Negotiating

Unit - 3
sales, export
transaction and
agency
agreements
1

Characteristics of Export
Sales
and
Distributorship/Agency
Agreements
Export
sales
agreements
and
distributorship/agency agreements differ in a
number of respects. Thousands of sales
agreements are negotiated every day
whereas distributorship/agency agreements
are made (and terminated) much less
frequently. The agreement of sale is
characterised by its capacity to create profit
or meet other objectives of the selling
organisation
while
that
of
distributorship/agency provides the basis
3
under which profit may be created in the

Characteristics of Export
Sales
and
Distributorship/Agency
Agreements
Issues
to be negotiated in sales contracts
range from contract scope, delivery, terms of
payment, performance, specification, service
and arbitration to simple reduction in price or
minor revision in terms; in distributorship
/agency
contracts,
negotiations
are
dominated by issues such as exclusivity,
extent of territory, supplier support, terms of
payment, commission and commitment to the
relationship in terms of investing in it.
4

Agreements of
Sale
The Bargaining Framework
the settlement range is the buyers
estimate of the sellers minimum and the
sellers estimate of the buyers maximum.
The heart of the negotiation process is the
information the parties can extract from each
other and use for mutual influence. This can
change the sellers and buyers perceptions
of what the other will pay or receive and is
the strategic function of the face-to-face
situation.
5

Agreements of
Sale
The Bargaining Framework
A sellers level of first offer will be affected
by factors such as need to cover fixed costs,
maintain cost /profit/volume advantages,
long term aspirations, contractual risk,
contingency amounts and the relationship
between the parties.
A buyer has to consider his level of first offer
in relation to time costs as any delay brought
about by extended negotiation times may
result in higher costs or cause delay in
6
completion

Agreements of
Sale
Face to Face
If the selling organisation has a good
reputation in the buyer country and/or has
put forward a quotation based on prior
contact with the buying organisation to
establish what it really wants and has
supported this
with appropriate selling and influence
activities, then the invitation to enter
negotiations is a foregone conclusion.
7

Agreements of
Sale
The Agenda
The negotiation agenda can itself be negotiated
and can be used to strengthen the position of
one or other of the parties. For example, if the
sellers have discovered in pre-negotiation
contact that the potential buyer puts a premium
on performance guarantees and wants to use
this leverage on performance to draw out a
better price, then they can ask to have
performance guarantees put ahead of price on
the agenda and put up strong resistance when
guarantees come up for discussion.
8

Agreements of
Sale
Finding the Negotiation Range
At the opening stage of discussions, negotiators
seek to explore the entire area covered by
negotiations through the
taking up of extreme positions which include
their hopes for outcome plus the concession
factors built in to their levels of first offer. The
kinds of question asked and statements made
will be conditioned by attitudes created by prior
knowledge the participants have of each other
and experience of prior negotiations with their
9
organisations.

Agreements of
Sale
Trading-Of
Some elements which are traded off are worth
less than, or more than, any figure determined
by an accounting convention. If a seller is less
interested in immediate profit than in a long
range goal like obtaining a foothold in a growing
market, then he may be prepared to trade it off
for a value much less than cost. If a buyer in
Poland is prepared to pay up to ten times the
value of an essential part because that was the
cost of the loss of a weeks production, a seller
might just take advantage of this and charge10

Agreements of
Sale
Making the Agreement
To bring a negotiation to a conclusion many
negotiators find that summarising the steps
through which they have proceeded is a
convincing way of getting agreement. This may
be a repetition of the concessions that have
been exchanged and proposals made which a
weaker party may accept entirely: Let me
summarise what I think we have agreed. Often,
agreement is achieved by a final concession.
11

Negotiat
ing
int.natio
nal sales
agreeme
nts in
the
private
&public
sectors

12

Negotiat
ing
int.natio
nal sales
agreeme
nts in
the
private
&public
sectors

13

Distributorship/Agency
Agreements

The Relationship
The relationship is more likely to be characterised
by unequal rather than by equal power. One party
to the relationship will therefore enjoy a relative
power advantage. Under conditions of unequal
power, the party possessing the greater relative
power tends to behave exploitatively while the
less powerful tends to behave submissively.

14

Distributorship/Agency
Agreements

The Relationship
For the supplier in distributorship negotiations the
temptation to exercise that power has to be held
in check. The supplier seeking to develop a
market through a distributor depends on the
performance of that distributor for the success of
company plans. If, from a position of strength, he
arbitrarily sets targets at an unattainable level, his
actions will be against his own interests

15

Distributorship/Agency
Agreements

The Relationship
Because organisations wish to work with others to
achieve goals, cooperation is the most commonly
observed behaviour in channels of distribution. It
exists either on a voluntary basis or as a result of
conflict resolution by the channel leader through
the exercise of power that he holds.

16

Distributorship/Agency
Agreements

egotiating Original Agreements

The negotiation of an original agreement begins
with the necessary preparation for a satisfactory
outcome. It presupposes the choice of distributor
or agent has been made. It starts with
identification of where the power lies. Where
alternative intermediaries are in short supply, the
apparently weaker has a strong negotiating base.

17

Distributorship/Agency
Agreements

egotiating Original Agreements

This will be strengthened further if it is
established during the course of negotiation that
the distributor or agent has a special relationship
with key customers. A suppliers or principals
hand will be strengthened if his product is covered
by patent, trademark or copyright.

18

Distributorship/Agency
Agreements

The Negotiation
Areas of potential dispute can relate to factors like
the stake the distributor or agent will hold in the
joint activity. A manufacturer of consumer
durables might see an investment in specialist
staff an immediate necessity to service the
product(s) while the distributor/agent might see
that as an imposition until a large enough
customer base has been built up to justify the
expense.
19

Distributorship/Agency
Agreements

The Negotiation

On the other hand, the supplier may be interested

in agreeing quotas, feedback on market
conditions, promotion plans of the distributor and
in getting the distributors agreement to his
standard contract of distributorship. The
An agent, like a distributor, is interested in the
area covered, exclusivity, products handled,
duration of agreement, conditions of termination
and the law under which it will be interpreted
20

Distributorship/Agency
Agreements

The Negotiation
He will, in addition, be concerned with his own
remuneration by way of commission, the basis of
its calculation and the terms of its payment and
any other duties and expenses to which he will be
committed.

21

Distributorship/Agency
Agreements

gotiating the Continuity of Agreements

The distributorship/agency agreement is not a
one-off transaction. It can be viewed as a
continuing series of episodes, the original
agreement holding good only for that moment in
time in which it was made. The relationship moves
on and clouds the original objectivity. It can be put
under stress by a variety of factors requiring the
agreement or specific aspects of it to be reviewed.

22

Distributorship/Agency
Agreements

gotiating the Continuity of Agreements

Economic changes, like a change in the exchange

rates (as with the volatility of the U.S. dollar and
the Japanese yen in the mid-nineties, which varied
between 80 and 130 yen to the dollar
necessitated new arrangements to accommodate
for example the fall of the distributors/agents
country currency
Political
and
changes can also affect the
in
relation
to legal
the suppliers.
relationship and require the agreement to be
modified in some way
23

Distributorship/Agency
Agreements

gotiations Arising Within Agreements

Most of the issues to be negotiated during the
course of a mature agreement are associated with
the marketing mix. Modifications to product,
packaging or service level may need to be made
to meet the requirements of the distributor or
agent. Channels may have to be revised or
extended to accommodate new strategies derived
from changes in the environment, and new
communication arrangements made.
24

Distributorship/Agency
Agreements

nation of Distributorship and Agency Agreeme

Even long-standing agreements can be brought to
an early end by changes in circumstances which
no longer support the common objectives on
which the original agreement was founded or they
can be terminated by a specific act of one of the
parties, usually the supplier, for failure to perform.
A good agreement will have made provision for
this, e.g. by stating that in the event of
termination by the supplier, they will be bought
back at the price paid plus any charges of
carriage if quoted in the suppliers standard
25
catalogue.

Distributorship/Agency
Agreements

Law and the Negotiation of Distributorship

ncy Agreements
Agency and especially distribution are embedded
in a web of national and transnational laws.
Competition policy varies from country to country
and laws vary accordingly. It is therefore in the
interest of anyone making one of these
agreements to know the appropriate law. This
allows, when circumstances permit, for this
knowledge to be used as a negotiation counter.
26

Negotiating Licensing
Agreements
Licensing has, as its aim, establishing in a
receptive business enterprise (the licensee) a
technical capability presently lacking and which
is denied to it for want of enabling knowledge or
necessary permissions which another enterprise
(the licensor) can supply.
making a new or improved product (for use
or sale);
making an existing product in a new or
improved way;
providing a new or improved technical
27
service.

Negotiating Licensing
Agreements
in every case the licensee acquires an enhanced
technical competence, based on transferred
knowledge or on legally recognized permissions
under what are called intellectual property rights
or, very often, on a combination of both.

28

Negotiating Licensing
Agreements

Types of Licence
(1) A patents-only licence, as an example of an
IP Rights licence;
(2) A knowhow-only licence;
(3) A combined patents/knowhow licence to the
extent the combination introduces new factors
in the negotiation process beyond those
inherent in 1 and 2 above.

29

Negotiating Licensing
Agreements

Patent Licences
General Patents are a spin-off from R&D activities
undertaken for reasons other than to generate or
license patents. The patent owner (patentee)
may be a University, Research Institute, or
Corporate body, even an individual. Patentees who
are not in the business of manufacture and sales
of goods (or a
service industry) will have embarked on the
patenting route in the expectation that licence
revenue will accrue.
30

Negotiating Licensing
Agreements

Patent Licences
Once a patent in a country has been allowed to
lapse it is difficult and expensive or, if long
delayed, impossible to recover it. The commercial
partners interest will usually be to keep control
over the patent portfolio and use it, or not, as it
sees fit to serve its business interests.

31

Negotiating Licensing
Agreements

Patent Licences
a company in the business of manufacture, sales
or services on a regional basis, but which is not
well placed itself to exploit all major market
opportunities, will have a quite different patent
licensing strategy which may be offensive or
defensive or just opportunistic.

32

Negotiating Licensing
Agreements

nsing Strategies; Enquiries; Responses

An ofensive patent licensing strategy is one
that confronts a perception (even conviction) that
other companies in the same industry sector,
whether direct competitors or not (e.g. companies
in remoter market regions whose products and
services do not directly compete) are infringing
ones patents.

33

Negotiating Licensing
Agreements

nsing Strategies; Enquiries; Responses

The first step that must be taken is to confirm that
patents in the relevant territories are in force (i.e.
annuities have been paid). The next step is to take
advice on the enforceable scope of each such
patent. What does this mean? It means, for
example, that patents in different countries often
have differing definitions of the exclusion field
reserved to the patentee.

34

Negotiating Licensing
Agreements

nsing Strategies; Enquiries; Responses

A defensive patent licensing strategy is one that
responds to a perceived threat to ones
product/services/production base from anothers
alternative technology known to be under serious
consideration for development or which is actually
being developed.
Defensive patent licensing can also secure clear
divisions of product markets because a licensee is
less inclined to risk infringement when he has
agreed a limited territorial licence and benefits
from home market protection.
35

Negotiating Licensing
Agreements

nsing Strategies; Enquiries; Responses

Opportunistic,
revenue-generating
patent
licensing by companies only makes sense when a
thorough assessment of the competitive impact of
such licensing is undertaken and it is shown to be
non-threatening. It is a feature of mature
industries and markets.

36

Negotiating Licensing
Agreements
Scope Issues
In any patent licensing the issue arises whether
the licence
should be exclusive (i.e. even of the patent
owner), in respect of manufacture or both
manufacture and sales; whether it should be sole
(i.e. no other licensee to be appointed); or whether
it should be non-exclusive (i.e. the patentee can
license others as he wishes). There are many
conceivable variants and combinations, especially
as between
37

Negotiating Licensing
Agreements

he Post-Negotiation Period
Once the negotiations are successfully completed,
execution copies of the licence agreement will be
prepared and duly signed by the parties in such
manner as their corporate statutes or the relevant
laws prescribe.

38

Negotiating Licensing
Agreements

Knowhow Licences

The position is quite the opposite for knowhow. It

is hidden within a product; it is confined within
factory walls; it is held in confidence by company
employees under their employment contracts; it is
recorded in company reports to which access is
controlled.
In an exchange of knowhow (cross-licensing) there
might be exchange of research and development
information as well as applied operating
information but in a one-way supply of knowhow it
will surely be for applied information of proven
39
utility in products, processes and services.

Negotiating Licensing
Agreements
Pre-Enquiry
A factor in any consideration of whether to seek
acquisition of
knowhows (or for that matter a patent licence) is
the added time element implicit in alternative
Another
consideration for any company seeking to
strategies.
acquire technology enhancing knowhow for
privileged use in its market regions will be the
impact of anti-competition laws if there should be
restrictive conditions attaching to the licence (or
effects ensuing from it) such as might distort or
foreclose market competition.
40

Negotiating Licensing
Agreements

The Enquiry Phase

During the preparative and enquiry stages the
suitor company cannot know what the target
information in fact consists of. A strategy has
therefore to be devised which can bring the
parties confidently to a deal, trusting it is the right
thing to do, or alternatively before the position of
either is compromised to call a halt to negotiations
at any stage, an part on good terms. The next
step will be to put in place a nondisclosure
agreement
41

Negotiating Licensing
Agreements

e Assessment/Evaluation Agreement
When the information to be supplied will have
no practical utility but will be relevant only to a
decision-making
process
the
prospective
licensees non-disclosure obligations will consist
of an undertaking not to disclose to other
persons (individuals or companies) any received
information and, perhaps additionally, the fact
that the technology is being evaluated.

42

Negotiating Licensing
Agreements

mbined Patents/Knowhow Licences

In this treatment, however, we shall focus on a
total technology licence compromising a
structured, investment focused package of
knowhow and patent rights the object for which
is to establish a production capability with
technology entirely new to the prospective
licensee. We shall assume the product is either
also new to the licensees business or is in
material respects significantly different from
its current counterpart in the licensees
business. We shall assume there are to be43

Negotiating Licensing
Agreements

mbined Patents/Knowhow Licences

A major investment in new production

technology forces early decisions on
What kind of technology to use?
Whose version of it to acquire?
What scale and location for a first plant?
Are suitable raw materials/feedstocks,
utilities and services available?
What by-products, effluents and wastes have
to be disposed of?
44

Cooperative
Negotiation
for
Mergers
&
Acquisitions
During the marriage, cooperative spirit and
two-way truthful communication remain key
for ongoing success of the common endeavor. In
planning for a negotiated M&A in the European
Union, there are many elements to prepare about
ones own company, and about the others. A
multi-dimensional audit must be conducted to
learn more about each other.

45

Cooperative
Negotiation
for
Mergers
&
Acquisitions

Communicating Efectively Across

Cultures
In cross-borders M&A in Europe as in
anywhere in the world , the operation is not
simply taking place between two different
corporate cultures, it is also cross-national,
increasing the risks of miscommunication.
Managers may not know well about the
other sides culture
Managers may not know about their own
culture either
46

Cooperative
Negotiation
for
Mergers
&
Acquisitions

Building a Working Relationship with a

M&A Prospect

In early stages of a M&A strategy, managers have

to face many questions relating to potential
prospect. Accurate, complete information is not
easy to collect; its quality and quantity often
depends precisely on the type of strategy and
relationship that the future acquirer chooses to
establish with prospects. The more open and
cooperative it is, the more disclosure and
accuracy can be expected.
47

Cooperative
Negotiation
for
Mergers
&
Acquisitions

Building a Working Relationship with a

M&A Prospect
counting
and Financial Audit

Accounting transparency is supposed to have

been established by various European directives,
through compulsory schemes for annual reports,
profit and loss accounts, and annexes, including
also rules of accreditation for auditors, and a
requirement of harmonizing rules of disclosure for
holdings.

48

Cooperative
Negotiation
for
Mergers
&
Acquisitions

Building a Working Relationship with a

M&A Prospect
counting
and Financial Audit

For example, in France and the Netherlands,

research and development costs can be listed in
fixed assets, whereas they can appear as
expenses in the United Kingdom or Germany.
Awareness of these possible differences at an
early stage, before the M&A is signed, is
important; managers may want to set up a
harmonization plan of accounting structures,
which will be quickly implemented after the M&A.
49

Cooperative
Negotiation
for
Mergers
&
Acquisitions

Building a Working Relationship with a

M&A Prospect
Commercial
Audit

The analysis of current turnovers must be

complemented with a dynamic view of the target
business. How have past contracts been
implemented and honored? Which prospective
clients and growth can be hoped for? Who are the
creditors and debtors? Are the latter dependable?
What is the state of the stock?

50

Cooperative
Negotiation
for
Mergers
&
Acquisitions

Building a Working Relationship with a

M&A Audit
Prospect
Legal

Legal audit in a broad sense can encompass some

of the previous aspects of auditing, as well as the
ensuing social audit.
Whatever form corporations adopt limited
company or not, listed company or not as
suggested above, there can be many variations in
legal requirements from a country to another and
therefore in legal latitudes. The Articles of
Association of the target may reveal the intent to
51
use these latitudes in several fields.

Cooperative
Negotiation
for
Mergers
&
Acquisitions

Building a Working Relationship with a

M&A Prospect
Social
Audit

Target evaluation should also include human

resources and labor relationships. It is important to
identify some of its main elements, like labor
requirements, pension plans, internal disruptions.
What is the content of labor contracts? Which
principles
regulate
the
salary:
seniority,
productivity, etc.? Which benefits are included? Do
workers participate in the firms profits? What is
the age pyramid, the ratio between young and old
52
employees?

Cooperative
Negotiation
for
Mergers
&
Acquisitions

Building a Working Relationship with a

M&A Prospect
Social
Audit

How are retirement pensions calculated and

funded? If personnel is to be laid off, which
procedure and compensation are required? How
are workers involved in the management of the
company? What is the role of trade unions? How
does collective bargaining work? What kind of
labor conflicts has the firm known? How were they
solved? How frequent were strikes?
53

Cooperative
Negotiation
for
Mergers
&
Acquisitions

Determining Underlying Interests of

Each M&A Partner

The main interest is generally expansion, but if

one digs deeper,
M&As are realized for many more motivations, the
possible combination of which often requires a
well-crafted
strategy:
investing
cash
flow
productively, reinforcing ones position on a
market, gaining access to new markets, benefiting
from
complementary
skills,
restructuring,
diversifying activities and risks, integrating up- or
down-stream, controlling the costs of production 54or

Investment NegotiationsNegotiating with Europe

The Economic Transition

Today in most of East European countries there are
democratically elected governments which are
committed to establishing market economies
based on free competition. Most of the countries
are desperately trying to attract foreign companies
in order to establish technology transfer and
trading links.

55

Investment NegotiationsNegotiating with Europe

The Economic Transition

An important issue for negotiation is whether the
potential partner for a common venture is a stateowned company or not. Taking over a state-owned
company implies that negotiation will take place
directly with public authorities. Sooner or later the
company will be privatized, which will reflect on
the joint venture. It will change the owner, which
might give rise to conflicting interests.
56

Investment NegotiationsNegotiating with Europe

The Economic Transition

Due to the above reasons, reactions from Western
companies have been rather cautious in the
beginning. However, in spite of this reluctance,
most multinationals have entered these markets.
Companies such as McDonalds, Pepsi Cola, Coca
Cola,
Statoil,
Ericsson,
Ikea,
Fiat,
Nokia,
Volkswagens, Este Lauder, Philip Morris, almost
all pharmaceutical firms and several small and
medium-sized companies have already established
operations in these markets. The governments are
providing a number of incentives to foreign
57

Investment NegotiationsNegotiating with Europe

The Economic Transition

The large area and population in Eastern Europe
lead to an optimistic perception of commercial
opportunities, but it is also, in some ways, a
hindrance to marketing activities of Western firms.
The population is scattered in smaller cities and
towns, while the communication, distribution
channels and infrastructure is not there. Moreover,
due to the fact that there was no stable price
mechanism in these markets, it was very difficult
to use the same marketing planning and strategies
as used in the West in early years of liberalisation.
58

Investment NegotiationsNegotiating with Europe

ctors Influencing Market Entry

ps Between Western and Eastern Economies

gaps that exist between Western and Eastern
economies such as marketing gap, technology
gap, capital gap and motivational gap. The most
important difference between the West and
Eastern Europe is the fact that there exists at least
two or three generation gaps in terms of
productivity and infrastructure.

59

Investment NegotiationsNegotiating with Europe

ctors Influencing Market Entry

ry Strategies: A Long Term Commitment

To be successful in these markets the companies
should demonstrate long-term commitment and
seriousness. It is not possible to travel to these
markets occasionally and expect to establish
successful business operations. It is important for
companies to have a long-term representative in
these markets. The managers involved in
marketing should stay there for longer periods in
order to understand the market and culture of the
respective countries.
60

Investment NegotiationsNegotiating with Europe

ctors Influencing Market Entry

(1) only a long-term commitment makes sense in
such environments;
(2) extreme precautions have to be taken in
selecting partners: the written agreements
cannot solely be relied upon;
(3) the pace of changes in these transitory
economies may further speed up when they will
have enacted the basic regulations for a freemarket.
61

Business Negotiations
between Japanese and
Americans

Conceptual Framework:

A Framework for Understanding

Negotiation
Differences
in Processes
the expectations held by parties
from different cultures are one of the major
difficulties
in
any
cross-cultural
business
negotiation. Before we discuss differences
between the processes of business negotiations in
Japan and the United States, however, it is
important to point out similarities. In both
countries, business negotiations proceed through
four stages: (i) non-task sounding; (ii) task62
related
exchange
of
information;
(iii)

Business Negotiations
between Japanese and
Americans

Conceptual Framework:

A Framework for Understanding

Negotiation
Processes
The
first stage,
non-task sounding, includes all
those activities which might be described as
establishing a rapport or getting to know one
another, but it does not include information
related to the business of the meeting. The
information exchanged in the second stage of
business negotiations regards the parties needs
and preferences, or, stated more precisely, the
parties subjective expected utilities of the various
63
alternatives open to the interactants.

Business Negotiations
between Japanese and
Americans

Conceptual Framework:

A Framework for Understanding

Negotiation
Processes
The
third stage,
persuasion, involves the parties
attempts to modify one anothers subjective
expected utilities through the use of various
persuasive tactics. The final stage of business
negotiations involves the consummation of an
agreement which often is the summation of a
series of concessions or smaller agreements.
Despite the consistency of this process across
cultures, the content and duration of the four
64
stages differ substantially between the two

65

Business Negotiations
between Japanese and
Americans

Conceptual Framework:

A Framework for Understanding

Negotiationwith
Processes
Negotiations
Japanese firms often include
three levels of executives top executives,
middle managers, and operational staff.
The role of the top executive in Japanese
negotiations is usually ceremonial in nature.
Ordinarily, top executives are brought into
negotiations only to sign the agreement, and this
only after all issues have been settled and agreed
upon by lower-level executives.
66

Negotiating with the

Chinese

A Ping-Pong Model

67

Negotiating with the

Chinese
we divide the Sino-Western business negotiation
process into three stages from the Western
marketers perspective: (1) pre-negotiation
(lobbying, presentation, informal discussion and
trust building); (2) formal negotiation (taskrelated exchange of information, persuasion,
concessions and agreement); and (3) postnegotiation (implementation and new rounds of
negotiations).

68

Negotiating with the

Chinese
The PRC condition is a contemporary social and
institutional factor influencing the PRC. It is
comprised of eight variables.
(1) Politics, (2) Economic planning, (3) Legal
framework, (4) Technology, (5) Great size, (6)
Backwardness, (7) Rapid change & (8) Chinese
bureaucracy
Confucianism is a 2,500-year-old Chinese
philosophical tradition that has exerted a
fundamental influence on the Chinese and East
Asian modes of thinking and ways of behaving.
69

Negotiating with the

Chinese

Moral cultivation.
Importance of interpersonal relationships.
Family and group orientation
Respect for age and hierarchy
Avoidance of conflict and need for harmony
The concept of Chinese face
Chinese stratagems, or ji in Chinese, refer to a
long-lasting Chinese cultural tradition that shapes
the strategic Chinese business behaviour. It can
be understood as carefully devised Chinese
schemes which deal with various kinds of
situations and gain psychological and material
70
advantage over ones adversary.

All the Best

71