Negotiation is the linchpin of international trade transactions. It is during negotiations that the exporter and buyer start to solidify their business relationship. The importance many cultures place on relationships means a considerable amount of time is often invested in forging a business relationship before formalized negotiations can actually begin.
When the time comes, negotiations allow the two parties to exchange demands, offers and concessions, and allocate responsibilities in the hope of arriving at an agreement that is beneficial to both parties. Following these helpful negotiating tips will ensure your business is prepared to close the deal.
1) Conduct due diligence
Due diligence involves investigating the capabilities, legitimacy, and financial strength of a potential international buyer. Information is gathered from government, industry, and financial sources, as well as from the media. The investigation provides information about whether to proceed with negotiations and, if applicable, the issues and terms to pursue. Some of the required information about potential buyers may have been revealed as part of the organization’s research into the feasibility of, and risk involved in, a specific trade initiative.
Organizations must have a good understanding of the current state of the potential buyer’s operations.
To reduce risk, more due diligence may need to be conducted about a potential buyer’s reputation and creditworthiness by asking questions about the potential buyer’s affairs.
2) Define the relationship
The power of a negotiating party is influenced by how much it stands to gain or lose. There are certain questions the exporter can consider to better understand the value of the sale and business impact to gauge the dynamics of the relationship between them and the buyer. For example, the exporter should consider whether its product or service is rare or difficult to deliver. If so, this would define the exporter-buyer relationship as strategic and might give the exporter an advantage.
Cultivating the relationship with the potential buyer is critical to making a sale and to maintain a high volume of sales. However, the nature of that relationship is in part defined by the value of the sale and the business impact of the exporter’s product or service on the buyer’s operations. This can determine the resources spent on the negotiation process and the fostering of that relationship.
3) Define the zone of potential agreement
It is important to define the zone of potential agreement. It sits between the maximum price the buyer is willing to pay and the minimum price that the exporter is prepared to accept.
If the buyer’s highest price is lower than the exporter’s lowest acceptable price then there is no zone of potential agreement.
In such cases, negotiations reach an impasse and risk being interrupted, as they will evidently not meet the exporter’s needs. Agreeing to negotiations outside of acceptable limits can place the organization at risk.
4) Anticipate the expectations of the other party
Understanding and estimating the buyer’s demands and objectives allows preparing possible responses to objections, finding potential agreements that are mutually beneficial (win-win), and maintaining a serene climate of negotiation. Thus, the sales team must also anticipate what is important for the buyer:
- Is it price?
- Is it volume?
- Is it exclusivity?
- Is it quality?
- Is it dependable deliveries?
- Are there concerns about other elements of risk?
- Is the duration of the contract important?
5) Find innovations to improve position
The ability of the exporter to introduce innovation in the production or delivery of the product or service can impact the negotiation process. For example, in India, there is a need for trained individuals who can provide clients with customized advice about life insurance. An insurance company looking to launch operations in India could differentiate itself from the competition and gain trust by promoting an approach of listening to customers to understand their unique needs, and then providing tailor-made advice based on those needs. To stimulate exchanges and constructive discussions, the following approaches could be used:
- Search for information on how to increase value for buyers.
- Ask the buyer the key question— “Why?”—and thus generate creative information.
- Develop ways to reduce costs “inside the system” together, e.g. transportation.
- Make use of the advantages that each party has, such as the capacity to absorb exchange-rate fluctuations.
- Make proposals without commitment and invite the other party to do the same. For example, “Would you be interested if we did this? What advantages can we offer to distinguish ourselves from other exporters?”
- Explore constraints, limits, and obstacles.