This negotiation took place between the Chief Officer of a US based company (BioPharm) and a small company (Seltek). BioPharm is operating in the pharmaceutical industry. It wants to buy or build a plant in the US to manufacture a new product called Depox. The main goal of our group as negotiators is to play the role of BioPharm to buy a plant belonged to Seltek. It is on sale. This plant is the most appropriate choice for BioPharm for a number of reasons, namely to save time and cost of building a new plant because the Seltek’s plant is running and gets the FDA approval. Besides, it also has a highly experienced workforce, which can help us reduce the cost and the time for recruiting and training new employees.
The most important issues to bring to the negotiation table are the time period in which the plant will is available to use, the determination of the current workforce, and the patent of Petrochek that accompanies to the plant. Among these issues, the time is significant because we incur a loss of profit of $1 million every month for waiting the plant to be available. In preparing for this role play, we had analysed the situation of ourselves, assessed the counterpart and developed a set of strategies to deal with this negotiation.
Firstly, in assessing ourselves, we determined that our BATNA associated with $37 million. I comprised the cost of building a new plant ($25 million), loss of profits in 12 months ($12 million) and the cost of 90 day option to buy land ($0.5 million). A non-refundable expense of $10 million on buying the option for the land is considered the sunk cost. The maximum amount of money that our group could spend on this buying intention is $40 million. We decided that our target point would be $16 m...
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...istic and ambitious enough to avoid setting wrong limit and target. A common tactic is that people ask for a price (S1) that is higher than their intended target (Stp). However, making an unreasonable demand is not beneficial at all because “Trades would not take place unless it was advantageous to the parties concerned” (Benjamin Franklin). In fact, it is not a mistake in case the negotiators think that they need to ask for more. To get appropriateness, good reasons are the key for the negotiators to demonstrate to the other side that the price is reasonable and credible. In our negotiation, the other group sets a weird price ($53m). This price was certainly rejected by our group as the buyer. The final price was only $16m. Therefore, asking for something strange is not a wise tactic. It can undermine the reliability of the negotiator and maybe hurt the other side.
Fixed costs of $100,000 plus the variable costs of $60,000 will give us $160,000 in total expenses. The gross ticket sales of $660,000 minus the total expenses of $160,000 give us a yearly net income of $500,000. The new lift has an economic life of 20 years and we would like to make 14% on our investment. The NPV factor of 14% at 20 years is 6.6231. By multiplying our net yearly income or our annuity of $500,000 times the NPV factor of 6.6231 we will have a NPV of $3,311,550.
Deere & Company (Deere) has been experiencing a decrease in its profit margins for one of its aftermarket resale products, specifically the gatherer chain, over the past couple of years. Currently, the cost-price ratio is at 80% compared to last year’s 50%. The purchase cost for the gatherer chain has been steadily increasing, while the aftermarket price has been decreasing. Deere has been budgeting its price to match that of a major competitor, which has been causing the decrease. The company’s main supplier of its gatherer chain is Saunders Manufacturing, with which Deere has established a long term relationship. The owner of Saunders has a reputation of being a tough negotiator, and is someone who is known for not willing to share financial information about the company. However, the U.S. Department of Commerce has provided financial estimates in Saunders’ industry as follows: material spend, 42%; direct labor, 16%; indirect labor, 6%; Overhead, 20%. These percentages are helpful to Deere because they can be used in the negotiation process with Sanders. Since Sanders will not share any specific cost information, Deere is able to use these estimates as a way to justify Sanders reducing its prices. Using these estimates during the negotiations might also incentivize Sanders to provide accurate numbers for its specific manufacturing costs.
Lewicki, J. R., Barry, B., & Saunders, M. D. (2010). Negotiation: Readings, exercises and cases
Star Appliance is looking to expand their product line and is considering three different projects: dishwashers, garbage disposals, and trash compactors. We want to determine which project would be worth doing by determining if they will add value to Star. Thus, the project(s) that will add the most value to Star Appliance will be worth pursuing. The current hurdle rate of 10% should be re-evaluated by finding the weighted average cost of capital (WACC). Then by forecasting the cash flows of each project and discounting them by the WACC to find the net present value, or by solving for the internal rate of return, we should be able to see which projects Star should undertake.
Many situations present the important synchronization of internal versus external negotiations. Many individuals have studied how each side in the negotiation is able to manage the internal opposition to agreements being negotiated. This can also be known as “on the table”, or what exactly is on the line in a heated argument. Each individual involve in an argument has a particular position to be managed, and often times own personal interests are widely expressed. This paper will expand upon the case of Fischer collecting needed funds from Smith with proposals and ideas for a manageable negotiation.
Fisher, Roger, William Ury, and Bruce Patton. Getting to yes: negotiating agreement without giving in. 2nd ed. New York, N.Y.: Penguin Books, 1991. Print.
Lewicki, J. R., Barry, B., & Saunders, M. D. (2011). Essentials of negotiation (5th ed.). New York, NY: McGraw Hill. ISBN-13: 9780073530369
Brubaker B. and Asher M., (2007). A Power Play for Juwan Howard. Lewicki-Barry-Saunders: Negotiation: Readings, Exercises, and Cases, Fifth Edition. The McGraw-Hill Companies, 2007
Negotiations are a part of daily life whether we are aware of them occurring or not. In everything that we do there are preferred end results and the end results are likely to affect more than one person. The goal in this however, is to ensure that all parties are equally benefited from the actions and reactions that occur to create that end result. While some dealings are done in a more subtle manner without a great deal of negotiation per say there are other situations that would warrant more vocalized mutually acceptable compromises. The purpose of this paper will be to effectively explain a situation of which required negotiation on the part of both parties that almost all of us have endured and that would be the process of buying a vehicle.
Lewicki, R. J., Saunders, D. M., & Barry, B. (2010). Negotiation: Readings, exercises, and cases. New York: McGraw-Hill Irwin
In the negotiation for the Federated Science Fund I represented the Stockman Company. The meeting started with a caucus between Turbo and I which set the tone for the negotiation. In the five-minute caucus, we understood that we get the highest payoff by working together and decided to only form a deal with United if it benefited us. This was the main turning point in the negotiation as we returned to United with only high-ball offers: we opened with $220,000 each for Stockman and Turbo, and went only as low as $200,000 each, with $80,000 for United. United presented counter offers throughout, but all of them were below our $200,000 reservation point. Even though United continuously demanded a more inclusive deal, we saw no real benefit and made a deal by splitting $440,000 evenly.
Planning for this negotiation was more difficult than the first negotiation in class. The first negotiation had a point system; therefore I knew what the maximum, minimum and average amount points were. Not only does the Texoil negotiation not have a point system, but there were two people on my side (sellers) and only one on the other side (buyer).
Lewicki, R., Saunders, D.M., Barry B., (2010) Negotiation: Readings, Exercises, and Cases. 6th Ed. McGraw-Hill Irwin. New York, NY
Negotiation has been used as a vital communication tool not only in business but also in social intercourse. It helps people make common agreement and avoid conflict. So we need to use the tactics which we learned from this course and books to do more practice, only in this way we can gain advantages in negotiation.
Lewicki, R. J., Barry, B., & Saunders, D. M. (2007). Essentials of Negotiation. New York: McGraw-Hill/ Irwin.