MODULE 1

Negotiation is a form of decision making in which two or more parties talk with one another
in an effort to resolve their opposing interests.A negotiation is a strategic discussion that
resolves an issue in a way that both parties find acceptable. In a negotiation, each party tries
to persuade the other to agree with his or her point of view. By negotiating, all involved
parties try to avoid arguing but agree to reach some form of compromise.Negotiations
involve some give and take, which means one party will always come out on top of the
negotiation. The other, though, must concede—even if that concession is nominal.Parties
involved in negotiations can vary. They can include talks between buyers and sellers, an
employer and prospective employee, or between the governments of two or more countries.

Negotiation describes win-win situations (mutually acceptable solutions)

Characteristics of negotiation
Negotiation is one of several mechanisms by which people can resolve conflicts.
Characteristics:

1. There are two or more parties. Negotiation can be between individuals, within groups,
and between groups.
2. There is a conflict of needs and desires between two or more parties
3. The parties negotiate by choice; they think they can get a better deal by negotiating
than by simply accepting what the other side will voluntarily give them or let them
have.
4. We expect a give and take process; both sides will modify their opening position in
order to reach an agreement.
5. The parties prefer to negotiate and search for agreement rather than to fight openly.
Usually people can invent their own solutions for resolving a conflict.
6. Successful negotiation involves the management of tangibles and also the resolution
of intangibles.
o Intangible: underlying psychological motivations that may directly or
indirectly influence the parties during a negotiation.
 Need to win; beat the counter-party, or avoid losing.
 Need to look good, competent or tough.
 Need to defend an important principle or precedent.
 Need to apear fair, honorable, to protect one's reputation
 Need to maintain a good relationship.

IMPORTANCE OF NEGOTIATION

 Good negotiation skills help build relationships because the aim is to foster
goodwill despite difference in interests.
 Good negotiation skills deliver quality solutions that also last longer, instead of
short-term solutions that fail to satisfy either of the parties completely. This is because
it enables you to make concessions such that they may be of little importance to you
but it gives the other party something that means a lot to them.
 Good negotiation skills also help in avoiding future conflicts and problem by
leaving both parties equally satisfied with no barriers to communication for the future.
Hence, they are willing to work together again in the future.
  To Get The Best Out Of A Deal

Negotiation is about winning a deal by getting the value you would have desired. Deals could
involve millions of dollars or other resources like time, influence, and status. Either way, you
deserve value for your time, money, status, and all elements up for grabs. You must be a
good negotiator to get this value.Poor negotiation skills result in low-quality services, poor
remuneration, and status. You might also end up working on a very difficult task without
commensurate pay. Know your worth and the least you can take before going to any
negotiation table.

 To Increase Your Accumulated Success

Life is a series of negotiations. You negotiate relationships, jobs, situations, and even prices.
The resources you use like time, money, emotions, and your overall input should give you the
highest returns. It means that your wealth, intangible, and intangible terms, will depend on
your negotiation skills.Your possession or position in the next year will depend on how well
you can negotiate. The best negotiators understand when to push and the moment to let go.
You must be firm yet not to the point of sending away opponents. A successful negotiator is
one who completes a deal, gets the best out of it, and still, the opponents will return with
more.

 To Save Time

Negotiations are likely to drag for hours without any progress. This approach wastes time and
may damage your relationship with the opponent. You should judge the direction of
negotiation and find the quickest way to end it is a win-win situation. Tiring negotiations
cause associates to reconsider your relationship. You end up losing the associate forever.

 To Raise Your Profile In The Industry

The best negotiators are regarded highly in the industry. They are considered knowledgeable
and respected because you can seal excellent deals. This will raise your profile in the
industry. Respect also comes from the fact that you understand your worth and can defend
it.The best value for you must also mean decent value for your opponent. A good negotiator
protects his tuff while still delivering value to opponents. It is one of the ways to accumulate
crucial wins that will determine your eventual level of success in life.

DUAL CONCERN MODEL

The Dual Concern Model assumes that parties’ preferred method of handling conflict is based
on two underlying dimensions: assertiveness and empathy.  The assertiveness dimension
focuses on the degree to which one is concerned with satisfying one’s own needs and
interests.  Conversely, the empathy (or cooperativeness) dimension focuses on the extent to
which one is concerned with satisfying the needs and interests of the other party.  The
intersection points of these dimensions land us in different conflict styles.  It’s always helpful
not only to realize your own conflict style, but to appreciate the style that your opposite
number is using.

A “competitive” conflict style maximizes assertiveness and minimizes empathy.

Competitive types enjoy negotiation, seek to dominate and control the interaction, and tend to
look at it as a game or a sport with a winner and a loser; they pay less attention to the
relationship underlying the dispute since they are focused on winning and claiming the
biggest piece of the pie. Competitive types approach conflict saying: “This looks like a win-
lose situation, and I want to win.”

An “accommodating” conflict style, in contrast, maximizes empathy and minimizes

assertiveness.  Accommodating types derive satisfaction from meeting the needs of others,
are perceptive and intuitive about emotional states, detect subtle verbal and nonverbal cues,
and tend to have good relationship building skills; they tend to deflect or give up in the face
of conflict out of concern for the relationship, and tend to be vulnerable to competitive types.
Accommodating types tend to believe that “[b]eing agreeable may be more important than
winning.”

An “avoiding” conflict style is both low in assertiveness and low in empathy. Avoiders can
be adept at sidestepping pointless conflict, are able to exercise tact and diplomacy in high-
conflict situations, and can artfully increase their own leverage by waiting for others to make
the first concession.  At the same time, however, they may “leave money on the table” and
miss the opportunities for mutual gain that conflict can present, neglect underlying
relationships, and allow problems to fester by ignoring them.  Avoiding types worry that: “I
don’t want to give in, but I don’t want to talk about it either.”

“Collaborative” types are highly assertive and highly empathetic at the same time, therefore
they are concerned about the underlying relationship and are sensitive to the other person’s
needs while simultaneously being committed to having their own needs met.  Collaborators
often see conflict as a creative opportunity and do not mind investing the time to dig deep and
find a win-win solution, but may be inclined to spend more time or resources than are called
for under the circumstances.  Collaborative types approach conflict saying: “Let’s find a way
to satisfy both our goals.”

Finally, a “compromising” conflict style is intermediate on both the assertiveness and

empathy dimensions.  Compromisers value fairness and expect to engage in some give and
take when bargaining.  A compromise approach allows those in conflict to take a reasonable
stance that often results in an efficient resolution to the conflict.  However, compromisers
sometimes miss opportunities by moving too fast to split the difference, failing to search for
trades and joint gains, and may neglect the relational aspects of the dispute. Compromisers
approach conflict saying: “Let’s meet halfway on this issue.”

STRATEGIES AND TACTICS OF DISTRIBUTIVE BARGAINING

distributive bargaining strategies are used by negotiators when both sides are trying to gain
the majority share of a limited resource. Distributive bargaining strategies are valuable when
negotiations concern a single issue and maintaining personal relationships is not essential.
Distributive bargaining negotiators seek to gain the maximum value for their side by forcing
the other side to accept a deal that is not advantageous to its position.

Goal Strategies

Every action distributive negotiators take is aimed at gaining an advantage over the opponent.
Distributive negotiators only accept settlements that are favorable to their side of an issue.
Successful distributive bargaining negotiators are combative and learn how to intimidate, stall
and conceal information that would be favorable to the other side's argument. Because
distributive bargaining strategies are all aimed at winning an argument, negotiators may even
attempt to ridicule or intimidate an opponent.

Target Strategies

Distributive bargaining is focused on specific targets that must be attained to win the
argument or discussions. Negotiators will set a target point, such as 75 percent of a limited
resource, and will not back down until the objective is met. Part of this strategy involves
setting target points that are expected to be reached throughout the negotiating process.
Negotiators will focus their arguments on reaching each target before allowing the discussion
to move on to the next point.

Reservation Strategies

Reservation strategies involve setting minimal values that negotiators cannot go beyond.
When negotiations approach the reservation point, negotiators will display resistance to
continue further bargaining aimed at changing the reservation point. Examples of a
reservation point are the minimum price one side is willing to pay or accept for a product or
service. Distributive bargainers try to deflect the negotiations in another direction when their
opponent attempts to move the reservation point up or down.

Brinksmanship Strategies

Being able to walk away from negotiations precisely at the most advantageous point is a
fundamental distributive bargaining skill or strategy. When negotiations are seemingly at an
impossible deadlock, skilled negotiators will make the other side believe the discussions are
on the brink of collapse by getting up and acting as though they are walking away from the
table. This alternative strategy has value when one side knows its opponent has no choice but
to accept a deal that may not be advantageous to its position.

Confusion Strategy

Distributive bargaining negotiators may attempt to create confusion by disguising a

negotiator's authority, or making statements that are contradictory or do not seem to apply to
the discussion. Confusion may be created by one side not appearing to take notes, or by
appearing to have a lack of interest in the outcome of the discussion. One valuable strategy in
distributive bargaining is the attempt by one side to portray the issue as not very important or
to suggest the issue is merely an unpleasant distraction.
STRATEGY AND TACTICS OF INTEGRATIVE NEGOTIATION

When a negotiation is integrative, it means that negotiation is based on interest or otherwise

negotiation strategy which lay emphasis on win-win situation. The goal of Integrative
Negotiation is to make the parties’ interest compatible, so that both sides can win. That is,
reach an agreement that satisfies their need. The goals of the parties are integrative.
Negotiations are not mutually exclusive. If one party achieves its goals, the other is not
precluded from achieving its goals as well. The fundamental structure of integrative
negotiation situation is such that, it allows both sides to achieve their objective. 1

While Integrative Negotiation Strategies are preferable, they are not always possible.
Sometimes parties’ interests really are opposed as when both sides want a larger share of
fixed resources.

CHARACTERISTIC OF INTEGRATIVE NEGOTIATION

Ø It focus on commonalties rather than differences
Ø It attempt to address needs and interests, not positions
Ø It commit to meeting the needs of all involved parties
Ø Exchange information and ideas
Ø Invent options for mutual gain
Ø Use objective criteria for standard of performance.

Past experience, based perceptions and truly distributive aspects of bargaining makes it
remarkable that integrative agreements occur at all. But they do, largely because negotiators
work hard to overcome inhibiting factors and search assertively for common ground. Those
wishing to achieve integrative results find that they must manage both the contest and the
process of negotiation in order to gain the cooperation and commitment of all parties. Key
contextual factors include:

- Creating a free flow of information

- Attempting to understand the other negotiator’s real need and objective
- Emphasizing the commonalties between the parties and minimizing the differences
- Searching for solutions that meet the needs and objectives of both sides.

KEY STEPS IN INTEGRATIVE NEGOTIATION PROCESSS

There are four major steps in the Integrative Negotiation Process:

Ø Identify and define the problem
Ø Understand the problem and bring interests and needs to the surface
Ø Generate alternative solution to the problems
Ø Evaluate those alternatives and select among them.

Increasing Value to Buyer

Claiming Value

Creating Value Pareto efficient frontier

Increasing Value to Seller

The first three steps of the Integrative Negotiation process are important for “Creating
Value”. While the fourth step o the Integrative Negotiation Process, the evaluation and
selection of alternatives INVOLVE “CLOUMING Value”. Claiming value involves many of
the distributive bargaining skills discussed earlier.

1. IDENTIFY AND DEFINE THE PROBLEM

The problem identification step is often the most difficult one and it is even more challenging
when several parties are involved. Negotiator need to consider five aspects when identifying
and defining the problems.

§ Define the problem in a way that is mutually acceptable to both sides.

§ State the problem with an eye toward practicality and comprehensiveness
§ State the problem as a goal and identify the obstacles to attaining this goal.
§ Depersonalize the problem
§ Separate the problem definition from the search for solution.

2. UNDERSTAND THE PROBLEM FULLY

Identify interest needs – Many writers have stressed that a key step in achieving an
Integrative Agreement is the ability of the parties to understand and satisfy each others
interest.2 Identifying interest is a critical step in the Integrative Negotiation Process. Interests
are the underlying concerns, need or desires that motivate a negotiator to take a particular
position. However, in as much as satisfaction may be difficult and understanding of the
underlying interest may permit them to invent solutions that meet their interest. More so,
several types of interests may be at stake in a negotiation and that type may be intrinsic (the
parties value it in and of itself) or instrumental (the parties value it because it helps them
derive other outcomes in the futures. 3

TYPES OF INTERESTS

§ Substantive Interests - related to the focal issues under negotiation

§ Process Interests are related to the way a dispute is settled
§ Relationship Interests – indicate that one or both parties value their relationship with each
other and do not want to take actions that will damage it.
§ Finally, Lax and Sebenius point out that “the parties may have interests in principles
concerning what is fair, what is right, what is acceptable, what is ethical, or what has been
done in the past and should be done in the future”.

Some observation on Interests

(a) There is almost always more than one type of interest underlying a negotiation
(b) Parties can have different types of interest at stake
(c) Interest often stem from deeply rooted human needs or values
(d) Interest can change
(e) Surfacing Interests is not always easy or to one’s best advantage
(f) Focusing on interests can be harmful
(g) Generate alternative solutions.

The search for alternative is the creative phase of the Integrative Negotiation. Once the
parties have agreed on a common definition of the problem and understood each others
interests, they need to generate a variety of alternative solution. The objective is to create a
list of options or possible solution to the problem; evaluating and selecting from among those
options will be their task in the final phase. Several techniques have been suggested to help
negotiators generate alternative solutions. These techniques fall into two general categories. 4

i. Redefining the Problem or Problem Set:

This technique call for the parties to define their underlying needs and develop alternatives to
meet them. Five different methods for achieving integrative agreements have been proposed
and are highlighted below: 5

ii. Expand the pier:

This involves beginning negotiations with shortage of resources, this is not possible for both
parties to satisfy their interests or obtain their objectives under current condition. A simple
solution is to add resources – expand the pie.

a. Logroll – for logrolling to be successful, parties are required to find more than one issues
in conflict and to have different priorities for those issues. 6 Logrolling is frequently done by
trial and error as part of the process of experimenting with various packages of offers that
will satisfy everyone involved. However, logrolling may be effective when the parties can
combine two issues, but not when the parties take turns in successive negotiation.

More so, logrolling is not only effective in inventing options but also as a mechanism to
combine options into negotiated packages. Neale and Bazerman identify a variety of
approaches in addition to simply combining several issues into a package. 7 Three of these in
particular, relate to the matters of outcome probabilities, and timing in other words what is to
happen, the likelihood of it happening and when it happens.
b. Exploit differences in risk preference.
c. Exploit differences in time preferences
- Use nonspecific compensation – A third way to generate alternatives is to allow one person
to obtain his objectives and pay off the other person for accommodating his interests. For
non-specific compensation to work, the person doing the compensating needs to know what
is valuable to the other person and how seriously she is inconvenienced.
- Cut the costs for compliance: Through cost cutting, one party achieves her objectives and
the others costs are minimized if she agrees to go along.
- Find a bridge solution: This involve a situation whereby parties invent new options that
mete all their respective needs.

3. GENERATING ALTRNATIVE SOLUTIONS TO THE PROBLEM AS GIVEN:

In addition to the techniques mentioned above, there are several other approaches to
generating alternative solution. These approaches can be used by the negotiators themselves
or by a number of other parties. Several of these approaches are commonly used in small
groups. These include:

§ Brainstorming: In brainstorming, small groups of people work to generate as many possible

solutions to the problem as they can. Someone records; the solutions without comment, as
they are identified participants are urged to be spontaneous, even impractical and not to
censor anyone’s ideas. The success of brainstorming depends on the amount of intellectual
stimulation that occurs as different ideas are generated. The

(a) Avoid judging or evaluating solutions

(b) Separate the people from the problem
(c) Be exhaustive in the brainstorming process
(d) Ask outsider
However, the disadvantage of brainstorming is that it does not solicit the ideas of those who
are present at the negotiation.

4. EVALUATE AND SELECT ALTERNATIVES:

The fourth stage in the Integrated Negotiation Process is to evaluate the alternatives
generated during the previous phase and to select the best ones to implement. When the
challenge is a reasonable, simple one, the evaluation and selection steps may be effectively
combined into a singly step. For those uncomfortable with the Integrative Process, though we
suggest a close adherence to a series of distinct steps: definitions and standards, alternative,
evaluating and selection. The following guidelines should be used in evaluating options and
reaching a consensus. 8

§ Narrow the range of solution options

§ Evaluate solution on the basic of quality, and acceptability
§ Agree to the criteria in advance of evaluating options
§ Be willing to justify personal preferences
§ Be alert to the influence of intangibles in selecting options
§ Use subgroups to evaluate complex options
§ Take time out to cool off
§ Explore different ways to logroll.

FACTORS THAT FACILITATE SUCCESSFUL INTEGRATIVE NEGOTIATION

We have stressed that successful Integrative Negotiation can occur if the parties are
predisposed to finding a mutually acceptable joint solution. Many other factors contribute to a
predisposition toward problem solving and a willingness to work together to find the best
solution. These factors are also the preconditions necessary for more successful integrative
negotiation. These factors includes:-
- some common objective or goal
- faith in one’s problem – solving ability
- a belief in the validity of one’s own position and the other’s perspective
- The motivation and commitment to work together.
- Trust
- Clear and accurate communication

Factors Influencing Negotiations

The actual negotiation process depends on the following factors:

(i) The goals and interests of the parties

(ii) The extent to which the negotiating parties  are interdependent
(iii) The past relations which  exist between the two negotiating parties
(iv) The nature, temperament, and personalities of the parties
(v) The persuasive ability of each party

In addition to the above, P.D. Chaturvedi and Mukesh Chaturvedi in their book, Business
Communications: Concepts, Cases and Applications, have listed out some factors that affect
the outcome of negotiations:

1. Place

The place of meeting for negotiation influences one’s level of confidence. Choosing a place
like your own office has many advantages:

 You are in your area of strength.

 You can get whatever information or material that is needed during the course of the
discussion.
 You can extend social courtesies as a token of goodwill; this would move the
negotiation towards an agreement.

2. Time

 The choice of time for holding discussions should be fixed according to mutual
convenience.
 The time should be adequate for the smooth exchange of ideas through different
stages of negotiation
 Exchanging initial views
 Exploring possible compromise
 Searching for common ground
 Securing agreement
  The time to prepare for negotiation and the time for implementing the agreement
should also be carefully fixed for action before and after the meeting.
 To be effective, negotiations should be timely. This means that the negotiation should
be done before it is too late so as to secure an agreement.

3. Subjective Factors

Often the outcome of the discussion does not depend wholly on the objective factors of logic
and the facts of matter under consideration. The final outcome of the negotiation is also
determined by the subjective factors of influence and persuasion.

Personal relationship: The conduct of negotiation is influenced not only by the real situation
of the matter but also by the relationship between the two persons or parties involved in the
process of discussion.

Fear: Often our bargaining power is conditioned by our fear of the other party’s authority,
power, higher connections and the capacity to harm.

Mutual Obligation: The memories of well done in the past by the other party also act as an
influence on us.

Future Considerations: When personal relationships are at stake we may not wish to win
the argument, especially when good relations between the two parties are likely to be
affected.

Practical Wisdom: Fear of losing good opportunities in the future is a strong factor in our
bargaining and negotiation positions and power.

MODULE 2

NEGOTIATION SUB PROCESSES

 Perception
can be defined as our recognition and interpretation of sensory information.
Perception also includes how we respond to the information. We can think of
perception as a process where we take in sensory information from our environment
and use that information in order to interact with our environment. Perception allows
us to take the sensory information in and make it into something meaningful.
Perception and negotiation

The role of Perception

Negotiators approach each negotiation guided by their perceptions of past situations
and current attitudes and behaviors. Perception is the process by which individuals
connect to their environment. The perception is a “sense – making” process; people
interpret their environment so that they can respond appropriately.

Perceptual distortion in Negotiation

In any given negotiation, the perceiver’s own needs, desires, motivations, and
 personal experiences may create a predisposition about the other party. Such
predispositions are most problematic when they lead to biases and errors in perception
and subsequent communication. There are four major perceptual errors:
· Stereotyping: is a very common distortion of the perceptual process.It occurs when
one individual assigns attributes to another solely on the basis of the other’s
membership in a particular social or demographic group.
· Halo effects: occurs when people generalize about variety of attributes based on the
knowledge of one attibute of an individual.
· Selective perception: occurs when the perceiver singles out the certain information
that supports or reinforces a prior belief, and filters out information that does not
confirm that belief.
· Projection: occurs when people ascribe to others the characteristics or feelings that
they possess themselves.

Framing
A frame is the subjective mechanism through which people evaluate and make sense
out of situations, leading them to pursue or avoid subsequent actions. An important
aspect of framing is the cognitive heuristics approach, which examines the ways in
which negotiators make systematic errors in judgement when they process
information.

Cognitive biases in negotiation

Cognitive biases, tend to impede negotiator performance; they include:
1. Irrational escalation of commitment
2. Mythical fixed–pie beliefs
3. Anchoring and adjustment
4. Framing
5. Availability of information
6. The winner’s curse
7. Overconfidence
8. The law of small numbers
9. Self-serving biases
10. Endownment effect
11. Ignoring others’ cognition
12. Reactive devaluation

Managing misperceptions and cognitive biases in negotiation mis perceptions and

cognitive arise automatically and out of conscious awareness as negotiators gather
and process information. So, the negotiators should be aware of the negative aspects
of these effexts, and to discuss them in a structured manner within their team and with
their counterparts.
 Cognitive and Emotions
Cognition is "the mental action or process of acquiring knowledge and understanding
through thought, experience, and the senses".[1] It encompasses many aspects of
intellectual functions and processes such as attention, the formation of knowledge,
memory and working memory, judgment and evaluation, reasoning and
"computation", problem solving and decision making, comprehension and production
of language. Cognitive processes use existing knowledge and generate new
knowledge.
 Negotiations create both positive and negative emotions.
· Positive emotions generally have positive consequences for negotiations such as, 1)
Positive feeling are more likely to lead the parties toward ibtegrative processes.; 2)
Positive feelings promote persistence; 3) Positive feelings result from fair procedures
during negotiation.
· Emotions can be used strategically as negotiation tactics.
· Negative emotions generally have negative consequences for negotiations such as,
- Negative emotions may lead parties to define the situation as competitive or
distributive.
- Negative emotions may lead parties to escalate the conflict.
- Negative emotions may lead parties to use retaliatory behavior and obtain poorer
outcomes.
- Negative emotions may result from impasse.

Negotiation is defined as a discussion among individuals where everyone contributes equally

to reach to a conclusion benefiting all. Lot of factors influence the process of negotiation, our
emotions being one of the major factors. Our mood decides a lot many things.

If one is in a happy mood, everything seems perfect and good to him. Individuals with a
positive attitude tend to trust each other better. They take keen interest in the negotiation and
actively participate in discussions. They try their level best to come up with a suggestion and
contribute effectively in the discussion. They do not unnecessarily find faults in other people
and always try to take things in a positive way. A happy and a positive person would always
look forward towards a concrete solution which would benefit him as well as the other party
involved. Try to be cheerful always. One looks his best when he smiles.

Anger is one of the most negative emotions acting as a hurdle to an effective negotiation.
A person loses control on his mind and is not in a position to think constructively in a state of
anger. One’s anger must be kept under control for an effective negotiation. Don’t overreact
on petty issues. Anger only leads to conflicts and misunderstandings and does not solve any
problem. An individual should learn to keep a control on his tongue. Don’t say anything
which might hurt the other person. If you are getting angry on someone, it’s always better to
think something pleasant; your anger would soon disappear. Take a pause and think will this
anger benefit you?

One needs to be friendly with the second party. Learn to trust him but don’t get too
involved in friendships. Everything has a limit and same goes with friendship as well. The
other person might expect unnecessary favours from your side.

Negotiations must be with a clear and a tension free mind. A mind clouded with
tensions can’t concentrate on anything and eventually one loses focus. An individual’s
mind is unable to take any decisions and he finds it difficult to develop an interest in the
negotiation. We all know that tensions come uninvited, but it would be wise, if you keep the
tensions on the back burner for some time when you are involved in negotiation.

One should be calm and composed. Never lose your cool and shout on the second
party.Always ensure that you are comfortable with the second party. Don’t take rash
decisions and one should not interfere while the other person is speaking. Always analyze the
situation well and then only come to any conclusion. One should try and adopt a step by step
approach. Don’t expect the result to come out within a second. Take your time to convince
the other party but do not drag the conversation too long. It becomes monotonous and one
tends to lose interest.

Don’t stress yourself at the time of negotiation. Relax. Whatever has to happen will
definitely happen. Taking stress does not help. It’s better to relax and let things happen on
their own. No one will kill you, if you are not able to close the deal, there is always another
opportunity. Unnecessary stress makes you feel nervous and you tend to lose your confidence
as well.

Take interest in the discussion. Don’t develop a laid back attitude. Be active and participate
willingly in the discussion. Don’t sit in the negotiation just because your boss has asked you
to do the same. It’s better to express your opinion at the time of negotiation rather than
cribbing later. If you are not satisfied with anything, express your displeasure. If you feel you
are not prepared for the negotiation; it’s better to postpone it, rather than attending it half-
heartedly and messing up things.

Avoid being clever. Don’t try to fool the other person. One should not fake things or
manipulate the truth. Tampering data would only add to confusions. Be honest in your
dealings. Never underestimate anyone. The second party is also aware of what is happening
around you and is well prepared just like you.

Learn to compromise sometimes. An individual must not be too rigid. At times it’s good to
take the initiative and be the first one to accept things. One should avoid being adamant.

Being positive always helps. Negative emotions only lead to negativity around and trigger
conflicts and misunderstandings among individuals. Fighting till date has never benefited
anyone; it simply adds on to one’s tensions and nullifies the effect of negotiation.

 Communication
Communication is a two way street that requires everyone involved to change messages
between parties . It includes acts that confer knowledge and experiences , give advice and
commands , and ask questions .

What is communicated during negotiation? There are five categories of communication that
take place during negotiations:
1. Offers and counteroffers – Bargainers have definite preferences and exhibit rational
behavior by acting in accordance with those preferences. Acommunicative framework for
negotiation is based on assumptions that 1)the communication of offers is a dynamic
process;2)the offer process is interactive; and 3) various internal and external factors, drive
the interaction and “motivate a bargained to change his or her offer.
2. Information about alternatives – Communication in negotiation is not limited to the
exchange of offers an dcounteroffers; another improtant aspect is how sharing information
with the other party influences the negotiation process.
3. Information about outcomes – negotiators should be careful not to share their outcomes or
even their positive reactions to the outcomes with the other party, especially if they are going
to negotiate with that party again in the future.
4. Social Accounts – there are three important types: 1)explanation of mitigating
circumstances; 2) explanations of exonerating circumstances; reframing explanations.
5. Communication about process – how it is going, or what procedures might be adopted to
improve the situation.

How people communicate in negotiation there are two aspects that related to the “how” of
communication:
1. Use of language - The characteristics of language that communicators use
2. Selections of acommunication chanel for sending and receiving messages.

How to improve communication in negotiation

1. The use of questions – In negotiations, asking good questions enables negotiators to secure
a great deal of information about the other party’s position, supporting arguments, and needs.
Besides, negotiators can use questions to manage difficult or stalled negotiations.
2. Listening – Active listening and reflecting are terms that are commonly used in the helping
professions such as counseling and therapy. There are three major forms of listening: Passive
listening, Acknowledgment, and Active listening.
3. Role reversal –Continually arguing for one particular position in debate leads to a
“blindness of involvement,” or a self-reinforcing cycle of argumentation that prohibits
negotiators from recognizing the possible compatibility between their own position and that
of the other party.

Special communication considerations at the close of negotiations.

As negotiations come to close, negotiaors must attend to two key aspects of communication
and negotiation simultaneously:
1. Avoiding fatal mistakes – achieving closure in negotiation generally concerns making
decisions to accept offers, to compromise priorities, to trade off across issues with the other
party, or some combination of these elements.
2. Achieving closure – negotiators should to know when to shut up, to avoid surrendering
important information needlessly, and to refrain from making “dump remarks” that push a
wavering counterpart way from the agreement he or she is almost ready to endorse.

FINDING AND USING NEGOTATION POWER

Power: The ability of one person or group to cause another person or group to do something
that they otherwise might not have done.

Why Is Power Important to Negotiators?

Seeking power in negotiation arises from one of two perceptions:

1. The negotiator believes he or she currently has less power than the other party.

2. The negotiator believes he or she needs more power than the other party.

A Definition of Power
•      “an actor…has power in a given situation (situational power) to the degree that he can
satisfy the purposes (goals, desires, or wants) that he is attempting to fulfill in that situation”

•      Two perspectives on power:

–    Power used to dominate and control the other– “power over”

–    Power used to work together with the other–“power with” – to level the playing field

Sources of Power –
How People Acquire Power

•      Informational sources of power

•      Personal sources of power

•      Power based on position in an organization

•      Relationship-based sources of power

•      Contextual sources of power

Informational Sources of Power

•      Information is the most common source of power

–    Derived from the negotiator’s ability to assemble and organize data to support his or her
position, arguments, or desired outcomes

–    A tool to challenge the other party’s position or desired outcomes, or to undermine the
effectiveness of the other’s negotiating arguments

Informational Sources of Power

Power Based on Personality

and Individual Differences

•      Personal orientation

•      Cognitive orientation

–   Ideologies about power

•      Motivational orientation

–   Specific motives to use power

•      Disposition and skills

–   Orientation to cooperation/competition

•      Moral orientation

–   Philosophical orientation to power use

Power Based on
Position in an Organization

Two major sources of power in an organization:

•      Legitimate power which is grounded in the title, duties, and responsibilities of a job
description and “level” within an organization hierarchy

•      Power based on the control of resources associated with that position

Power Based on Resource Control

•      People who control resources have the capacity to give them to someone who will do
what they want, and withhold them (or take them away) from someone who doesn’t do what
they want.

Power Based on
Resource Control

•      Some of the most important resources:

–    Money

–    Supplies

–    Human capital

–    Time

–    Equipment

–    Critical services

–    Interpersonal support

Power Based on Relationships

•      Goal interdependence

–    How parties view their goals

•      Referent power

–    Based on an appeal to common experiences, common past, common fate, or membership
in the same groups.
•      Networks

–    Power is derived from whatever flows through that particular location in the structure
(usually information and resources)

Contextual Sources of Power

Power is based in the context, situation or environment in which negotiations take place.

•BATNAs

–    An alternative deal that a negotiator might pursue if she or he does not come to agreement
with the current other party

•Culture

–    Often contains implicit “rules” about use of power

•Agents, constituencies and external audiences

Power Moves

Power moves are designed to bring reluctant bargainers back to the table.

Types of power moves:

–   Incentive

–   Pressure tactics

–   Use of allies

Dealing with Others

Who Have More Power

•   Protect themselves:

–  Never do an all-or-nothing deal

–  Make yourself bigger: forming coalitions

–  Keep in mind the key issues

–  Remember resistance and target point, however, be creative.

•   Cultivate the BATNA

–  Good information is always a source of power

Dealing with Others
Who Have More Power

•      Formulate a “ trip wire alert system”

•      Correct the power imbalance

–   Low power parties taking power

–   High power parties transferring power

–   Third party managing the transfer and balance of power

ETHICS AND NEGOTATION

Ethics are the social standards for what is right or wrong in a particular situation.Ethics
results in guidelines or global legal requirements.

Knowing the norms of ethics and negotiation can be useful whether you’re negotiating for
yourself or on behalf of someone else. Each ethical case you come up against will have its
own twists and nuances, but there a few principles that negotiators should keep in mind while
at the bargaining table.

By asking yourself the following questions, you can illuminate the boundaries between right
and wrong at the negotiation table and in the process discover your own ethical standards:

Principle 1. Reciprocity:

Would I want others to treat me or someone close to me this way?

Principle 2. Publicity:

Would I be comfortable if my actions were fully and fairly described in the newspaper?

Principle 3. Trusted friend:

Would I be comfortable telling my best friend, spouse, or children what I am doing?

Principle 4. Universality:

Would I advise anyone else in my situation to act this way?

Principle 5. Legacy:

Does this action reflect how I want to be known and remembered?

Here are some starting points for thinking about ethical choices you face as a negotiator:
1. Ethical judgments are made in social context:
 The type of work you choose and the type of people you hang out with, will eventually shape
your ethical choices as a negotiator. If you care about having honest and forthright relations
with others, think carefully about what kind of friends, colleagues, clients you want to have in
your life.
2. Even if you choose to lie or be unethical,
  be honest with yourself  --if you are deceptive, you can end up rationalizing your actions to
yourself also. Over time, you may get in the habit of lying or using other tactics that are
unnecessarily risky or harmful.
3. There are many unethical negotiation behaviors besides lying.
  For example: harmful or cruel treatment of others, illegal or unethical threats and coercion,
bribes, kickbacks, corruption, preventing parties from participating or selling them out if they
aren't at the table, demeaning other parties/groups of people, hate-talk, threats or actions of
violence, ruining someone's reputation without cause, etc.
4. Be aware of tradeoffs: Self protection, "bluffing", and distrust also have a cost
  While we worry a lot about the price we might pay for being forthright or for extending a
measure of trust the other party, there is also a price to pay for withholding information,
lying, or being suspicious of them. In addition to the relationship costs of distrust, and the
anger of feeling mistreated, you can incur significant business expenses for protective
measures such as fact-finding, inspections, legal discovery processes, drawing up legal
contracts, keeping detailed records, certification, etc.
5. Relationship is almost always a factor.
  Transactional negotiations lend themselves to unethical behavior but even in short one-time
interactions, relationship matters. You may think you'll never meet someone again but you
never know who your company will hire next year, who might become a potential client, a
political adversary, a useful connection.... And the way you handle negotiations is noticed by
the people around you with whom you may have more signficant relationships.

Legal Standard for Fraud

One starting point for ethical choices is "what's legal"? In the US, fraud is:

1. Knowing
2. Misrepresentation (of)
3. Material
4. Facts
5. On which the victim reasonably relies
6. Resulting in damages.

(from Richard Shell's Bargaining for Advantage)

Of course lawyers can argue for hours about whether an action fits this set of conditions. It's
up to you as a negotiator to choose how close to the cliff edge you want to skate.
Conditions for Deception

If you find yourself in these circumstances, be particularly alert to possible deception:

1. One party has little to lose or much to gain from deception.

2. Information asymmetry is great
3. Hard to tell if there is intent to deceive.
4. Verification is difficult. Parties don't have resources to safeguard against deception.
5. Interaction or interdependence between parties is infrequent.
6. If deception is caught, redress is difficult.
7. Reputation information is unavailable, unreliable, costly.

Protections that Promote Honesty

Mechanisms, formal and informal, that can help build and sustain trust between negotiating
parties:

 Social and institutional support

 Building personal relationships and interdependence
 Laws and regulations
 Independent sources for facts and evaluation
 Institutional sources of reputation information
 3rd parties
 Standardized contract mechanisms and norms
 Affiliations and credentials

RELATIONSHIPS IN NEGOTATION

A relationship in negotiation is a perceived connection that can be psychological,

economic, political, or personal; whatever its basis, wise leaders, like skilled
negotiators, work to foster a strong connection because effective leadership truly
depends on it.

Positive negotiation relationships are important not because they engender warm, fuzzy

feelings, but because they engender trust – a vital means of securing desired actions from
others.

When negotiating in the context of an important relationship, relationship issues could

dramatically change the approach to negotiation strategy and tactics

1. Negotiation within relationships takes place over time.

2. Negotiation is often not a way to discuss an issue, but a way to learn more about the
other party and increase interdependence.
3. Resolution of simple distributive issues has implications for the future.
4. Distributive issues within relationship negotiations can be emotionally hot.
5. Negotiating within relationships may never end.
–Parties may defer negotiations over tough issues in order to start on the right foot.

–Attempting to anticipate the future and negotiate everything up front is often impossible.

–Issues on which parties truly disagree may never go away.

1. In many negotiations, the other person’s behavior is the focal problem.

2. In some negotiations, relationship preservation is the overarching negotiation goal, and
parties may make concessions on substantive issues to preserve or enhance the
relationship.

Key Elements in Managing Negotiations within Relationships

Ÿ   Reputation
–Reputations are perceptual and highly subjective in nature.

–An individual can have a number of different, even conflicting, reputations.

–Reputation is influenced by an individual’s personal characteristics and

accomplishments.
–Reputations develop over time; once developed, they are hard to change.
–Negative reputation is difficult to “repair”.
Ÿ   Trust
–Many people show remarkably high levels of trust when approaching a new
relationship.
–Trust tends to cue cooperative behavior.
–Individual motives shape both trust and expectations of the other’s behavior.
–Trustors, and those trusted, may focus on different things as trust is being guilt.
–The nature of the negotiation task can shape how parties judge the trust.
–Greater expectations of trust between negotiators lead to greater information
sharing,therefore tend to enhance effectiveness in achieving a good outcome.

–Distributive processes may tend to reduce trust while integrative processes tend to increase
trust.

–Trust increases the likelihood that negotiation will proceed on a favorable course over
the life of a negotiation.
–Face-to-face negotiation encourages greater trust development.
Negotiators who are representing others’ interest tend to behave in a less trusting way.
Trust Repair
ž   The more severe the breach of trust, the more difficult it is to repair trust and
reconcile the relationship.
ž   If the parties had a good past relationship, it was easier to repair trust.
ž   The party who breach the trust must apologize as soon as better.
ž   The apology must be sincere enough.
ž   The one who makes the apology must take personal responsibility for having created
the breach.
ž   Apologies were more effective when the trust breach appeared to be an isolated
event rather than habitual and repetitive for the other party.
Ÿ   Justice
Forms of justice:
 1)         Distributive Justice: about the distribution of outcomes
2)         Procedural Justice: about the process of determining outcomes
3)         Interactional Justice: about how parties treat each other in one-to-one
relationship
4)         Systemic Justice: about how organizations appear to treat groups of individuals
and the norms that develop for how they should be treated.
Relationships among Reputation, Trust, and Justice
They are all central to relationship negotiations and feed each other.
l  Relationship Repair
Find out:
Ÿ   What might be causing any present misunderstanding, and what can I do to
understand it better?

What might be causing a lack of trust, and what can I do to begin to repair trust that might
have been broken?

Ÿ   What might be causing one or both of us to feel coerced, and what can I do to put the
focus on persuasion rather than coercion?

Ÿ   What might be causing one or both of us to feel disrespected, and what can I do to
demonstrate acceptance and respect?

Ÿ   What might be causing one or both of us to get upset, and what can I do to balance
emotion and reason?

CULTURE AND NEGOTAION

The effect of culture on negotiation can be categorized into intercultural and cross-cultural
and can be compared along cultural characteristics. Intracultural negotiation refers to
negotiations within one’s own culture. Cross-cultural negotiation concerns negotiation
between individuals from different cultures. 
 The following aspects of differing cultures affect the negotiation process:

Definition of Negotiation – The fundamental definition of negotiation, what is negotiable, and

what occurs when we negotiate can differ greatly across cultures

o Negotiation opportunity – Cross-cultural negotiations will be influenced by the extent

that negotiators in different cultures have fundamental agreement or disagreement about
whether or not the situation is distributive or integrative.
o Selection of negotiators – Different cultures weigh the criteria to select
negotiators differently, leading to varying expectations about what is appropriate in different
types of negotiations.
o Protocol – Cultures differ in the degree to which protocol, or the formality of the
relations between the two negotiating parties, is important.
o Communication – Cultures influence how people communicate, both verbally and
nonverbally, directly and indirectly, and through the body language used. Direct
communication is targeted directly at the other party, such as words spoken or written
communications. Indirect communication uses third parties, situational signals, or other
indirect means of communication. The implications of a method of communication for
negotiation regards the ability to transmit information necessary to reach integrative
agreements and any dispute resolution preferences.
o Time Sensitivity – Other cultures have quite different views about time. The
opportunity for misunderstandings because of different perceptions of time is great during
cross-cultural negotiations.
o Risk propensity – Negotiators in risk-oriented cultures will be more willing to move
early on a deal and will generally take more chances. Those in risk-avoiding cultures are
more likely to seek further information and take a wait-and-see stance.
o Groups versus individuals – The United States is very much an individual-oriented
culture, where being independent and assertive is valued and praised. Group-oriented
cultures, in contrast, favor the superiority of the group and see individual needs as second to
the group’s needs.
o Nature of agreements – Cultural differences in how to close an agreement and what
exactly that agreement means can lead to confusion and misunderstandings.
o Emotionalism – Culture appears to influence the extent to which negotiators display
emotions . These emotions may be used as tactics, or they may be a natural response to
positive and negative circumstances during the negotiation .
o Cognition – What are the effects of culture on negotiator cognition.Researchers are
working to understand how culture influences the way that negotiators process information
during negotiation and how this in turn influences negotiation processes and outcomes.
o Ethics and Tactics – Effects of culture on negotiator ethics and tactics. Researchers
have recently turned their attention to examining ethics and negotiation tactics in cross-
cultural negotiations by exploring the broad question of whether negotiators in different
cultures have the same ethical evaluation of negotiation tactics.
MODULE 3

Meaning of global sourcing

Global sourcing refers to seeking goods and services beyond one’s borders, i.e., from the
global market. It is a procurement strategy in which companies try to find the most cost-
efficient place globally for manufacturing goods. According to purchasing and procurement
professionals, companies should be able to source both inside and outside their national
borders. They are then subsequently better able to compete.
Need and relevance of global sourcing

Global Sourcing is done as part of the buying process for getting materials and products from
other countries outside the home country for availing special benefits. This is due to the fact
that different countries have a different price for the same products and services due to the
extent of development. Another factor that contributes to the lower price will be the
availability of raw materials in the specific country in abundant quantity. The following are
the major reasons for doing global sourcing as part of international business.

Accessibility of Raw Materials

If the raw material available for the manufacturing is available in other countries it is good to
depend on global sourcing for the supply. Possibilities for economical factors also need to be
considered while contacting global sources for the requirement of the materials.

Availability of Cheap Wages

Certain tasks that are cheaper in other countries can be outsourced for economical reasons.
However, the quality of the service offered must be checked for meeting the standards while
choosing global supplies of labor. It should also be ensured that the latest technology is being
used for the manufacturing of goods is being used by the employees in the other country.

Reciprocation of Services
In certain cases, global sourcing can be done for mutually agreeable terms. If the products
being manufactured by your company is being sold to another country which has the required
raw material then both import and export can be done in that country. Better bargaining
power can be utilized in such cases and mutually agreeable terms can be reached.
Overview of the global sourcing market place

the international marketplace

As demand grows internationally for better and more goods and services, competition
becomes fiercer.
Businesses have to keep up with the rapid pace of technology advancement. At the same
time, however, they need to keep costs down and optimize quality.

Additionally, companies strive to improve customer services along the whole value chain.
For most companies today, this is the reality of the international marketplace, i.e.,
international trade. In fact, many business experts say that without global sourcing, most
companies are giving a competitive edge to their rivals.It aims to exploit global efficiencies
such as lower cost skilled labor, cheaper raw materials and other economic factors like tax
breaks and low trade tariffs.

Opening a shoe factory in Thailand or a call center in India are examples of global sourcing.

Drivers of Global outsourcing

1. Market Drivers

When considering the globalization process, the homogenization of customer needs can be

considered on the market side. This frequently means long production runs and centralized
manufacturing and distribution centers in order to generate and benefit from economies of
scale. On the other hand, building dispersed production facilities that have a lot of excess
capacity and take into account a multitude of local securities are no longer required and
instead replaced by fewer, larger and central production plants.Another part of market driver
can be referred to as channel globalization. A typical characteristic of the global customers is
the coordinated or centralized ordering of materials or services.

2. Cost Drivers

The global scale economies are the most apparent of these drivers. Production processes
geographically concentrated for worldwide delivery require sophisticated logistics operations.
Global sourcing, sourcing efficiencies, favorable logistics, differences in country costs
(including exchange rates), high product development costs and fast changing technology are
essential for the supply chain focus. Global sourcing involves identifying, evaluating,
negotiating and configuring supply across several geographies to reduce costs, maximize
performance and lessen risks. Favorable logistics denote transportation,
procurement, distribution, maintenance, warehousing, inventory management and etc. The
increasing productivity due to technological progress of logistics industry has considerable
impact on the capability to globalize operations.

3. Government Drivers

One of important globalization drivers is government regulations. Favorable trade policies,

compatible technical standards, common marketing regulations, government-owned
competitors and customers and host government concerns are a number of governmental
drivers. The compatibility of technical standards is of major importance as well. This applies
to the transparency and compatibility of information systems which are essential components
of every flow of goods.

4. Competitive Drivers

The last group of drivers is called competitive drivers. High exports and imports, competitors
from different continents, interdependency of countries and competitors globalized can be
considered in this category. High exports and imports represent flows of goods across
national borders and thus are of critical importance for global supply chain management. The
interdependencies of country activities reflect the increasing functional integration of
economic activities across national boundaries. In globally configured supply chains, product
components have to cross a multitude of national boundaries before a finished product can be
handed over to the final customer.

Benefits of Global Sourcing

 A reduction in costs, especially labour costs
 Access to fresh research, design, and specialised intellectual capital.
 Availability of new technology and capacity. A number of companies source overseas
because domestic suppliers lack the capacity and they’re not making the necessary
investments to stay competitive.
 Superior quality. Many companies praise the quality of internationally sourced products
compared to domestic products, mainly because of supplier investment in technology and
capacity to attract global business.
 Companies can focus on their core processes and have more capital to invest in
them

Risks of global sourcing

Time Risk: Murphy’s Law can apply. Stuff happens, especially to companies that are
relatively new to global sourcing, but to more experienced companies as well. Elements such
as input/ingredient/equipment lead times, technology development lead times, staffing,
consumer/customer testing, capacity start-up, quality issues, and other factors can all impact
the time equation.

Lead times for investments or developments are often relatively long, and much can change
from project inception to market introduction. Time is money in these situations.

Financial Risk:  Will the anticipated savings from offshoring actually be realized? By not
fully understanding and anticipating total delivered costs (including overhead costs), or
letting potential savings slip away though execution lapses, the answer for too many
companies is often No.
In addition to those financial risks that come from basic operations, global sourcing carries
other financial risks that differ from domestic sourcing. Those include currency fluctuations,
cancellation/delay cost, and supplier solvency/continuity risks.

Supply/Operational Risk:  The basic question: Can the supplier really supply the product(s)
consistently? The challenges range from scale-up problems to quality and service issues when
deliveries of the components/goods begin.

Other factors that impact supply/operational risk include the degree of exclusivity to your
company, whether it is a sole-source/single-plant strategy, volume/supplier capacity
commitments, rights of first refusal for extra capacity, inventory plans (start-up and ongoing),
construction/start-up schedules, and logistics execution.

Regulatory Risk: Regulations can change over time and be harder to meet than expected,
leading to delays. Consider both technical regulations (building permits, IT infrastructure
integration) and trade regulations (duties, dumping, and political embargoes).

Demand/Market Risk:  This risk is tightly aligned with the timing risk. The key question:
Will your product really sell by the time you market it? Competitors do not stand still, nor do
customer or consumer tastes. Will you miss a window of opportunity, or even worse, hit it
and then have it slam shut?

Brand/Environmental Risks: One only has to say “Mattel” to appreciate these risks.
Offshoring can lead to quality problems that if not well managed can damage the company’s
brands, in addition to extracting a huge financial penalty. Activists in labor and
environmental areas can also cause damage to the brand – for example, it turns out that
several leading retailers were selling t-shirts made by a company in China that, in turn, was
using a textile producer elsewhere in China that was polluting local rivers. Activists target the
retailers.

Intellectual Property Risk: A growing concern in China and elsewhere, as proprietary

knowledge regarding design, engineering, materials and other elements can too easily walk
out the door – or companies may even find their own offshore suppliers suddenly competing
with them with knock-off products.

Cost associated with global sourcing decisions

 Internal Expenses
The resource intensity of sourcing in unfamiliar markets with unsophisticated
suppliers can easily erode forecasted savings by 5%.
 Supplier Health
If a supplier goes bankrupt, there go your savings, and then some, when you have to
quickly switch to a (much) higher cost of supply.
 Post-Contract Lull
In order to insure that savings materialize, you need to monitor the contract in the
weeks and months after it is signed. There is a resource cost associated with the
monitoring.
 Duty and Tariff Changes
A change in the duty or tariff rate could dramatically affect the cost of a product being
sourced and the savings that materialize.
  Contract Non-Compliance
If your buyers go maverick, so do you savings.
 True Inventory Costs
Sourcing from an overseas supplier lengthens lead times, which increases safety
stock, and increase time in transit and this significantly increases your average
inventory cost.
 Logistics Volatility
Not only does increased distance increase your freight costs, but so do rapid increases
in freight demand which could cause freight costs to spike.
 Technology
Tracking product flow from global suppliers could require new technology, which
will increase costs as well.
 Quality Breakdowns
If a contract manufacturer’s quality affects delivery of the part or increases the
number of failures, it could wind up costing more than originally forecasted and wipe
out the global sourcing ROI. And if it forces a costly recall, it could wipe out your
business — period.
 Transition Costs
There’s nothing “soft” about this cost which will affect initial ROI.
 Margin/Burden Stacking
If supplier sites compete against each other, that can cost you.
 Lost Tariffs/Taxes
Improper classifications and missed recoveries on VAT add up quickly.
 Packaging
If you’re not careful, your supplier might try to profit off the packaging, taking
another chunk out of your ROI.
 Logistics Costs
It’s not just freight — it’s handling, intermediate storage, and the costs of inevitable
delays.
 Hardware Costs
Some overseas suppliers have difficulty obtaining standard parts at your cost. Failure
to recognize this, and help them obtain parts cost effectively, also costs you money.
 Labor Costs
Failure to understand the labor cost breakdown can cost you.
 Markup vs. Margin
Know the difference — it can be very substantial.
 Burden on High Dollar Parts
Some suppliers may try to burden a $6 part the same as a $6,000! Be careful!

Managerial issues related to global outsourcing decisions

1. Total Landed Cost

It is easy to focus on the lowest unit cost and assume that's the best way to go. However, unit
cost is just one of the pieces completing the total cost equation. Other factors include
transportation, customs and duties, brokerage services (both at origin and destination),
banking fees, financing, and insurance, to name a few

2 Product Quality
The quality of the product has ramifications over and above the unit cost on the balance
sheet. Quality needs to be defined so that both the supplier and buyer understand and are in
agreement. If there are issues with the quality of the product, it is much harder to address
them with a vendor through cultures, time zones, and geographies, than if you are meeting
with a local supplier.

3. Logistics Capability

All the great products and quality will mean nothing if you are unable to get the goods to
market. What type of transportation is available, both domestically and internationally? After
all, you've got to get the goods to an airport or seaport for transport; is there a reliable
transportation infrastructure in the country? Are you relying on a well-fed yak to negotiate a
tricky mountain pass to get to a major port, or is there a sound transportation infrastructure
from the sourcing/manufacturing origin point to the port?

Once the freight is ready for international transport, is there space or lift available? Seasonal
fluctuations and weather should be taken into consideration.

4.Location

at the risk of sounding like a real-estate agent, consider location, location, location. The close
proximity of a country may make it a more attractive source. common cultural differences
and similarities, including language, are known, as many of the populations in the three North
American countries have their origins or families in the neighboring countries.

NAFTA has also done a lot to ease restrictions on trade between the countries.

5. Trade Regulations

There are many governmental regulations that can enhance or detract from the ease of doing
business with a given origin. There are many government sponsored publications, brokers or
consulting organizations available to help educate an importer in the legal requirements of
international trade.

6. Financial Considerations

Any discussion of buying and selling would be incomplete without evaluating the financial
aspect, in addition to looking at the actual cost of goods. What terms can be negotiated? What
is the risk with a given manufacturer?

7. Time to Market/Responsiveness of Supplier

Time to market is becoming an increasingly critical factor in sourcing decisions. If one's

competitor has product available more quickly, the result could be lost market share and,
more importantly, lost revenue. It is important that your supplier be receptive to, and able to
accommodate, change

8.Communication/IT capabilities
How will you know what has shipped? Is your supplier a real-time, Internet-savvy,
information-sharing partner? Or will you be waiting for documents typed on an IBM
Selectric to be pouched over in a DHL envelope? An open line of communication between
the supplier and buyer is imperative. Late, missing or inaccurate documents can cause delays
of customs clearance and, ultimately, delivery to destination.

Inaccurate product information may result in swim shorts going to Seattle in September and
umbrellas to Phoenix, requiring additional freight and time to correct such errors. E-mail and
the Internet, and good old phone calls, can go a long way toward supply chain efficiency.

Module 4

Criteria for selecting locations

Cost

An amount that has to be paid or given up in order to get something. In business, cost is

usually a monetary valuation of (1) effort, (2) material, (3) resources, (4) time and utilities
consumed, (5) risks incurred, and (6) opportunity forgone in production and delivery of a
good or service.

 Labour costs (average wages for skilled workers and managers)

 Infrastructure costs (unit costs for telecom networks, Internet access and
power and office rent)
 Corporate taxes (tax breaks and regulations, and other incentives for local
investment)
Skills

An ability and capacity acquired through deliberate, systematic, and sustained effort to
smoothly and adaptively carryout complex activities or job functions involving ideas
(cognitive skills), things (technical skills), and/or people (interpersonal skills).

 Skill pool (the size of the labour pool with required skills). Required skills
may include technical and business knowledge, management skills, languages and the
ability to learn new concepts and innovate. The scalability of labour resources in the
long term (that is, the ability to supply sufficient labour resources to handle growing
demand) is a major issue to consider when choosing a sourcing destination. An
indication of the scalability of labour resources in a country is the growth in the
number of graduates with desired skills that it is able to demonstrate year to year.
Countries that offer scalability of labour resources are also more likely to keep wages
relatively low due to the constant supply of new graduates.
 Vendor landscape (the size of the local sector providing IT services and
other business functions). For clients looking to outsource IT or business processes, it
is imperative to evaluate the vendor's landscape in terms of the general skills-set (or
capabilities) and competencies of vendors
Environment
The definition of business environment means all of the internal and external factors that
affect how the company functions including employees, customers, management, supply and
demand and business regulations

 Governance support (policy on foreign investment, labour laws,

bureaucratic and regulatory burden, level of corruption)
 Business environment (compatibility with prevailing business culture and
ethics)
 Living environment (overall quality of life, prevalence of HIV infection,
serious crime per capita)
 Accessibility (travel time, flight frequency and time difference)
Quality of infrastructure

Business infrastructure are the basic facilities, structures and services upon which the rest
of a business is built. It is common to think of infrastructure as physical things but basic
software and services can also be considered infrastructure.

 Telecommunications and IT (that is, network downtime, speed of service

restoration and connectivity)
 Real estate (both the availability and the quality)
 Transportation (the scale and quality of road and rail networks)
 Power (the reliability of power supply)
Risk profile

A risk profile is a quantitative analysis of the types of threats an organization, asset, project
or individual faces. The goal of a risk profile is to provide a non-subjective understanding
of risk by assigning numerical values to variables representing different types of threats and
the danger they pose.

 Security issues (that is, risks to personal security and property-related

issues such as fraud, crime and terrorism)
 Disruptive events (including the risk of a labour uprising, political unrest
and natural disasters)
 Regulatory risks (the stability, fairness and efficiency of the legal
framework)
 Macroeconomic risks (such as cost inflation, currency fluctuation and
capital freedom)
 Intellectual property (IP) risk (strength of the data and IP protection
regime)
Market potential

Search Results
Market potential is the entire size of the market for a product at a specific time. It
represents the upper limits of the market for a product. Market potential is usually
measured either by sales value or sales volume.
 Attractiveness of the local market (that is, the current gross domestic
product (GDP) and GDP growth rate)
 Access to nearby markets (both in the host country and in the adjacent
region)

MODULE 5
Types of outsourcing

MODULE 6

AI in Outsourcing

 Enhanced automation
The ability to have actions executed immediately is an important aspect of
staying competitive in the business world. AI technology may augment the
speed of executable tasks to enhance automation. Time is a constraint that
technology leaders must consider when creating enterprise strategies for
IT operations. The time it takes for outsourced IT vendors to respond to an
emergency, such as an enterprise-wide system failure, can adversely
impact production and, essentially, the bottom line of the enterprise. AI’s
machine learning and deep learning can empower automation, letting these
software applications learn rather than simply follow a programmed
command. Understanding and decision-making may be IT functions that
can be outsourced to let employees work on higher-level projects or tasks.
 More control
The adoption of AI technology in enterprise has the potential to shift
control from the supplier to enterprise buyers. For example, technology
leaders can assess costs for outsourcing IT functions versus keeping it in-
house if purchasing AI technology. Additionally, enterprise buyers may
decide to license the technology rather than use offshore human resources.
This action allows enterprises to gain control over processes and security
to prevent silos that can otherwise delay operations.
 Reduced costs
AI technology stands to reduce IT outsourcing expenses because of its
agility and because it reliably processes, analyzes and comprehends
information. Additionally, common hidden costs inherent with outsourcing
an IT department, such as the time needed for on-the-job training, are
reduced or eliminated. These hidden costs can be reduced thanks to AI
technology’s ability to train itself on tasks through machine learning
techniques such as deep learning. AI technology stands to reduce IT
outsourcing expenses because of its agility and because it reliably
processes, analyzes and comprehends information. Additionally, common
hidden costs inherent with outsourcing an IT department, such as the time
needed for on-the-job training, are reduced or eliminated. These hidden
costs can be reduced thanks to AI technology’s ability to train itself on
tasks through machine learning techniques such as deep learning.
 Improved contracts and negotiable terms
 AI technology opens up new opportunities for IT outsourcing that can
affect current service terms and service-level agreements. It will also
impact how IT executives negotiate contract terms. Cost will not be a
sustainable competitive advantage as the combination of time, advances in
technology and increased demand meet to create economies of scale,
giving more flexibility in price and terms to an enterprise buyer.
However, CIOs and technology leaders should anticipate the impact AI
will have on contracts regarding ownership of the technology because it
has the potential to bind an enterprise to a specific supplier. It will be
important to negotiate terms involving ownership of the AI technology if
the enterprise’s strategy is to bring the technology back in-house.
 Increased security
One important factor native to outsourcing IT is the increased risk of data
security breaches and compromised private information. Employees who
may not be properly trained or have malicious intent can take advantage of
the vulnerabilities within your enterprise infrastructure, and outsourced
employees may not prioritize sensitive data. AI technology offers the
possibility of bringing offshore services back on-shore or even in-house as
a way of reducing these risks.

E- Procurement
e-Procurement or electronic procurement refers to the process of purchase and sale of
goods or services through electronic methods, primarily the Internet. It is an
alternative to the manual process of procurement, and is certainly superior to the latter
in many respects. Organizations are increasingly opting for e-Procurement platforms,
realizing its potential to curb irregularities and unnecessary costs. e-Procurement
consists of Indent Management, RFX creation, e-Tendering, e-Auctioning, Vendor
Management and Contract Management among other processes. An e-Procurement
solution can automate the whole process, thus saving the organizations from the
hassle and irregularities involved in manual procurement. e-Procurement portals are
designed for users to register as a buyer or supplier, submit all the relevant documents
online and take part in the tendering process that follows.
E-Procurement is also called supplier exchange .

Components of an e-Procurement suite

The e-Procurement suites may differ on the basis of what they offer to the user. The main
components of a typical e-Procurement suite are the follows-
1. Indent Management: This process is basically the first step involved in e-tendering. Indent
creation or the creation of requisition is undertaken, followed by its evaluation and approval.
2. RFX Creation: RFX is a catch-all term for terms like Request For Proposal (RFP), Request
For Information (RFI), Request For Bids (RFB) and Request For Quotes (RFQ). This step
involves the creation of RFX and formulation of technical and commercial qualification
criteria. The RFX is then published and the prospective bidders are invited.
3. Bid Submission: The interested bidders then register themselves on the e-Procurement
portal and submit their bids which would give detailed account of their technical as well as
commercial qualifications.
4. Bid Opening and Evaluation: Once the bids are successfully submitted, they are evaluated
and the vendors are scrutinized. Thereafter, the shortlisted vendors are invited for e-Auction.
5. e-Auction: The e-Auction is then carried out for procuring the goods or services under
consideration. E-Auction too can be of several types depending on the specific requirements.
6. Vendor Selection and Finalization: After the e-Auction, according to the requirement, one
or more vendors are finalized and the Purchase Order issued. This step concludes the
procurement process.
7. Vendor and Contract Management: This additional module is included to manage and
catalog the vendors and to evaluate their services.
Benefits

1. e-Procurement leads to considerable reduction in the time involved in the procurement

process.
2. A great deal of transparency results due to a successful implementation of such platform.
3. An e-Procurement platform can drastically increase the market reach for both buyers as
well as suppliers.
4. e-Procurement can tackle the malpractice of cartel formation to a great extent.
5. It ensure safety of all the information being provided by users. This data safety is at times
compromised in the manual procurement process.
6. Lastly, as e-Procurement platform reduces and simplifies the steps involved, it also leads to
a significant cost cutting.

Risks Web-based catalog procurement systems presents risks that should be identified and
addressed. Among them are: Process Risk - Operations Human resources risk if the personnel
do not possess the requisite knowledge, skills or experience to manage the new process;
Sourcing risk because there will be fewer alternative sources, thus increasing the risk of
shortages; and Business interruption risk due to the dependence on a smaller number of
suppliers who may be exposed to significant risks of their own. Process Risk - Empowerment
Leadership risk if purchasing managers do not have the vision and management to properly
oversee the new business process; Authority/limit risk if management has not clearly defined
the spending levels of end users previously managed by the purchasing department; and
Change readiness risk if the organization does not assimilate large-scale change easily.
Process Risk - Information Technology Relevance risk because the integration required may
not deliver the "right data/information to the right person/process/system at the right time to
allow the right action to be taken"; Integrity risk in the areas of user interface, processing,
error processing, and interfaces; Access risk because of the dramatic increase in end users not
normally accessing purchasing information; Availability risk because of the dependence on
the Internet for supplier linkage and processing risk at the supplier site; and Infrastructure risk
related to application system deployment, logical security, database management, and
business/data center recovery. Process Risk - Integrity Management fraud risk associated
with a smaller set of suppliers who have "exclusive" relationship; Employee fraud risk as
purchasing oversight is minimized regarding the transactions; and Unauthorized use risk if
the internal and external controls are not sufficient. Process Risk - Financial Price risk if there
is not sufficient oversight to the prices contained in the catalogs; Liquidity risk if there are
insufficient controls related to cash flow risk and concentration risk; Settlement risk if there
are quality or delivery issues with a reduced number of suppliers; and Market risk if the
suppliers are also supplying similar products to the competition. Information for Decision
Making Risk Performance measurement risk if the new metrics are not informative,
understandable, believable, actionable, or cannot initiate change; Accounting information risk
if the procurement system is not adequately integrated with financial processes and systems;
and Organization structure risk if the purchasing department is not utilized to provide more
value added services.

Tools and applications

Electronic systems to support traditional procurement

These include mainframes and personal computers (PC), Electronic Data Interchange (EDI)
and Enterprise Resource Planning (ERP).
EDI (Electronic Data Interchange)
EDI is an application whereby electronic messages can be exchanged between computer
programs of two separate organizations.  Some features of EDI include:
 Messages are exchanged in groups, known as batches.
 Messages can automatically be sent, transmitted and stored between computers
without retyping or keying data.
 EDI has to be implemented by each pair of organizations (sender and receiver) who
wish to use it. This means that the implementation costs of EDI are relatively high.
 EDI is mostly used where the messages exchanged concern such matters as orders,
confirmations, transport information and invoicing.
 EDI traditionally runs on so-called, “Value Added Networks”, which are closed
networks (unlike open networks like the Internet).
ERP systems
ERP systems are management information systems that integrate and automate many of the
business practices associated with the operations of a company or organization. ERP systems
typically handle the manufacturing, logistics, distribution, inventory, shipping, invoicing, and
accounting for a company or organization. ERPs aid in the control of many business
activities, like sales, delivery, billing, production, procurement, inventory management, and
human resources management.
Internet as a support or complement to traditional procurement
There are various types of internet based applications that serve different purposes. Some
well-known applications that use the internet are described below:
Electronic mail (e-mail)
Email is an Internet based application through which electronic messages are exchanged
between people.
Web enabled EDI
web enabled Edi is like traditional EDI (see above), but run on the Internet; also known as
EDI-INT.
Extensible Markup Language (XML)
XML is used to allow for the easy interchange of documents on the World Wide Web.
World Wide Web (WWW)
The WWW is a major service on the Internet. The World Wide Web is made up of "Web
servers" that store and disseminate "Web pages," which are "rich" documents that contain
text, graphics, animations and videos to anyone with an Internet connection.
internet tools and platforms that replace traditional procurement
Some internet tools and platforms that replace traditional procurement include:
1E-sourcing
E-sourcing supports the specification phase; it can be used to pre-qualify suppliers and also
identifies suppliers that can be used in the selection phase. For suppliers the benefit is:
“marketing” and for the buying organizations the benefit is facilitating the sourcing of
suppliers. The UN Global Market Place (UNGM www.ungm.org) is an example of an E-
sourcing tool.
2E-tendering
E-tendering supports the selection stage and acts as a communication platform between the
procuring organization and suppliers. It covers the complete tendering process from REOI via
ITB/RFP to contracting, usually including support for the analysis and assessment activities;
it does not include closing the deal with a supplier but facilitates a large part of the tactical
procurement process. It results in equal treatment of suppliers; transparent selection process;
reduction in (legal) errors; clear audit trial; more efficiency in the tactical procurement
process and improved time management of tendering procedures. Some UN organizations
such as UNDP-IAPSO and UNHCR have used E-tendering in the formulation of long-term
agreements for vehicles, tents, motorcycles and pharmaceuticals through an in-house
developed tendering portal.
3E-auctioning
E-auctioning supports the contract stage. It enables the closing of a deal with a supplier if
parties agree on price. They operate with an upward or downward price mechanism e.g. e-
auctioning with upward price mechanism for the selling organization and e-reverse
auctioning with a downward price mechanism for the buying organization. They can be made
in accordance with traditional ITB/RFP. They are internet based using open or closed
systems.
4E-ordering and web-based ERP
E-ordering and web-based ERP is the process of creating and approving procurement
requisitions, placing purchase orders, as well as receiving goods and services ordered, by
using software systems based on the Internet.
5E-informing
E-informing is not directly associated with a stage in the procurement process; it is the
process of gathering and distributing procurement information both from and to internal and
external parties using Internet technology.

E Negotiation
E-Negotiation is the process of conducting negotiations between business partners using
electronic means. The interest in e-negotiation is motivated by its potential to provide business
partners with more efficient processes, enabling them to draft better contracts in less time. Most
of today’s e-marketplaces support some form of e-negotiation. Numerous attempts are being
made to design e-marketplaces that support more than one negotiation protocol. The main
problem in designing these e-marketplaces is the lack of a systematic approach. In our view, the
e-marketplace enforces negotiation protocols and therefore should make them available for
consultation by humans and for automation by software agents. Separating the protocols from
the e-negotiation media is a step towards a configurable e-marketplace. In this paper we address
the requirements for modeling e-negotiation protocols. Then we adopt the Statechart formalism
as a modeling language and provide descriptions of five commonly used e-negotiation protocols.

Social media collaboration, mobility, cloud computing/storage,

and Big Data/analytics
Technologies such as Social networking, mobile, analytics and cloud computing have been
shaking the IT industry for past several years. But in last couple of years, this combination of
technologies together is transforming the business model. IDC calls this combination "Third
Platform", Gartner calls it "Nexus of Forces" and Cognizant calls it "SMAC "- Social,
Mobile, Analytics and Cloud. This paper uses the word SMAC to represent this technology
stack.
SMAC is disrupting the world. No CIO discussion is complete without considering impact of
SMAC on business. Faster than ever improvements in this technology stack, are adding value
to whole gamut of businesses. Advantages are many and seem very fascinating, with
promises being made as large as - predicting future (Analytics), available anywhere (Mobile),
everything so simple and networked (Social), and at a fraction of price (Cloud). This new
technology stack has started transforming tomorrow's enterprise and has impact on each of
the areas of an enterprise, hence subsequently on all the software applications used within
and by the organizations.
Social
Social's dictionary meanings are community, group, shared, get-together, collective
existence, networking etc. So being social means interacting with others and eventually with
whole universe. There are multiple mediums for this interactions and the medium in question
here is Internet. In pre-internet days, the medium of interaction was face-to-face, newspapers,
letters and phones. With advent of internet, web based networking services started connecting
people, and today facebook has 1.3 billion active users, which is same as entire population of
world's most populous country- China. Ironically, facebook is blocked in China. 73% of adult
Americans use one or other social networking sites. 25% people on this planet use social
media, and this number is increasing very rapidly. In emerging economies, this growth is
more than 100% year-on-year. So, social media is touching life of so many people, which no
other medium has done in past, at such scale.
Mobile
Today almost every information and transaction is available on mobile devices and people
use those to be productive. Even, in remote villages in emerging economies, where there is no
internet access, people carry basic mobile phones with black and white screens for minimal
transactions like booking train tickets, money transfers, payments etc. In poor countries,
many people across a village share a mobile phone to be connected. So, almost everybody on
this earth is connected through mobile phones.
Analytics
Analytics means scientific and systematic analysis of data. In today's digitally connected
world, there is data everywhere resulting into an information overload, which is not readily
usable for productive purposes like decision making. Analytics makes extensive use of
mathematics and statistics to convert raw data into a meaningful data which can augment
decision making process. There are pre-packaged software applications which help
companies in analyzing their data and give them meaningful insight into their data - examples
are customers demand trends, financial analysis, sales optimization etc. Amalgamation of
multiple analytics techniques and methodologies like statistics, neural networks, weibull
analysis etc. is called Advanced Analytics. Based on these various techniques, Advanced
Analytics helps in anticipating future outcomes - a typical example could be to predict a
machine failure and proactively notify its owner to avoid downtime. As analytics claims to
predict future, it is so fascinating.
Cloud
Simple meaning of Cloud in context of SMAC is using software applications as a service
without buying them. Service is offered remotely through internet and a usage charge is paid
to seller. The point here is that user need not buy and install hardware, software, network and
infrastructure and start using the software without any capital expenditure, and pay as per use.
Cloud services providers use economies of scale and tries to make use of every bit of
computing space to provide cost effective services to users. So a cloud based offering
provides services from anywhere using any device at a much lower usage cost. It further
claims to offer multiple other benefits like usage of latest products/technologies, reduced
internal IT staff, better opportunities for innovation while day-to-day operations being shifted
to cloud service provider. So, getting software services at lower price without making a
capital investment makes cloud a lucrative option for organizations to consider. Also, cloud is
just not about the cheaper cost, it is also about agility, innovation, access to latest technology,
on-demand service and scalability.
How technologies within SMAC stack work together
So, such disruptive technology trends - where Social media touches life of 25% people on
this planet, count of mobile phones becoming more than the world's population, software
claims predicting future, and cloud offers everything latest at reduced cost - cannot be missed
by business or IT leaders, and are on everybody's radar. The impact of these individual
technologies on business is significant. If considered together, this stack brings amplification
capabilities to transform the business model itself.
In today's digitally connected world, no product or offering is complete without having a
touch of at-least one technology from SMAC stack. For e.g. Traditional ERP systems are
offering look and feel of their front-end applications like that of social media. Almost every
company needs applications available on mobile devices. New application purchases are
being evaluated to be cloud deployable. Big data and advanced analytics are buzz words
today in enterprises.
Going forward, SMAC stack would be foundation of enterprise applications and would
impact all applications used by organizations. Today, it is difficult to visualize an ERP
product without having mobile capabilities or not available on cloud. Every corporate today
has some way of social networking tools among its employees to make them more productive
and these tools are made accessible on mobile devices. Best example can be seen in telecom
services - communication service providers can offer personalize services to customers based
on their usage pattern, where customers also earn some credit points stored in a cloud based
application accessible from anywhere.
Social Media, mobility and cloud computing are touching lives of billions of people every
day on a continuous basis. Humongous volume of data generated from this usage, if
effectively analyzed, can lead to specialized and personalized offerings for people.
Every application and every human being is, or will be touched by, at-least one technology of
SMAC stack. Business leaders need to be cautious of advancement in this stack and should
not miss the bandwagon, as this technology stack in coming years will transform the way
they run their businesses. So, this stack has high potential to disrupt their IT landscape. They
should carefully evaluate and analyze the impact from each of these technologies on their
software applications and adopt accordingly. However, there is no immediate adoption need
to act in haste, but a careful impact analysis is required. Especially for enterprise applications,
the impact of this entire stack is not high - only Cloud and Analytics will have some impact.