectives
to be achieved, the nature of the business to be
transacted, and whether negotiations are for
purchase or sale. In-the formulation of the strategy
information is required on:
• the product,
• competitor's activities; their strengths and
weaknesses,
• currency fluctuations,
• future commodity trends,
• whether a terminal market exists for the
commodity,
• activities of the buyer (in case of exports)~and
seller (in case of imports) and trends in their
growth,
• buying/selling styles of the buyer/seller,
• domestic production trends,
• demand pattern and future outlook of the con
suming industry, and
• government policy on duties, substitute pro
ducts, rail freights and port charges and de
velopment of infrastructure facilities like rail
ways, ports, and mines.
The nature of database and market informa-
tion required would depend on the nature of the
subject being negotiated. For instance, the data
components for negotiating the purchase or instal-
lation of a plant would be different from those for a
turnkey project. In import and export of com-
modities the strategy will depend on whether the
contract is for long term, short term, or if it is a
spot transaction.
In addition, the strategy chosen will also de-
pend upon the relative state of the negotiating
party, whether it is dominant, subordinate, or un-
certain, in relation to the other. If one party domi-
nates, the other would be subordinated; if one
party is uncertain, the other party will also be
16
uncertain.
The strategies could be divided broadly into
two categories: Quick Kill and Hold Back.
Quick Kill is the strategy of selecting and
making an offer which the recipient will accept
without further negotiations (or of accepting an
offer without bargaining). For instance, if a party
is dominant, this is the correct strategy to adopt.
Hold Back is the strategy of selecting an offer
which is sufficiently attractive to the recipient for
him not to reject it out of hand, but at the same
time, it contains an adequate margin for
negotiations.
A careful analysis of objectives and strategies
-may enable the parties to convert a distributive
bargaining situation into integrative bargaining as
the case below illustrates.
Export of Iron Ore to Japan
International iron ore trade is around 315 million
tonnes. Japan is the largest importer, accounting
for about 125 million tonnes, closely followed by
western Europe. India is one of the traditional sup-
pliers of iron ore to Japanese steel mills.
Iron ore is the fifth largest foreign exchange
earner for India (about Rs 480 crore in 1985-86).
India has one of the largest resources of iron ore in
the world, amounting to approximately 17.5 bil-
lion tonnes. Domestic consumption is 16 million
tonnes and is expected to increase to about 30 mil-
lion tonnes by the year 2000. Taking into account
the present plans for domestic consumption and
exports, the iron ore resources are expected to last
for about 300-400 years. The Bureau of Industrial
Costs and Prices in its report of 1984, has conc-
luded that iron ore export is profitable to the
nation.
With this background, MMTC has been plan-
ning its iron ore exports. With western European
markets becoming unattractive to India because of
the freight disadvantage, Japan emerges as a large,
natural market. Of the total export of iron ore by
MMTC, Japan takes a little over 50 per cent share.
Even while concentrating on Japan, MMTC has
been steadily developing new markets abroad.
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Aggressive Strategy. Keeping in view the import-
ance of Japan as the main market, MMTC adopted
an aggressive strategy in the last three years.
MMTC's share in the Japanese market in 1983 was
only 6 million tonnes. As against this, during
1986-87 MMTC concluded firm contracts for 13
million tonnes (including 2.5 million tonnes of
Kudremukh concentrates).
The objectives selected by MMTC were to:
• increase its share in the Japanese market,
• obtain a share for Indian vessels in shipping,
and
• push iron ore concentrates produced by Kud
remukh Iron Ore Company which was incur
ring heavy losses and was on the verge of
closure.
Iron ore prices are normally first settled in
Europe by Australia and Brazil, followed by a set-
tlement in Japan. In the past, India used to follow
Australia and Brazil in their negotiations. These
negotiations amounted to accepting the Austra-
lian prices. The tonnage was what was left un-
covered by the Japanese demand for ore after con-
tracts for supplies from Australia and Brazil were
made. Thus India assumed the role of a follower. It
got neither the price advantage nor increase in
quantity. This was partly due to the restrictions
imposed by port and rail capacities, higher freight
costs (because shipment was through small ves-
sels), and delays in decision making on objectives
and strategies.
Between 1980 and 1982, Japan applied a price
cut of about 25 per cent. As a follower and a re-
siduary supplier, India suffered on both counts,
quantity and price. As a result, MMTC's share in
the Japanese market fell from 7.5 million tonnes in
1980-81 to 6 million tonnes in 1983-84.
For 1985-86, MMTC adopted a different
strategy. It decided to:
• wait for the settlement of prices by Australia
and Brazil in Europe,
• accept the increase (decrease) in price
finalized in the European markets as the basis
for working out the possible increase (de
crease) to be negotiated with Japanese steel
mills after the European prices were adjusted
for freight differentials and for differences in
ore quality, and
Vol. 12. No. January-March 1987
• arrive at a range for increase (decrease) and
negotiate with Japan as the first party before
Australian and Brazilian parties commenced
negotiations. Thus MMTC was to assume the
role of a leader rather than a follower to get
more tonnage rather than accept what was left
over.
The negotiations were held as planned. Euro-
pean settlement of prices indicated that a reduc-
tion was inevitable, and MMTC settled on a reduc-
tion within the range derived from Eurpoean
prices. The tonnage was increased from 10.5 mil-
lion tonnes to 13 million tonnes. As a result of its
aggressive strategy, MMTC's share of the Japanese
market increased by more than 100 per cent in a
period of three years from 6 million tonnes in 1983
to 13 million tonnes in 1986.
Long-Term Contracts
A number of factors come into play when the
strategy for long-term contracts is formulated. For
example, if a five-year contract is envisaged for the
export of iron ore, the following assessments will
have to be made.
• The requirement of the buyer in the next five
years.
• The trend of availability of iron ore.
• Competitors' strategies, their position, and
the development of their ports, transporta
tion, and mines.
• Requirement of facilities from the ports, rail
ways, and mines to meet any long-term com
mitment of increased tonnage.
• Government policies regarding development.
• Availability of funds to develop the in
frastructure and mines.
• The cost of these developments and the be
nefits that will accure.
• Feasibility reports comparing the costs and
benefits to derive the internal rates of return
for the projects.
• Plans for refunding the loans raised from out
side sources.
Thus, the national scene in its entirety has to
be studied for long-term trade contracts and
negotiations as they are closely linked with the
17
resources available, their utilization, likely return
on investment, and the additional direct or indirect
employment which they can generate. National
priorities play a key role in such negotiations.
Negotiating Teams
Effective implementation of chosen negotiation
strategies to ensure achievement of the stated ob-
jectives requires a careful choice of a negotiating
team and leader.
The formation of the negotiating team is de-
pendent on the objectives and chosen strategies of
negotiations and people available for implement-
ing the agreement. The following guidelines could
be kept in view while choosing a team.
• The team should not consist of only one
person, nor should it be too large. One person
cannot be expected to present the case, listen
to the other party's arguments, develop
earlier arguments, take notes, and finally,
achieve the most favourable bargain. He must
have support without which effective
negotiating tactics cannot be employed.
• The members selected should form a team.
They must be compatible with each other and
prepared to work together.
• The team should have a status equal to that of
the other party's team.
• Communication is received by the buyer a-
bout the status of the seller's team, and ac
cordingly, it formulates its own team. Status
depends on the size of the contract; in terms
of its quantity as well as value, and the nature
of the contract; whether it is short term or
long term. When long-term contracts are un
der consideration, negotiations are done at a
very senior level.
• Technical experts, however senior they may
be in the organization, should act only as ad
visors. It may be advisable that they remain in
the background for certain negotiation ses
sions since their presence may inhibit the
other party from making commercial deals.
Appointment and Duties of Team Leader
One member must be selected to be the team
18
leader. There can only be one leader for any
negotiating team. His authority must be accepted
by the rest. While every team leader would tailor
his duties and responsibilities according to the
situation, the broad areas of concern are listed
below.
• Preparation of the negotiating plan.
• Ensuring the availability of necessary data,
files, and so on.
• Conducting a briefing meeting before the
negotiation starts. (He must allow adequate
time for such preparation.)
• Ensuring that the necessary authority has
been obtained from company management
and that the individual team members have
authority to act for their departments.
• Selecting negotiating tactics.
• Opening one's own case.
• Responding to the other party's case.
• Calling upon other team members to make
• their individual contributions but personally
• summing up each one.
• Revising the negotiating plan and obtaining
additional authority from the management if
necessary.
• Allowing necessary concessions.
• Making the final bargain.
• Ensuring that a written record of the negotia-
tions is made and agreed upon by the other
party.
• Signing the written record.
• Reporting on the negotiations to the manage-
ment. The report should include a list of
follow-up action points.
Stages of Negotiations
In discharging his responsibilities, the team leader
may find it useful to divide the core of the negotia-
tion process into three stages: the initial or open-
ing stage, the resolution stage, and the final stage.
The objectives and styles to be adopted during
these stages are different as the two parties con-
verge towards a mutually satisfying agreement.
Opening Stage
The objective of the opening stage is to expose the
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whole of the area which the negotiator wishes to
cover and to identify the strength of the case of the
other party, including the degree of its opposition-
to or acceptance of his ideas. Until this is done, no
concession should be made even if one agrees with
the other party's point of view. If it is made, the
team would be deprived of a bargaining point
needed later in the negotiations.
Negotiations with a Written Statement. A written
statement or offer stipulating terms and conditions
may be submitted by either party at the opening
stage. If a written statement or offer is submitted,
the party submitting it is tied down to it. If it takes
up a position inconsistent with what is stated, its
credibility will be at stake. The written statement
becomes a starting point of discussion. The other
party would have framed its strategy based OR the
written statement, whereas the party making a
written statement would have no such basis to
formulate its counter-strategies. If one has a writ-
ten statement available at the start of the
negotiations:
• Each point can be challenged. The party can
be asked the reasons for each of the points,
but there should be no speculation's or
assumptions.
• Justification of the case should be left to the
party which has given a written statement.
Even when facts are known, a good strategy
will be not to admit their knowledge.
• The clarifications given by the other party to
the questions asked on the written statement
should be noted, and the position to be taken
on them reserved.
• When there is a written communication, it is
necessary to understand what it is trying to
convey rather than interpret the message ac
cording to one's understanding.
• If there is a doubt, argument should not be
entered into, the statement should be
checked instead.
• If during discussions the party appears to be
taking a stand contradictory to its written
statement, one's thoughts and feelings should
not be betrayed by showing surprise or de
light. The situation can be used later to ad
vantage in strengthening one's case while of
fering one's terms.
Vol. 12. No. I. January-March 1987
• If the other party has got the facts of one's
case wrong and is proceeding on their basis,
the error must be immediately corrected
rather than merely recorded.
In the same way, if one has submitted a writ-
ten proposal then:
• Answers should be brief, elaborations are
unnecessary.
• Since the proposal is in writing, the strength
of the objective is to be tested. One should not
be drawn into trade-offs before all the points
have been discussed.
Negotiations without Written Proposals. Before
proceeding, all the points to be negotiated must be
identified. The discussion should not concentrate
on some points to the exclusion of others, and
points must be prioritized so that time is ap-
propriately allocated for each of them. The begin-
ning of the discussion should be exploratory, and
attempt should be made to make the other party
comfortable. In the very early stages, one should
not get drawn into definite commitments or take
positions from which it would be difficult to with-
draw later.
The opening phase should preferably be
limited to reviewing the trade between the two
parties. The movement towards identifying the
areas of differences between the two parties
should be gradual. This stage must establish the
means by which the differences would be resol-
ved. The situation at the conclusion of the initial
phase can be categorized into three ways:
• The issues are sufficiently simple, the gaps
have been identified, and the positions of the
parties are specific enough for negotiations to
move straight into the decision phase.
• The issues are complex and/or the differences
wide so that further discussions are required
on specific issues before a final bargaining
session can be held.
• The gap is so wide that no bargain can be-
made. Or, if an agreement is to be reached,
then one—or perhaps both—negotiatior(s)
would have to concede more than he is au
thorized to do. They would have to refer to
the authorities for revised instructions.
Negotiations should produce a good agree-
19
ment, if agreement is possible. They should
improve, or at least not damage, the relationship be-
tween the parties. Building of a mutual relationship
and goodwill should be one of the primary objec-
tives of negotiations. Business flows as a fall-out of
relations built on negotiations.
Resolution Stage
Bridging of the gap between the parties to the
point at which a bargain can be identified may be
necessary in many cases. This is accomplished by:
• setting up a small working group from each
side consisting of one or two experts to deal
with specific issues,
• .asking each to study further and prepare
draft proposals on controversial issues, (the
draft proposals are then exchanged and used
as bases for further discussion by the full
negotiating teams),
• establishing: informal contact between the
chief negotiators of each side or their respec
tive specialists, which could be done on an
exploratory basis, and
• referring; the issue to a third party whose
judgement is respected by both the parties.
In the resolution stage, the team leader must
ensure that his members are fully aware of:
• any issue which is so vital that the company
would prefer "no bargain" to conceding the
present position;
• the relationship between specific issues,
20
particularly if these issues are going to be dis-
cussed by different pairs of specialists; and
• the limits to which the team leader is willing
to be committed on any issue at each stage.
Final Stage
In the last stage of the negotiations the bargain is
identified, made, and recorded. Once the two
parties have agreed, there should be no room for
rethinking. The agreements and minutes of the
negotiation must be clear and not vague since they
form the basis of the contract. One should never
conclude a negotiation without an agreed and
written record of the outcome.
Negotiations must take into account the long-
term relationship to be built up between the indi-
viduals and the companies concerned. The credi-
bility and trust must be established between the
two parties, and at no stage should there be a feel-
ing of mistrust or an impression that the vital facts
are either concealed or incorrectly presented. One
clear advantage of trusting others is that people
who do so are themselves likely to be regarded as
dependable.
International negotiations have further comp-
lexities. Human nature varies. There are language
barriers. People have different values. Life styles
differ, sensitivities differ. Since in the interna-
tional trade the interaction is with members of dif-
ferent communities, knowledge about the other
party's values, beliefs, faith, and styles is essen-
tial. Human relations and understanding of human
beings are also important.
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