Offshore Negotiations Basics: Rules of Haggling

hugglingFirst, let me repeat something I wrote in an earlier post: negotiation is a complex skill if not art. If negotiations are not particular your cup of tea you may consider involving professionals, in particular those who have experience negotiating offshore contracts. At least you owe it to yourself to go through some serious reading on the topic prior to diving into the deal making. Let me recommend a few classic books on the subject: Secrets of Power Negotiatingby Roger Dawson, You Can Negotiate Anything by Herb Cohen, and Getting Past No: Negotiating with Difficult People by William Ury.

Through the years in IT leadership position I negotiated many contracts with service providers, various vendors, consultants, employees and offshore companies. That doesn’t make me professional, so do take my advice with a grain of salt. More so, every negotiation is different in so many aspects that what worked in one could absolutely fail you in another.

Anyway, as introduction to offshore contract negotiations I am going to cover ten golden rules of haggling. You might ask: what does it have to do with professional contract negotiations? Well, barraging is the mother of all negotiations and more so there is a high chance that you will be negotiating with a vendor who’s coming from a culture with deep roots in a market style haggling.

Here they are the Ten Golden Rules:

  1. You must be ready to walk away. If you are attached to the goals of negotiation, if you can not walk away, you ability to get what you want is significantly impaired. Using Herb Cohen’s advice from You Can Negotiate Anything – you should care, but not that much. I strongly recommend reading Herb’s book or even better get it in audio version – he’s a great story teller and covers many of these rules at great depth.
  2. Look / act interested but never desperate. As a matter of fact if you feel / are desperate you should get someone else to negotiate for you. Acting is an extension of the rule number one. Basically you need to show that “you care, but not that much” and are ready to walk away.
  3. Keep your eyes on the ball. Negotiation is emotional process and in order to be successful you should never forget what the process is all about, what the goals and the rules are.
  4. Don’t try impress on the other side. That’s to some degree an extension of the rule 3. Your image is not the subject of the negotiations so just keep your eyes on the ball.
  5. Always ask for more than you expect. First, you might just get it. Even more important is that higher demands create negotiation space for both partners, and allow your opponent to save face even if they make bigger concessions.
  6. Gasp and act shocked (flinch) at the other side first proposal. This simple technique does a few things: it sets the pace of negotiation, puts you in the right set of mind, and helps to push your opponent to make the first concession.
  7. Never say yes to the first offer. By saying yes to the first offer you are not only setting yourself up for missing on a possibly huge opportunity, you are leaving your opponent with buyer / seller remorse.
  8. Never go down on price or make a concession first. Get the other side to step forward. Like many of the golden rules that one is easier said that done so if you are stuck just remember the rule one and make it clear that you are ready to walk away.
  9. Never make a concession without asking for something in return. Breaking this rule will put you up on a slippery slope of chain concessions.
  10. Always congratulate the other side. That is more than just being polite, it leaves the best path for the future negotiations.

Now let me give you the unofficial 11th rule: Sometimes the rules meant to be broken or Know where to stop. In many situations following golden rules might be detrimental to building a win-win relationship. For example if the other party is inexperienced in negotiations or in providing the services as the result your opponent gives up to much ground, paints itself in the corner, or brings negotiation to an impasse.

Your negotiating opponent is meant to be you partner and probably for a long time. So consider a metaphor of sparing with your friend in a kick-boxing gym: while you do want to win you do not want to inflict lasting injuries; now add to it little twist – what if you are far superior to your friend in the skill and power.

A few months ago acting as an intermediary between a US-based customer and a small, bright and very ambitious outsourcing company I was helping to negotiate a fixed bid engagement for developing a windows app. The initial bid came with the “asking” price of ~$100K. At that point I could have pulled out my 10 golden rules check list, I could have flinched, whined, screamed, pushed and threatened to walk away… and would’ve probably gotten the contract down to $70K or $80K. Instead I got on a phone with the vendor, than with the customer, than with vendor’s technical team, back with the client, etc. I finally got them to agree on $350K after two weeks of strenuous back and force. Yes, not a typo, 3.5 times the original bid. And that number I am certain would still keep the vendor on their toes and gives the client superb deal for the product.

You could easily reverse engineer the situation – the client being not very clear with the requirements vs. provider with typical overly aggressive “developer” mind set. All too common I am afraid. I love those small, bright and ambitious companies; unfortunately after being beaten into pulp by “professional” negotiators on the client side they either never deliver or end up one-hit wonders.

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