Procurement Case Studies – 10 Insightful Examples

Negotiation occurs naturally when parties are dealing with one another to form an agreement. It is the first step in developing or creating an agreement that both parties will mutually benefit. However, not all negotiations end up in a good way. Sometimes, a dispute is created when both parties are invested in the negotiation. 

For this article, we will check ten negotiation and procurement case studies that can give you insight into how to negotiate with the other party. We will explore how they tackled the situations in which parties are in dispute. 

After reading this article, you will have an insight into how to negotiate with someone. You will learn how to tackle disputes in a negotiation without harming the other party’s reputation. So without further ado, let us start delving into these ten insightful cases.  

Click on a case to jump straight to it:

  1. Amazing vs Wholefoods
  2. Vaccinate nationalism
  3. Golden donut chain
  4. East China Sea
  5. Apple vs Samsung
  6. RJR Nabisco Tabacco
  7. Microsoft vs Nokia
  8. International Longshore and Warehouse Union
  9. North Korea vs South Korea
  10.  Largest Ponzi Scheme

Example 1 — CASE-STUDY: PRICE NEGOTIATION BETWEEN AMAZON AND WHOLE FOODS

Actual case:

The case study is based on a real-life price negotiation between Amazon.com and Whole Foods Market. 

Whole Foods Market has been declining in performance in the market for the last two years. Due to this, the activist hedge fund that owns almost 9% of the common stock is pressuring the former. 

The activist hedge fund is eyeing the reform of the management style of the executive officers as it asserted that they are the ones responsible for the poor results achieved by the Whole Foods Market. In other words, the CEO of the Whole Foods Market is in trouble of losing his position

In light of the pressure that comes from the activist hedge fund, four different equity firms send separate inquiries to Whole Foods Market. One of the equity firms offered a share cash price of $36.00. This is in line with the historical share price of Whole Foods Market. Private investment in public equity (PIPE) is the shortcut for companies that are in need. 

However, pursuing this will put Whole Foods Market at numerous disadvantages. The result of the buy-out might make shareholders quickly sell their stocks. If a large number of stocks are sold at a lower price, the private equity firm may pressure the company. Additionally, it may claim ownership of the company. 

A few days ago, Amazon’s CEO reached out to Whole Foods Market. It was expected as many news outlets reported that Amazon is interested in acquiring the latter for opportunities in the retail sector. 

The reason why the Whole Foods Market is a good candidate for Amazon to acquire is its attractive value and strategic deal. Amazon expects that it can guarantee a substantial premium. The first signal of commitment by Amazon is the face-to-face meeting with the Whole Foods Market’s CEO. Moreover, Amazon just launched a new service called AmazonFresh that fits perfectly with what Whole Foods Market has developed which is the local-based fresh-goods delivery system. 

Before the prospect of acquiring Whole Foods Market, Amazon has another candidate which is Silvia’s Market. The strategy of this company is focused to become the best supermarket that a middle-class family can trust. However, looking at the collaborative opportunity of the two parties, you will start to have some doubts. This is because Silvia’s Market’s mission is too far away from the core value of Amazon which is Innovation. 

That is why the most attractive option is to choose Whole Foods Market rather than Sylvia’s Market because the synergies between Amazon and Whole Foods Market are the best option. 

One core aspect of Amazon is high-velocity decision-making. However, this strategy does not line up with Whole Foods Market. That is why Whole Foods Market suggested the decisional strategy of disagreeing and committing. 

Most negotiators face challenges within themselves thinking about what to offer, what is the reasonable agreement to accept, and the real interest in the negotiation. For this, you would need high-velocity decision-making because time is important in negotiations and the time you will need to decide is crucial.

Whole Foods Market needs to know that Amazon is not used to long bidding wars. It needs to be interested in Amazon’s proposal exclusively or else Amazon will find another company for opportunities in the retail sector. 

IN the negotiation, Amazon has the upper hand as it has the capability to inflict damage to Whole Foods Market by not pursuing the negotiation. The threats looming the Whole Foods Market will cease if it collaborates with Amazon.

Additionally, Amazon demands secrecy. Any leakage will force Amazon to terminate the negotiation. In bidding situations, secrecy is important. Any leak of confidentiality will have disastrous outcomes regarding the agreements. A non-disclosure will allow Amazon to have steadiness, speed, and information symmetries in the negotiation.  

Final Deal:

The limits of the offering price for each party are laid out in the agreement that makes them able to compute their reservation price (RP).

When Amazon first bid, it evaluated the historical value per share of Whole Foods Market which is about $35.00 per share. At first glance, the $42.00 per share bidding price of Amazon seems too high. However, the calculations of Amazon were totally inclined with the prospect of growth of Whole Foods Market in the case of an acquisition. 

The Whole Foods Market’s attempt to counter-offering the bid with $45.00 per share was just to hold onto the financial resources of Amazon. Although we must take note that Whole Foods Market does not expect Amazon to be willing to bid at a higher price. Simultaneously, Amazon expects Whole Foods Market to accept its high offer. The expectations of both parties have coincided with one another which makes the negotiation reasonable and advantageous for both parties. 

Additionally, a profitable outcome depends on how negotiators deal and discuss during the negotiation process. Being an active listener and discussing issues is pivotal in the negotiation to be successful.  

Finally, after rigorous research and consideration between one another, Whole Foods Market approved the deal with Amazon which acquired the former for $42.00 per share which amounts to $13.7 billion including its debt. 

What can we learn from it?

We learn from this case study that both parties must make an effort to retrieve data from both sides to quantify and evaluate the outcome of every possible solution. 

Another is that a good negotiator can anchor the positioning battle around the other party’s reservation price. It is important to consider the other party’s perspective to take action in their situation rather than our own. 

This will help negotiators to obtain information and interest with the other party while also building trust and a fruitful negotiation process management. 

Lastly, we can learn from their negotiation that a final outcome can be reached once both parties meet on the same ground or terms. Both sides must be convinced that there is no use to retreat when the outcome will be good and that the negotiation is about to end. 

Example 2 – “Vaccine nationalism”: A lose-lose negotiation strategy

Actual case:

The onslaught of the pandemic has made national governments across the world face the challenge of securing enough safe doses of COVID-19 vaccines when it becomes available.

A coordinated global plan is sought to promote fairness and efficiency. However, it may be a little too late, especially for least developed countries. 

This case study highlights the best and worst practices when pursuing limited resources through negotiation. 

In the early days of the COVID-19 pandemic, many drug manufacturers around the world focused on developing vaccines that can provide immunity to the virus without any harmful side effects. 

The governments of developed countries began negotiating with drug manufacturers to ensure that their citizens will get the vaccine first. The competition was on with developed countries while poorer countries were left on the sidelines. 

Many nations bought more than what they needed because they know that only a few vaccines will likely be safe and effective; Vaccine hoarding has now begun. 

As wealthy nations begin to outsmart each other through negotiation because of their limited resources, poor countries are left to wonder how they can protect their citizens. 

The World Health Organization (WHO) came up with a plan that aims to ensure that the vulnerable populations in the world will have access to the COVID-19 vaccine. 

On August 24, 2020, WHO announced that 172  nations that comprise over 70% of the world’s population had made commitments to participate in the COVID-19 Vaccines Global Access (COVAX) facility. 

COVAX is a global initiative to secure two billion doses of safe and effective COVID-19 vaccines from companies such as Pfizer, AstraZeneca, Moderna, etc. for the vulnerable population worldwide. 

At first glance, COVAX seems to be a charitable enterprise founded by wealthy nations. However, this is not the case. Wealthy nations see this opportunity as a win-win situation for them. 

Wealthy nations will be guaranteed access to the world’s largest portfolio of vaccines. Additionally, they will negotiate as part of the 172 nations which will bring the price of the vaccines down. 

A week after the announcement of COVAX, the previous Trump administration said that it would not be joining the global effort. The decision was inclined toward “America First”. 

Kendall Hoyt, a professor from Dartmouth’s Geisel School of medicine, said that backing out or not joining the global effort of COVAX is like passing an insurance policy. Because if none of the vaccine candidates that the United States has proved to be effective, then the nation will be left unprotected. 

Many nations that cannot afford to purchase the vaccines directly have made creative deals with other countries. For example, Pakistan has allowed China to conduct vaccine trials on its citizens in exchange for enough doses to vaccinate its citizens, especially its most vulnerable population.  

Final Deal:

Each country has negotiated with drug manufacturers without thinking of other countries. This is normal, especially when you are procuring scarce resources. However, the problem with the vaccines can be handled better if countries have cooperated with each other instead of negotiating by themselves with drugmakers. 

In order to encourage coordination when allocating scarce resources, countries must plan ahead, show the benefits of cooperation, and take a broader view of the problem. 

When emotions are running high amidst a crisis, it is difficult to keep in check your behavior. If the perception of your country is that the others will hoard, your country will also hoard. The time to negotiate the outlines of an agreement is before the start of a crisis and not in the middle of it. 

Negotiators usually think that when they lose, the other one wins. However, this is far from the truth. Professor Max H. Bazerman from Harvard Business School explains that to move beyond this mindset, one must show what one can gain from cooperating with one another. 

Organizations always feel the special duty to protect and look out for those they represent. This is true but we should also take time to consider how our actions can affect other people. This includes the most vulnerable population in the world. 

Ingroup bias does not stop solutions that can benefit others. As a matter of fact, you can expand it by considering what those outside of your organization can provide that will benefit you too. 

What can we learn from it?

Ecologist Garrett Hardin shares the parable of a group of herdsmen who graze their cattle in the same pasture in his 1968 article.

In the parable, all herdsmen are motivated to increase the size of their respective herds to increase their profits. However, the increase in the number of cattle would mean that the pasture will be destroyed due to overgrazing. 

We can learn from his parable that the best solution to the dilemma of the herdsmen was to negotiate with one another to limit the size of their herds. 

With a finite resource at stake, those that are involved will usually have better long-term outcomes by negotiating to divide the resource equitably rather than trying to claim the biggest piece for themselves. 

If we just imagine that all the leading economies in the world agree to put all their budgets for vaccines in the COVAX or a similar global effort and not sign bilateral deals with pharmaceutical companies, then the efficiency of the coordination will help lower the cost, streamline the production and distribution. 

If countries just broaden their views in negotiating with other countries to strive for coordination, then many lives would have been spared by the pandemic.

Example 3 — Negotiation Case Study: Sincerity’s Power in Negotiation

Actual Case:

The golden donut chain, a Philippine-based company, has faced difficulty in negotiating with its labor union. The donut chain and the labor union have talks regarding their problem. 

When the donut chain’s management team arrived late with the said talks, the labor union stormed out in protest to show great dismay over their delay in the negotiation. 

In order to continue their talks with the labor union, the management team of the donut chain has sent a letter that includes an apology.

However, in the perspective of the labor union, the apology is insufficient to forgive the inconvenience that the donut chain has caused. The labor union refused to meet for talks and continue with their strikes. 

This case study has focused on how to convey your sincerity when apologizing in a negotiation. How can one deliver their sincerest apology that the other party will accept? 

Final Deal:

The case with the golden donut chain and the labor union has ended in a bad way. Due to the lack of concession due to the insufficient apology from the donut chain, the labor Union has brought it into court. 

When both parties brought it to the courts, it took years before a party was compensated. In this case, the labor union has won the case against the donut chain. 

What can we learn from it?

Professor Edward Tomlinson and Professor Roy Lewicki from Carroll and Ohio University have found out that people view apologies to be sincere when it includes internal attributions of harm. This simply means that people will see your apologies as sincere when you own up to your mistakes. 

The credibility of a person has a significant factor in making apologies sincere from the perspective of the other party. 

A study showed that unfulfilled promises, deception, and breaking the trust of the other party are some factors that a negotiator cannot work out in giving their sincerest apology. Moreover, giving assurance even if you cannot attain or fulfill it is counterproductive in a negotiation. 

Many negotiators advance their case by persuading the other party or listening to their side. But sometimes, the greatest thing you can do in a negotiation is to straightforwardly admit your mistake.

Many apologies have failed to achieve their aim—to be forgiven. The delivery of some people is usually the culprit why apologies are not accepted. 

The importance of an apology in a heated argument or negotiation cannot be overstated enough. When the other party thinks that your apology is not sincere enough to make amends, the heat in the negotiation will rise further—leaving both disliking each other. 

The power of apology in negotiation and dispute resolution is significant to fixing relations between parties. It is important to apologize and own up to your mistakes to make the other party feel that you are sincere. 

We must remember that if we cannot fulfill or attain our promise, we must not push it further to the other party. Doing so will only aggravate the emotions of the other party. Because we all know that no one wants to be left hanging—so do not promise during a negotiation that you cannot follow through.  

Example 4 — The East China Sea Dispute

Actual Case: 

In November 2013, China established an air defense zone over the disputed Islands on the East China Sea. This has been seen as an act of aggression in an escalating international dispute.

Japan and China are both claiming the islands. It is known as Senkaku in Japan and Diaoyu in China. According to CNN, the islands are believed to be rich in oil. Additionally, the islands are said to be an advantage for military defense strategically which is why the dispute on the islands is hard to resolve. 

China began patrolling the islands and its plane has come near the international airspace of Japan several times. When this happens, Japan launches its fighter jets in response to the tactics of China. Additionally, Vietnam and the Philippines had made claims to the islands as well. 

The conflict over scarce resources can be tricky and difficult to resolve. In the business field, negotiators that face this conflict are able to avoid the conflict by considering and thinking about every party’s contributions and claims with the resources. However, in our own business negotiation, how can you convince the other parties that concession is possible?

Final Deal:

Japan has bought the disputed islands which has enraged China. Today, the tension has increased and no negotiation has been settled. In 2019, Japan built military bases to keep China from further developing its military capabilities in the region. 

All negotiators must keep in mind that the first thing they need to work out is building trust with the other party.

First, when you are negotiating with a new party or the negotiation with them in the past has not gone as planned, you cannot expect them to trust you right away. 

You must give them time to adjust. Additionally, you must let them tell their concerns, and past grievances, and apologize for any actions that have created mistrust from the other party. 

Second, when negotiators discuss agreements, they must devote a lot of time to asking questions to tackle all the issues circulating the agreement. 

By asking the other party questions regarding their positions in the negotiation, you will know their underlying interest. 

Also, you can share your information to show your own interest in the negotiation. This will allow you to unfold potential tradeoffs that are tolerable to both of you.

Lastly, negotiators must look for solutions that can make the other party whole. This means that you must let the other party know that they can benefit greatly from the negotiation. 

Demanding a unilateral concession with a corresponding benefit to the other party will make the negotiation fail. You cannot expect anyone to compromise without them gaining any benefit from the negotiation. 

What can we learn from it? 

From this case study, we can learn how to negotiate without making the outcome self-serving for any of the parties. 

We all know that during an international negotiation, even if negotiators believe that they sincerely want a fair outcome, their perspective of a fair outcome is likely to be self-serving. This kind of perspective will make the negotiator believe that they must have a greater share of the resource—making them biased on their own terms.

We can learn from here that trust is the foundation of every negotiation. Without trust, it will not be possible to produce a fruitful outcome of the negotiation. 

We must also consider the interest of the other party to make concessions that both of you will benefit from the negotiation. 

If you cannot make the other party realize that they can gain from your negotiation, the outcome of the negotiation will always fail. 

Example 5 — Negotiation in Business: Apple and Samsung’s Dispute Resolution Case Study

Actual Case:

In April of 2011, Apple accused Samsung of copying the look and feel of its products when it launched its Galaxy line of phones. The situation has made Apple file a lawsuit against Samsung. 

However, Samsung has countersued Apple stating that it has not paid royalties for using its wireless transmission technology. After this, the number of disputed patents has gone up to the sky. 

Since then, the two giant tech companies have repeatedly accused one another of copying the appearance and functions of their respective products. 

Both companies have shown willingness for mediation in an effort to avoid going to court. Due to this, they have cut the number of disputed patents by half. However, even if the CEOs of both companies had sat down at a table for mediation, Apple started striking Samsung again.

Apple has filed a motion to bar the sale of one of Samsung’s products on the grounds that the tablet is created to replicate its second-generation Ipad. 

Final Deal:

Both companies have hoped to avoid legal battles. However, the mediation of both companies has ended in an impasse. Neither one wants to back down from their arguments. The lawsuit has been pursued and went to trial twice and Apple has ultimately won more than $409 million. 

What can we learn from it?

We must take note that both parties need to negotiate or mediate a solution before escalating it to the courts. Additionally, both parties must be willing to work together to resolve the problem or deal with the situation. 

In many situations, mediation is viewed as the last step of adjudication rather than the first step in a collaborative effort to work on a solution. 

From the standpoint of preserving the image of the organization, mediation is preferable. Mediation that leads to voluntary agreements will always ensure compliance with whatever the parties have agreed upon

For this case study, we have seen that mediation as a dispute resolution technique is not possible when both parties are grudging participants. In order for mediation to succeed, both must be actively engaged in finding a solution. 

Additionally, Both companies have already invested too much time and resources with all the lawsuits that they have bombarded one another. Due to this, they will feel that it is too late to back down as they have invested too much in it. 

The talks for concession will fail and the aggressiveness from both parties will increase the longer they spend fighting rather than finding a solution.

We can learn that when a business dispute arises, both parties must be willing to negotiate in finding a solution before they take the matters to the courts. Taking it to the courts will end any negotiation for meeting halfway.

Editor's note:

Hi there! My name is Marijn Overvest, I'm the founder of Procurement Tactics.
Want to take your negotiation results to the next level?

Example 6 — Overconfidence In Negotiation

Actual Case:

RJR Nabisco, a tobacco company, is having a bad year with its stock performance. Ross Johnson, the CEO of RJR Nabisco, has thought that it is the best time to negotiate a buyout to increase the shareholder’s value of the stock. 

As a reference, a buyout is a transaction where another party has acquired control of the company. Going back, Ross John and his management group have entered into negotiation with the special committee of the board of directors. 

Since he is the CEO of RJR Nabisco, Ross John is confident that his buyout attempt would be a successful pitch for the board of directors. Unbeknownst to him, his overconfidence has led him to fall into making bad decisions and jumping to the wrong conclusions. 

His first mistake is assuming that due to his position and connection in the company, his buyout pitch will be approved easily. 

His second mistake is assuming that his investment bankers will just simply put the financing in place. Lastly, he expected the board of directors that they would give him the entire power to manage the buyout. 

Along with Shearson Hutton, his main financial partner, they offered an initial buyout price of $75 per share. 

Ross Johnson’s overconfidence in closing the buyout has led him to his impending downfall. He was not paying attention to numerous occurrences that were happening at that time. Instead, he had gone on in his self-interest. 

The board of directors has never discussed or met halfway with Ross Johnson regarding the buyout. Additionally, it never occurred to him that there were other companies who wanted to buy Nabisco. 

Following the series of events, his attitude has led the board of directors to award the buyout bid to an investment bank firm, Kohlberg, Kravis, and Roberts (KRR), for $109 million. 

IN actuality, the bid of Kohlberg, Kravis, and Roberts (KRR) is lower than Johnson’s Bid. The board just wants to get off Ross Johnson from their shoulders even if it means that they would take a loss. Although it is lower, they appreciated the KRR’s negotiation flexibility.  

Solution:

The solution here in this negotiation case study is to avoid overconfidence in negotiation. It is okay to have confidence, but overconfidence will make your judgment hazy.

There is a thin line between confidence and egotism. Unfortunately, in the case study, he becomes so full of himself that he does not consider the factors and the events that are transpiring at that time. 

Being confident is knowing that you have prepared for the negotiation. Additionally, you will know your limit and the do’s and don’ts when negotiating even if you know the other party all too well. 

To reduce your overconfidence, you must first collect information. When the stakes are high, you must put down the mirror to stop admiring yourself. Instead, you must know the information about the other players in the game. The collected information will allow you to use it to your advantage when negotiating. 

Second, you must consider the other party. One of the best ways to correct biases such as overconfidence is to think of reasons why your assumptions are wrong. This will allow you to keep your attitude and your assumptions in check. 

Third, you must ask other people in your organization about your assumptions. Good negotiators base their decisions on the data or information available and not on the information that will just make them feel good. 

Lastly, you must not be afraid to ask. Many people avoid negotiation because it is stressful. In the part of the case study, Ross did not ask questions to the board. Rather, he has carelessly gone on with the buyout. His attitude and assumption about the buyout have failed him ultimately.  

What can we learn from it? 

Negotiation courses usually suggest that business managers should possess a high level of confidence to succeed. 

This is correct as confidence will allow managers to face any challenges in the fast-paced environment that they are in. However, there is a thin line between being confident and overconfident. 

Overconfidence is a cognitive bias that lurks in the background. It is like a trap waiting for you to get caught as you innocently walk. 

Overconfidence can cause you to become indifferent to the available information. Additionally, it will always cause you to miscalculate things by making assumptions. 

We must always assess ourselves if we are already being overconfident because it will always lead us to make wrong decisions and baseless assumptions. 

Example # 7 – The Microsoft-Nokia Deal

Actual Case:

According to the New York Times, on September 3 of 2013, Microsoft announced a deal to acquire Nokia’s handset and services business for $7.3 billion. 

The agreement has marked a bold move to the side of Microsoft to upgrade its game in the handset competition. Additionally, it ends the struggle for Nokia to re-enter the phone market where it once ruled. 

The deal explores the dynamics behind the negotiation that has made Nokia join forces with Microsoft. Both sides had a strong urge to join forces. 

Through the years, the struggle Nokia to re-enter the phone market has lost significant ground to smartphone manufacturers such as Samsung and Apple. It has failed to keep up with the latest innovation in the market which has severely impacted its profitability. 

Nokia’s underperforming handset business has made its focus on telecommunications equipment, mapping business, and patent portfolio. 

Steve Ballmer, the previous CEO of Microsoft, first approached Nokia’s CEO, Stephen Elop, for a possible acquisition during the Mobile World Congress industry conference in Barcelona. 

Their first meeting had started the discreet negotiation between Nokia and Microsoft.

Solution:

Microsoft’s acquisition of Nokia means that it has to know its cultural background before negotiating. 

According to a report from the Program on Negotiation at Harvard Law school, there are four simple rules to handle cultural differences in international negotiations. 

First, you must research your supplier’s culture. In the case of Microsoft, it must know the culture of Nokia to know what are the dos and don’ts in their negotiation. 

Second, you must show respect for cultural differences. Microsoft has to understand the value system of Nokia. 

Third, you must be aware of how others may perceive your culture. Microsoft needs to carefully analyze how its gestures in the negotiation may affect the deal. Being aware of their culture will allow you to be able to adjust your negotiation in order to close the deal. 

Lastly, you must always find ways to bridge the cultural gap. The cultural differences create division between Microsoft and Nokia. If Microsoft knows how to come to terms with Nokia, then the negotiation process will be much easier than being insensitive to each other’s perspectives. 

What can we learn from it? 

Acquiring another company is not an easy process. It entails overcoming its greatest challenge —  cultural barriers in negotiation. 

Merging different cultures can be confusing and a lengthy process. Merging two of the largest companies in the world is difficult as both will have embedded roots in their respective country. 

It makes sense to keep the identity of the organization and borrow from the best of both. It never hurts to create strategies that are based on the expected cultural norms of the acquired company as long as it is a part of the bargaining process which creates valuable, workable, and sustainable agreements. 

Example 8 — After the West Coast Ports Conflict, Damage Remained

Actual Case:

In a crisis negotiation, parties may believe that they face an impossible choice between giving in to the other side’s demands or standing firm with their decision resulting in the worst-case scenario to happen.

This is the case with the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA). The lack of agreement between the two parties quickly became a problem. 

The ILWU-PMA contract expired on July 01, 2014. Since the month of May, the parties have met to negotiate a new agreement regularly. During this period, the ILWU claims that it has consistently come to discuss the agreement in good faith despite the other party’s pressure tactics. 

The spokesperson from the PMA has said that both parties agreed that normal operations at West Coast ports would continue even if no agreements have been reached but the ILWU has backed out of the agreement.

However, after a few months, PMA has accused the ILWU of orchestrating slowdowns at the Pacific Northwest ports of Seattle. It alleges that the slowdown at the port has resulted in the reduction of terminal productivity by 40 to 60%. 

Following these events, the ILWU has issued a statement that according to experts, the cause of the congestion is the result of three factors that are deeply rooted in employer management. 

Solution:

In the case of LIWU and PMA, both have already plunged themselves into crisis negotiations. Fortunately, both parties have already reached a deal in 2015 but still, we cannot change the fact that there are ways that can help the parties avoid the need for crisis negotiation. 

First, to avoid crisis negotiation, you must build trust in its early phase. You should not wait for an urgent deadline to come before you do something. Take advantage of launching negotiations early to establish trust. Furthermore, check on the other party periodically to ensure that you can mutually address any issue before it is too late to be fixed. 

Second, you must be aware of overconfidence. Crisis negotiation often arises because of the overconfidence of one party in the negotiation. To prevent this, you must think of possible scenarios and prepare for each of them accordingly. 

Third, you must avoid extreme demands. A demand increases the tendency to escalate commitment to tough positions. You must resist drawing a line in the sand. 

Lastly, you must seek an outside opinion. Third parties can give a dose of rationality in crisis negotiations. This allows you to have an objective critique of your plans that will result in meeting all the parties’ interests in the negotiation. 

What can we learn from it?

We can learn from here the adage,” prevention is better than cure.” If the parties have discussed their interests early, the congestion will never happen. Partnered with the contentious history of both parties, the crisis negotiation is bound to happen. 

In addition, it is important to build trust in its early phase. This will build a foundation that will allow both parties to resolve any issues that will arise together. 

If there ever have been any heated arguments in the past, it is important to take note that the party who has delayed on their promise apologizes sincerely. 

Also, we must take note that in a negotiation, both parties must see that their interest will be met. There can never be any negotiation if the other one feels that it got the short end of the stick. 

Example 9 — International Negotiations: North and South Korea Talks Collapse

Actual Case:

In June of 2013, North Korea and South Korea were supposed to meet in Seoul to negotiate how they can forge a rapprochement due to their decades of division. 

If this happened, it would be the highest government dialogue between the divided nation in years. 

After this, news came out that South Korea had appointed its vice unification minister as the chief delegate to the negotiation that will occur.

North Korea was offended by this move made by South Korea. It demanded that South Korea send its more senior officials. South Korea defends itself and has responded on the issue that the proposed delegate of North Korea is lower in status than what it has delegated. 

The night before the scheduled talks begin, North Korea accused the South that their response is an insult to them. South Korea is still open to dialogues but it will not back down with its delegation. 

Solution:

When South Korea criticizes North Korea’s argument, it has risked the latter in embarrassment. According to a study by experts, direct threats to self-esteem can trigger anger, embarrassment, and competitive behavior toward the other party. 

We know that some people are slightly more sensitive than others. When slightly-sensitive people negotiate with others, they are twice as likely to declare an impasse even if the agreement will benefit both sides. 

Research has concluded that when slightly-sensitive people are personally invested with the issue that is being negotiated, they are more susceptible to feeling threatened and act competitively.

In the case of South Korea, it has neglected the value of helping North Korea to save face or to protect its image. It is the mistake of South Korea that made the negotiation meet its dead end. 

What can we learn from it? 

Many experts have criticized the government of South Korea for ruining the chance to engage with the North. 

In this case study, we can learn that protecting the image of the other party in the negotiation is important to reach a fruitful discussion. 

Of course, no one wants to be put in a situation where you will be a laughingstock in the eyes of the public, more so when it comes to international negotiation.

Example 10 — Why Ethical People Become Unethical Negotiators

Actual Case:

Bernie Madoff, the person who ran the largest Ponzi scheme in history that is worth about 64.8 Billion dollars, did not pull off the scam by himself. 

To give a brief review of his infamous scheme, we will go back on how he attracted investors by claiming to generate large returns through an investing strategy that is called split-strike conversion which is a legitimate trading strategy. 

However, he deposited the client funds into a single account which he used to pay existing clients who wanted to cash out. The 2008 financial crisis has made him unable to maintain his fraud. On December 10 of 2008, he confessed his fraudulent act to his son who has worked in his firm. 

Long story short—a lot of investors put their trust in him due to his facade of a respectable financier in the industry.  

According to professor Max H. Bazerman, good people that have strong ethical values can trick people without realizing that they are doing it. 

He draws on the psychological study of ethical decision-making and applies it to negotiation. He tells us that negotiators usually act unethically due to the desire of gaining high profits and greed. 

Negotiators may exaggerate things that are far from the real thing which falls into the category that Bazerman calls bounded ethicality. You may ask why it happens. Well, it happens once the negotiation progresses. In the heat of the negotiation, it is where ethical fading begins. 

Negotiators fail to see what they are doing as they are only focused on one thing—high profit. Many people interpret situations that will favor them.

According to Bazerman, deception occurs at the negotiation table, especially during the preparation, participation, and recalling of the negotiation phase. Participation in negotiation is the most susceptible phase where ethics fall. This is due to the fact that negotiators will only want to negotiate what makes sense for them. 

In recollecting or remembering the negotiation that transpired, the negotiator fails to see the other party’s perspective. 

Solution:

We can promote ethics at the negotiation table by encouraging negotiators to slow down and consider important decisions. They should mask the gender and the picture of the applicant to lessen the bias in the process

Negotiators should also know that language matters. Using words like Ultimatum and winning can unintentionally set the negotiation for deception. 

What Can We Learn From It?

We can learn that negotiators that become aware of their susceptibility to deception, will be lessened at the negotiation table. 

Negotiators must be able to reflect and deliberate all the important decisions before dealing with someone at the negotiation table. 

Once you see that something is wrong but you failed to notice due to your focus on the high returns, that is when ethics fade. 

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