Negotiation in Industrial Setting

Assignment on negotiation Page 1

Assignment

On

Negotiation

NEGOTIATION

The word “negotiation” comes from the Roman word negotiari meaning “to carry on

business” and is derived from Latin word roots neg (not) and otium (ease or leisure).The

origin of this word itself explains a lot about its meaning. It is a decision making process

in which two parties having conflicting views and interest try to reach a common position

which is in lager interest of all stakeholders. Negotiation has become one of the most

important instruments for amicable solution of problems in today’s world. Whether it is a

problem of national scale like international agreements, boundary disputes or business

issues like wage determination, mergers and acquisitions or some labor dispute, n

negotiation is used by both the parties for coming to a solution. Thus we can understand

negotiation in following terms:

1. Group Process : Negotiation is basically a group process where two groups or

larger social units with differing point of view but a common objective strive to

reach a common position which will define the future conduct of both groups.

2. Process : Negotiation is a process. It is so because negotiation has a defined order

of events. It starts with presentation of charter which defines the agenda and

topics to be discussed, moves on to clarifications and justification, bargaining and

problem solving, contracting to a common position and reaching an agreement or

contract at the end of successful completion of process.

3. Bipartite : Negotiation is generally a bipartite process where only two parties are

involved, people who may not be directly related to issue may be present but they

can be supporting or opposing one party or the other.

4. Scope exists : During negotiation considerable scope exists for discussions,

deliberations, compromise, mutual clarifications and justification. This is so

because the main aim of negotiation is to come to a decision, to find a solution for


the problem. So both parties are ready to hear each other’s point of view and to

consider each other’s position.

Negotiation generally has two aspects, creating value and claiming value (Donald W.

Hendon, 1996). Creating value is a cooperative process whereby both parties seek to

create a situation which is beneficial for both and can realize the maximum potential gain

for both sides. Claiming value is more of a competing process where both parties are

tying continuously to increase the maximum potential gain for themselves while trying

for to come to a solution at the same time i.e. negotiators from both sides are trying to

gain advantage for their own parties, but are also trying to develop a long-term

constructive relationship between the parties involved in negotiation.

PREPARATIONS FOR NEGOTIATION

Preparation for negotiation is very important in order to have a fruitful and successful

negotiation. The amount of preparation becomes evident at the negotiating table. A

negotiator with better preparation is in a much better position while bargaining with

opposite party. A badly prepared negotiator is a liability for his party and has no respect

from the opposing party such a person can seriously jeopardize the process. So in order to

avoid any such hassle a detailed and exhaustive preparation should be made well in

advance of the start of negotiation process. Some of the main things which should be

dealt with in detail while preparing are:

1. Objectives: The objectives should be clearly defined before the start of process of

negotiation. Both the parties should be very clear about the objective for which

they are doing negotiation. The formulation of objectives should be done with

utmost care by taking to all stakeholders. The objectives set by a side should be

representative of the interests of all stakeholders of that party and should not be


decided unilaterally by one person. Once the objectives are defined the parties

need to decide the level of priority of each topic depending upon its importance.

The objectives can be prioritized into 3 categories:

i. Essential: These are the objectives which are of utmost importance and

are fundamental to one’s negotiation position.

ii. Desirable: These are important but less than essential one’s some of these

may be forgone in order to achieve the essential ones.

iii. Optimistic: These are of least importance and are bonus if they are

achieved.

2. Negotiating Team: The composition of negotiating team should also be done

after careful deliberations. No negotiator can negotiate alone successfully. In

order to have a meaningful negotiation a team of negotiators should be selected

which should be composed of experts from different fields so as to have a

comprehensive review and discussion of the problem at hand. A person with more

experience of negotiation can be appointed as the chief negotiator, who can lead

the team and be the face of team.

3. Deadline: Deadline plays an important role in successful completion of the

process. Generally the agreement signed by sides at the end of negotiation have an

expiry period(because external environment is dynamic and in case things like

wage negotiations wages have to be revised over a period of time) after which

both sides need to frame new rules to abide by, or to decide to abide by the same

rules. Whatever be the case the sides need come to negotiation table and to come

to a new agreement before expiry of previous one. The pressure on both sides to

comply with deadline yields a positive effect and prevents both sides from

resorting to any foot-dragging, and promotes them to come to a decision.

4. Agenda: The primary purpose of the agenda is to bring order and structure to the

whole process. It sets the tone and prevents the sides from deviating from the


issue at hand. It also helps the negotiators in gauging the position of other parties

in advance and to decide upon their strategies and responses accordingly.

5. Bargaining Power: The negotiating party should also assess the bargaining

power of the other party. Bargaining power can be defined as “the ability to

induce the other side to make concessions which it would not otherwise make.”

Thus if one side’s bargaining power is considerably more and it decides to use it

to its maximum then it can erode other side’s position and that side should be

prepared to tackle the pressure of other side’s bargaining power and should make

its strategies accordingly.

STAGES OF NEGOTIATION

Whole process of negotiation can be broadly divided into few steps which are:

Preparation and Planning

Defining Objectives and agenda

Clarification and Justification

Bargaining and Problem Solving

Closure and Implementation

Preparation and planning, setting of objectives and agenda are mainly done before parties

are face to face. Rest of the stages are comprise actual negotiation process when

negotiators from both sides sit together for negotiation.

Clarification and Justification: At the start of negotiation process both sides exchange

drafts stating their demands and expectations. It is at this stage that clarifications are

sought from opposite parties with respect to any confusion regarding the stated demands

and expectations. All demands are discussed in detail and clarifications are sought. After


this session both parties take a break for some time, this is important as both parties

utilize the break to understand each other’s demands and to align their negotiation

strategies accordingly. Also this gives time for any kind of fact finding if required.

Clarifications and justification stage is important as it helps both the parties to understand

each other demands clearly, which is necessary for relevant and comprehensive

negotiation.

Bargaining and Problem Solving: Once the demands and expectations of opposite party

has been understood, both side meet again ready to talk about their position, to defend

their position and to erode the opposition’s position. While doing so both parties tread

carefully so as to ensure that the process goes on and any disruption can be avoided. Both

parties discuss each other’s demands and try to find a common position where both can

concur. Both parties also look into alternative positions and their viability and

acceptability to both sides. During this stage both sides may employ various tactics to

enforcing their position and to put pressure on other party for accepting their position.

The main objective of this stage is to do a thorough post-mortem of the issue at hand and

to find the best possible situation which can create a win-win situation for both sides.

Also this stage is crucial in reconciliation of the differences between both sides and

evolution of mutually agreeable position.

Closure and Implementation: This is the final stage of negotiation in this stage both

parties discuss the pro’s and con’s of the common position. All aspects of the common

position are discussed and detailed agreement is drafted. The main emphasis of this phase

is on language of final draft agreement, there can be non-agreement on the words being

used or the way in which clauses are drafted. Both parties go through the draft and re-

drafting of agreement may take place. This stage results in an elaborate draft acceptable

to both sides, having things like treatment clause, duration, method and way of

implementation of settlement and the period toll which agreement will remain valid etc.


NEGOTIATION IN INDUSTRIAL SET-UP

Negotiation plays an important role in industrial set-up, if used properly it can ensure

healthy atmosphere in industry. Whether it is negotiation for pay raise, bonus, working

conditions or settlement of industrial dispute, negotiation has been used in different forms

depending upon the situation for diffusing the tension and to ensure an amicable solution

for both employer and employees. In industrial setup negotiation is structured and can

take place at various levels:

Unit Level: This is the smallest level at which negotiation can be found in

industrial set-up. At this level the negotiation occurs between worker council

certain functional unit of the plant and the management, it’s outcome does not

have any bearing on other units of plant and is specific to the unit in question.

Plant Level: At this level the subject of contention is very specific and is of local

importance in context i.e. it is specific to the plant and may not have any bearing

on other plants of other companies of the same region or industry or country. In

this type of negotiation workers union of a company represent various units or

plant of a company and the outcomes have bearing on whole plant.

Industrial Level: This is a higher level negotiation and the problem at hand may

have larger bearing on the functioning of the industry as a whole. Such

negotiations may take place between employers union and employee union of

certain industry, workers’ union of certain industry and government. These

negotiations are for the larger good of all the worker employed in a specific

industry and have relevance for the whole industry.

National Level: This type of negotiation takes place between governments and

the main focus of such negotiations is to have better business environment for

domestic industries.


The negotiation in industrial setup has been prevalent right from the time of industrial

revolution and has evolved over a period of time with the industry. In industrial parlance

it is better known by the term collective bargaining. Collective bargaining can be defined

as a procedure by which the terms and conditions of employment of workers are

regulated by agreement between their bargaining agents (Generally trade unions) and the

employers. Collective bargaining is not only restricted to workers union and employers

but can also be between employers union and workers union. Collective bargaining can

be of following types:

Conjunctive Bargaining

Cooperative Bargaining

Productivity Bargaining

Composite Bargaining

Conjunctive Bargaining: This one of the oldest forms of bargaining. It is a model where

“Loss of one party is gain of other party.” In this type of bargaining both sides try to bar

gain of the other and maximize their gain. Due to this nature of bargaining where if one

party gains something then other looses in equal proportion, the net sum is zero, hum it is

also known as zero sum game. It could be seen in early industrial revolution phase when

the employers will prevailed and workers were generally at receiving end. The only deal

available to worker was of “take it or leave it nature” thus they were forced to accept

whatever wage the employer offered to them. Such a style of bargaining can also be seen

in today’s Small Scale industries where workers are mainly daily workers who don’t have

much bargaining power and are forced to accept whatever is offered by the employer.

Cooperative bargaining: This type of bargaining emerged during the Great Depression

of 1930’s when due to economic recession industries were struggling to stay afloat. Such

was the condition that the workers’ of a factory offered to accept voluntary pay-cut so as

to keep the company running. This offer was accepted by the management which in turn

offered higher wages to its workers for their understanding and loyalty. This model was

basically a “BID FOR SURVIVAL” by both workers union and employers. This model

can be associated with recession as it can be seen only under exceptionally adverse


business environment, a time when both parties are not left with any option but to “help

each other.”

Productivity Bargaining: This model emerged in 60’s and 70’s when recession was

clearly over and companies were making huge profits. The workers union’s have become

quite strong by this time and were having huge following. The workers unions started

demanding better pay packages for workers as was promised by employers during Great

Depression, but employers refused to honor their commitments. This led to huge

discontent in the workforce which was better organized under trade unions, this

discontent manifested in the form of high absenteeism, unauthorized breaks, abandoning

of work stations, shoddy work and rising indiscipline. These things led to a downfall in

productivity and high operating costs which was not good for companies’ health. Such

circumstances led to an attempt at ESSO’s oil refinery in UK to gain control over

overtimes and to increase productivity. This gave birth to a new style of bargaining where

“increase in pay was linked to performance” the workers were told that they will be

given better salaries depending upon their performance and increase in productivity will

be matched with equivalent increase in their salaries. This model benefitted the

employers as they were able to ensure better productivity without giving away much

whereas the workers were at a disadvantage because of increased workload.

Composite Bargaining: This model emerged as result of more mature trade unions and

the realization by workers unions that till now the management has been playing with

them by using various tactics. The workers became more aware and assertive in their

demands, they had realized that in the name of productivity bargaining the management

was doing eyewash and was the only beneficiary in negotiations, whereas the workers

gained nothing out of it. This realization and increasing assertiveness in due course of

time led to insertion of agendas other than monetary incentives in negotiations. The

workers unions started demanding better working conditions, safe working environment,

medical facilities at workplace for providing first aid in case of any mishap. They also

stated demanding provisions for their social well-being in the form of housing facilities,

education facilities for their children, medical cover for their family members, proper


compensation in case any fatality arising out of occupational diseases. The management

by now had realized that it was no longer possible for it to overlook these demands and

decided to yield to these demands in return of better productivity, commitment and

quality from its unions.

In today’s industrial negotiation a mixture of one or two or all of these bargaining

methods can be observed. The kind of model being used for negotiation depend upon

various factors like:

The kind of labor legislations prevailing in a country, region or zone. The kind of

safeguards it provides for workers rights. Provisions for employer and employee

in a particular industry.

The recognition, professionalism and bargaining power of the union on the other

side table.

The level at which bargaining is being done, whether it is at unit level, plant level,

industry level or national level.

The issue in question and its impact on industry practices.

The attitude of employer towards the trade union.

PREREQUSITES FOR COLLECTIVE BARGAINING

There are four main pre-requisites to collective bargaining. They are:

Careful thought and selection of negotiation team: As discussed earlier, the

negotiation team should be selected carefully, the size and composition of the

team should be ideal.

Freedom of expression: Both sides should be free and empowered to put their

points freely without coming under any kind of pressure. They should be

authorized to take decisions on behalf of their group.


Employer and employee: There should be a relationship of respect between the

employer and the employee. Both should have trust in each other.

Mutual trust and confidence on representatives: Negotiators of both side

should have respect for each other, they should also show respect to each other

and should have faith in the ability of representative of other side.

PREPARATIONS FOR COLLECTIVE BARGAINING

As has already been discussed that in depth and thorough preparations are necessary for

successful and fruitful negotiation so in industrial bargaining also the negotiators should

be fully prepared. Different preparations are required for negotiators of management and

the workers union representative, which are given below:

PREPARATIONS BY UNION: Following are the preparations which should be made

by union representatives:

The implications and feasibility of demands should be considered and proper

research should be conducted on all aspects while formulating the demand.

Study existing terms of employment and conditions of work and compare them

with the comparable industry in the local area/region/country for preparing a

statement of demands

Consult shop representatives and discuss with the members of union to assess

their requirements before formulating the demands.

Analyse past or existing agreements for preparation of new demands or changing

them if necessary.

Review grievances or arbitration decisions in order to build or modify existing

agreements.


Compare the current agreements with other agreements in that area or industry

negotiated by the same or sister unions, thereby strengthening the bargaining

position.

Obtain economic information on issues to be advanced in negotiation along with

data relating to the proposals and demand submitted.

The statement of demand should be clear and self explanatory so as to not give

rise to any mis-understanding.

Inform all members of the demand to be raised with the employer/employer’s

organization and their implications.

Advise members not to resort to anything which might jeopardize the smooth

negotiations during collective bargaining.

EMPLOYER’S PREPARATION:

Anticipate statement of demand from the union once it has been recognized as a

collective bargaining agent.

Study the agreements in other comparable units/industry/area and find out

important provisions agreed upon; analyze them and find out to what extent they

could be accepted if the same or similar demands are raised.

Analyze grievances and arbitration awards, in particular those grievances that

arise repeatedly under the same agreement and look for poor and unworkable

clauses which call for revision.

Conduct meetings with supervisors and other lower echelons and record their

experiences of working with existing or past agreements, thus providing

information for possible changes.

Meet representatives of other company for the purpose of exchanging viewpoints

regarding the terms of employment and conditions of work applicable therein and

working of agreements.

Study provisions of various labor laws to ensure that the terms of agreement when

arrived at are in accordance with and not contrary to law.


Study and obtain the economic information company, area and industry as well as

the national policies before starting negotiations.

Examine the labour relations policy of the company and the changes, if any, on

the anvil.

Examine the attitude and assistance rendered by the union and the shop stewards

in the implementations of the existing or past agreements and various methods

adopted.

Get full clarifications of various demands submitted for collective bargaining

before actual negotiation starts and take tentative decisions thereon without being

rigid.

Select the right negotiator or team of negotiators in advance.


INTERNATIONAL NEGOTIATONS

In today’s due to globalization, organizations have become multinational and have started

operating in more than one country. This has lead to many complexities manly related to

assimilation and handling of cultural diversity. These organizations face many problems

while entering in some new market and need to do a lot of negotiations to gain support of

local organizations and government. Also globalization has lead to greater integration

business activities of one country with another, thus creating a large number of problems

in international business arena, this has made it necessary for tomorrow’s business

managers to understand the technicalities of international negotiation.

The main factors affecting the style of negotiation in international arena is

“culture”. It is the distinguishing factor which affects the way people behave and

perceive things. Most of the international negotiations occur within the context of cultural

boundaries. It is an established fact that 70% of communication in any conversation is

non-verbal which is perceived by the other person. The way in which this non-verbal

communication is perceived is decided by our cultural settings which differ from one

culture to other, or in other words from one country to another. Thus to sum up we can

say that success in international negotiations is mainly dependent upon the ability to

understand the cultural differences and in learning about culture of your opposition.


CONCLUSION

Thus to sum up we can say that negotiation is a process where 2 parties with conflicting

views try to reach a common position in order to create a win-win situation for both

sides. It can be divided into following stages:

i. Preparation and Planning

ii. Definition of ground rules

iii. Clarification and justification

iv. Bargaining and problem solving

v. Closure and implementation

Negotiation in terms of industrial parlance is also called Collective bargaining and is of 4

types:

i. Conjunctive bargaining : Loss of one party is gain of other party

ii. Cooperative bargaining : Bid to survival

iii. Productivity bargaining : Increase in pay was linked to performance

iv. Composite bargaining : Labor welfare measures

Collective bargaining can take place at any level unit level, plant level, industry level or

national level. At any given point of one or more types of collective bargaining can be in

use at one or more levels of bargaining.

International business negotiation is all about understanding the cultural differences and

to act accordingly.


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Negotiation in Industrial Setting