Contract Negotiation Strategies. The Relationship between Distributive and Integrative Negotiating and their Touchpoints


Bachelor Thesis, 2021

39 Pages, Grade: 1,3


Excerpt

Table of Contents

LIST OF FIGURES

LEGEND FOR FIGURES:

LIST OF ABBREVIATIONS

1 INTRODUCTION

2 LITERATURE SEARCH

3 CONCEPTUAL FRAMEWORK
3.1 Theoretical Foundations
3.2 Distributive Negotiation Strategy
3.3 Integrative Negotiation Strategy
3.4 Relationship between Integrative and Distributive Negotiating
3.5 Theoretical Touchpoints

4 RESEARCH’S EMPIRICAL FINDINGS AND THEORETICAL WORK
4.1 Experience
4.2 Goals
4.3 Fit with Sourcing Strategy, Mobility, and Type of Sacrifice
4.4 Relationships
4.5 Orientations

5 CONCLUSION

6 APPENDIX

7 LIST OF REFERENCES

List of Figures

Figure 1: Overview of Negotiation Strategies

Figure 2: Relevant Findings from Lumineau & Henderson (2012)

Figure 3: Relevant Findings from Bazerman et al. (1985)

Figure 4: Relevant Findings from Olekalns & Weingart (2008)

Figure 5: Relevant Findings from Katz-Navon & Goldschmidt (2009)

Figure 6: Relevant Findings from Smeltzer et al. (2003)

Figure 7: Relevant Findings from Mannix et al. (1995)

Figure 8: : Relevant Findings from Thompson et al. (1996)

Figure 9: Relevant Findings from Halpern (1992)

Figure 10: Relevant Findings from Grenhalgh & Chapman (1998)

Figure 11: Relevant Findings from Thompson & DeHarpport (1998)

Figure 12: Relevant Findings from Atkin & Rinehart (2006)

Figure 13: Relevant Findings from Greenhalgh & Gilkey (1993)

Figure 14: Relevant Findings from Flynn (2005)

Figure 15: Model of Empirical Findings and Theoretical Propositions

Figure 16: Overview of Literature (Part 1)

Figure 17: Overview of Literature (Part 2)

Legend for Figures:

= Non-significant Correlation

= Significant Negative Correlation

= Significant Positive Correlation

A. &R. = Atkin and Rinehart (2006)

B. et al. = Bazerman et al. (1985)

F. = Flynn (2005)

G. &C. = Greenhalgh & Chapman (1998)

G. &G. = Greenhalgh & Gilkey (1993)

H. = Halpern (1992)

K. -N.&G. = Katz-Navon & Goldschmidt (2009)

L. &H. = Lumineau & Henderson (2012)

M. et al. = Mannix et al. (1995)

O.&W. = Olekalns & Weingart (2008)

S. et al. = Smeltzer et al. (2003)

T. &D. = Thompson & DeHarpport (1998)

List of Abbreviations

BSR = Buyer-Supplier Relationship

USD = United States Dollar

EU = European Union

MBA = Master of Business Administration

PEP = Political Economy Paradigm

1 Introduction

We live in an increasingly globalized, and inter-connected world in which almost everything around us - from the smartphones in our hands to the shirts we are wearing - has already traveled the world before it ended up with us. For organizations it has become a normality nowadays not only to obtain products, and components, but also services from other companies.

The global outsourcing market has increased dramatically over the last decades, with a revenue of 45.6 billion USD in 2000 risen to 92.5 billion USD in 2019. Even though the market size reached its peak in 2014 and it did not come close to this again in the following years, numbers are on the rise again (Statista 2019, 2021).

This highlights the persistent importance of BSR all over the world. Several factors determine the quality of BSRs and therefore play a role in the competitiveness of firms in their markets.

Among other things, negotiating between two or more firms can be seen as a significant tool to have an impact on these relationships. (Atkin & Rinehart, 2006, p.49) But how can companies strategically approach contract negotiations and what do we know about these strategies?

To answer that, this work investigates the current state of research of contract negotiation strategies. The thesis is structured as followed: At first a detailed overview of the literature search that led to the basis of information used will be given. Next, the theoretical foundation for answering the research question will be presented, followed by the demonstration of the current state of research relevant for this topic. After that, the essence of the work’s findings, in addition to the limitations and opportunities for future research will be stated. At last, the bibliography will be presented.

2 Literature Search

Starting my literature search, to find out more about the current state of research on contract negotiation strategies, a keyword search was conducted in the electronic databases Business Source Premier and APA PsycInfo, refining the choice of my keywords to the following assortment, which I put in the TITLE section as following:

(business* OR manag*) AND contract* AND negotiat* AND (strateg* OR tactic* OR approach* OR plan* OR process* OR procedure*)

In addition to the keywords, I filtered for articles in the English language and that are peer-reviewed. This search yielded one hundred and three results.

In the next step, I reviewed the results‘ abstracts to make sure that the papers are focused on business negotiations, as oppsed to i.e. employment contract negotiations. In addition, papers had to investigate negotiation strategies’ determinants and/or effects, as opposed to i.e. prescriptive advices for how a contract should be built up. These filters trimmed down the results to a number of seventy-six.

After gaining more insights about the facets of contract negotiation strategies, I decided to exclude literature that investigated negotiations in the public sector (i.e. EU negotiations), labor disputes, or business-to-consumer negotiations, to narrow the field of research in order to reach higher quality offered for my research question. This way, I ended up with ten papers that - after I did a quality check of the journals in which they were published in - were reduced to seven papers from seven journals.

From this selection of my basis literature, I serendepitiously enlarged my collection of empirical and theoretical papers in the process, reaching a final assortment of thirteen papers from eleven journals that were to be examined for answering my research question.

3 Conceptual Framework

3.1 Theoretical Foundations

Putting together the definitions of negotiation, which “[...] is a process by which a joint decision is made by two or more parties.” (Pruitt, 1981, p. 1) and of a strategy, which can be defined as "[a] way of doing something or dealing with something." (Cambridge University Press, 2021), contract negotiation strategies can best be described as ways of making a joint decision by two or more parties in order to reach a contract. The following definition shows why contract negotiations are a big part of every BSR.

A BSR can be explained as business transactions between two or more companies for the purchase and supply of goods or services. (Helper & Sako, 1995, p. 78)

The concept of negotiation strategies has been studied for several decades. A great contribution to this topic has been made by the work of Walton & McKersie (1965) for their book “A Behavioral Theory of Labor Negotiations”. The authors look at labor negotiations and distinguish between four subprocesses (distributive bargaining, integrative bargaining, attitudinal structuring, and intraorganizational bargaining), that can occur in labor bargaining situations. (Walton, & McKersie, 1965, pp. 4-5)

Standing for another milestone in this research topic, Dean G. Pruitt’s work “Negotiation Behavior” (1981) has to be highlighted, since it is one of the first instances where negotiation strategies have been looked at in a broader sense (unlike Walton & McKersie’s focus on labor bargaining), and has been cited in numerous relevant studies about negotiation strategies ever since.

Pruitt distinguishes mainly between three different negotiation strategies, which are accordingly categorized as competitive, coordinative, or integrative. (Pruitt, 1981, p16)

While the competitive strategy has a lot of similarity with Walton & McKersie’s definition of distributive bargaining, the integrative strategy also builds up mostly on the authors’ work from 1965 about integrative bargaining.

The subsequent research about negotiation strategies focused mainly on the distinction between two types of negotiating, which can be by considered as Pruitt’s competitive strategy and integrative strategy. Several different names have been given to each of these strategies in the course of research. To prevent the reader’s confusion, throughout this work they will be referred to as distributive and integrative.

Important to notice is that, while these negotiation strategies are defined in a broad sense and not directly related to contract negotiations in BSRs, they have been applied to various types of negotiations - whether personal or business-related - in the course of research, and therefore offer great value to serve as the theoretical foundation for this thesis.

In the following section, these two strategies will be further explained, drawing mostly from the theoretical work by Walton & McKersie (1965) and Pruitt (1981). This thesis will use Pruitt’s theory (1981) as groundwork literature (see Figure 1). Since negotiation strategies consist of combinations of tactical behaviors (Olekalns & Weingart, 2008, p. 138), also Pruitt’s defined tactical behaviors connected to the two types of strategies will be presented, and afterwards also their determinants will be subject of discussion in chapter 4.

3.2 Distributive Negotiation Strategy

Distributive negotiation refers to situations where two or more parties negotiate over a fixed sum of any resources (e.g., economic, power, or status symbols). Negotiators are in conflict over allocating those resources and one party's gain is the other party's loss. (Walton & McKersie, 1965, pp. 4-5)

Employing a distributive strategy, a negotiators typical approach is „[...] to stand firm and employ pressure tactics (e.g., persuasive arguments, threats, positional commitments) in an effort to persuade the other party to concede and thus also to reduce the distance between demands.“ (Pruitt, 1981, p. 15)

A simplistic example for distributive negotiating can be a car deal, where the buyer tries to pay as little money as possible for a specific car. On the other hand, the seller has opposing interests, trying to convince the buyer to pay a higher price for that vehicle. The buyer can only improve his negotiation outcome (paying less) at the expense of the seller (receiving less money) and vice versa.

However, some researchers argue that most conflicts are of integrative nature, where more than one issue is usually involved, and different problems are valued differently by the negotiating parties. Instead of a fixed-pie of resources to be divided between the parties, an integrative solution can be found to satisfy all parties. (Katz-Navon & Goldschmidt, 2009, p. 62)

This leads us to Pruitt’s integrative strategy of negotiating, which will now be explained in more detail.

3.3 Integrative Negotiation Strategy

Integrative negotiation is considered as a process where negotiating parties try to integrate the other party's interests to some degree. The overall goal is to increase the joint-gain of the negotiators, shifting away the focus of only trying to increase the individual's "share of the pie". (Walton & McKersie, 1965, p. 5)

To differentiate from the distributive strategy, Walton and McKersie further state that “[...] the techniques for fostering the integrative process are generally the reverse of the techniques for implementing the distributive process.” (Walton & McKersie, 1965, p. 144) The integrative negotiation strategy can be followed using several tactics, such as incorporation (adding the other party's demands to one's own proposal), information exchange (giving insight into the parties’ motivational structures), explicit talks, but also implicit communication and nonverbal communication. (Pruitt, 1981, pp. 169-175).

As an example, a pair of friends with different interests wants to decide how to spend a night out. Friend A is interested in dancing, and listening to music, considering a nightclub his preferred destination. Instead, Friend B wants to be able to sit down and engage in a nice conversation, thus he wants to go to a restaurant for dinner. The friends can employ an integrative strategy, trying to satisfy both people’s interests, by choosing to go to a bar, where they can sit down and talk, but also have the opportunity to hit the dancefloor and listen to loud music.

3.4 Relationship between Integrative and Distributive Negotiating

Both strategies come with risks. Distributive negotiations can lead to hard conflict that harms the buyer-supplier relationship. On the other hand, integrative negotiation carries the risk of engaging too much in relationship-oriented behavior while losing sight of the desired outcome, leading to suboptimal agreements. (Olekalns & Weingart, 2008, p. 137)

Assuming that there is no universal best practice in negotiating, researchers are in dispute over the question whether the blending of the two strategies can lead to a better outcome than strictly employing just one of them.

Speaking for one side of the opposing opinions, Pruitt states that the combination of different strategies in a negotiation process is generally possible, however this does not ordinarily happen due to the strategies’ tradeoffs to each other. (Pruitt, 1981, p. 15) The author goes on, proposing that “[t]he choice of one strategy makes the others less likely to be chosen” and that “[c]onditions that enhance (or diminish) the probability of adopting one strategy diminish (or enhance) the probability of adopting the others. (Pruitt, 1981, p. 16)

In contrast to Pruitt’s stated mutual exclusivity of negotiation strategies, authors like Olekalns & Weingart base their studies on the proposition that the combination of integrative and distributive strategies is not only possible but even beneficial to the outcome of a negotiation process. (Olekalns & Weingart, 2008, pp. 137-138)

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: Overview of Negotiation Strategies.

Self-created, drawing on information from Pruitt, 1981, pp.71-89, 137, 168-175.

3.5 Theoretical Touchpoints

Negotiation has been the center of attention in game-theoretical papers to develop models (e.g., Balakrishnan & Eliashberg, 1995; Cravastia & Nakamura, 2002; Crakavastia & Takahashi, 2004; Wasfy & Hosni, 1998), taking an analytical approach to reach findings about how to reach specific negotiation outcomes.

However, these analytical models take on a very economical and rational view of negotiation, assuming negotiators are free of any biases and not influenced by any psychological or social factors in the process.

As demonstrated in the latter section, negotiation strategies have been a subject of research in economics (Walton & McKersie, 1965), as well as social psychology (Pruitt, 1981). In more recent years, the study of negotiation strategies has emerged as a topic of organizational scholars, trying to shed light on the BSR in a supply chain context (e.g., Atkin & Rinehart, 2006; Lumineau & Henderson 2012), offering even more concrete value to the research question of this topic.

Over the years, theoretical and empirical work about negotiation strategies shifted from purely mathematical models and game theory towards the area of psychology and, more explicitly, organizational behavior, drawing back the circle to the initial work of Walton & McKersie (1965) and Pruitt (1981). (e.g., Bazerman, Magliozzi, & Neal, 1985; Flynn, 2005; Gelfand, Major, Raver, Nishi, & O’Brien, 2006; Greenhalgh & Chapman, 1998; Greenhalgh & Gilkey, 1993; Halpern, 1992; Katz-Navon & Goldschmidt, 2009; Liberman, Anderson, & Ross, 2010; Lumineau & Henderson, 2012; Mannix, Tinsley, & Bazerman, 1995; Olekalns, Smith, & Walsh, 1996)

A big part of negotiation strategy literature is based on the social exchange theory.

The theory claims that social life is, in big parts, characterized through exchange, in which every participant integrates a cost-benefit analysis to determine risks and benefits not only regarding the actual things to be exchanged but also regarding his or her own power and prestige. This theory can be applied to many different aspects of social life, from romantic relationships to friendships to professional relationships. (Bierstedt & Blau, 1965, pp. 789-790)

Also Halpern states: "The economic effects of social interaction have implications for negotiations and resulting transactions among individuals, within and between organizations, and in the international arena." (Halpern, 1992, p. 64)

Some of the papers mentioned above, among others, will be the examined in the next section to visualize the current state of research on contract negotiation strategies (see Figure 16 and 17). A model has been created to demonstrate the essence of these findings, which can be found in the appendix (see Figure 15).

4 Research’s Empirical Findings and Theoretical Work

4.1 Experience

For their study, Lumineau and Henderson took into account the quality of relational experience between negotiators (competitive vs. cooperative), and assessed its interplay with contractual governance in influencing the negotiation strategy. (Lumineau & Henderson, 2012, p. 383)

The authors draw back to Walton and McKersie's (1965) definition of an integrative strategy to define what they call cooperative strategy. (Lumineau & Henderson, 2012, p. 383) They also state that, "[u]sing a competitive negotiation strategy, each party looks for individual gain, resulting in a win-lose outcome." (Lumineau & Henderson, 2012, p. 383) This definition clearly resembles Pruitt's (1981) understanding of a distributive strategy (see also Figure 1).

The authors propose that buyers and suppliers that were able to establish a cooperative relational experience - drawing from past encounters and businesses - will be more likely to employ an integrative strategy in their dispute resolution negotiations. In contrast to this, dyads with business relationships that are characterized through competitive experiences in the past, will probably use a distributive strategy. (Lumineau & Henderson, 2012, p. 385)

To define contractual control and coordination, Lumineau and Henderson refer to, among others, Reuer and Arino, who differed contractual clauses in two dimensions: One are control clauses that can for example enforce provisions that relate to severe breaches that can be followed by a termination of the contract. Coordination clauses, on the other hand, are less stringent, more informational in nature, and are geared towards the proper coordination of the contractual relationship. (Reuer & Arino, 2007, p. 315)

An empirical analysis of a dataset consisting of ninety-nine buyer-supplier negotiations in the effort of dispute resolution was conducted. The data encompass a variety of relational and contractual characteristics to be studied regarding their influence on negotiation strategy. (Lumineau & Henderson, 2012, p. 383)

The analysis shows that the nature of the dispute (length, type, source), the nature of the transaction (national or international, contract value, and agreement type), and the asymmetry of firms' sizes do not have a significant effect on which negotiation strategy is used. (Lumineau & Henderson, 2012, p. 389) In addition, one of the study's main results shows that cooperative relational experience between the buyer and supplier leads to the use of an integrative strategy. (Lumineau & Henderson, 2012, p. 389) On the other hand, competitive relational experience is positively correlated with a more distributive strategy of negotiating. (Lumineau & Henderson, 2012, p. 389)

Furthermore, it was found that contractual control governance significantly contributes to a less integrative strategy, while coordination governance is positively correlated with a more integrative strategy. In more detail, contractual control governance appears to negate the positive effect of cooperative relational experience on the integrativeness of the strategy. (Lumineau & Henderson, 2012, p. 390)

On the other hand, contractual control governance lessens the distributiveness of the strategy in the case of competitive relational experience. Coordination clauses in contracts reinforce the positive effect of cooperative relational experience on the integrativeness of the negotiation strategy. No significant effect could be found of contractual coordination on the effect of competitive relational experience. (Lumineau & Henderson, 2012, p. 390)

An overview for the authors’ relevant findings is given in Figure 2.

Abbildung in dieser Leseprobe nicht enthalten

Figure 2: Relevant Findings from Lumineau & Henderson (2012)

Self-illustrated.

While Lumineau and Henderson (2012) looked at the variable experience trough a relational lens, dividing it into cooperative and competitive types, and characterized these types through the nature of past experiences between the same two negotiating parties, Bazerman, Magliozzi, and Neale (1985) approached the topic of experience in a very general way to find correlations with the negotiation strategy.

The authors' research examines negotiator behavior in a free-market context in which negotiators can make transactions with multiple opponents in a given amount of time. (Bazerman, et al., 1985, p. 295) One hundred seventy-eight students participated in an open-market negotiation simulation and randomly assigned to be buyer or seller. They were allowed to make multiple transactions in a given amount of time. (Bazerman et al., 1985, p. 299)

Results showed that agreements of the negotiators became more integrative over time. (Bazerman et al., 1985, pp. 304-305)

The researchers conclude that experience plays a powerful role in the integrativeness of negotiations. Early in the markets, negotiators generally showed distributive behavior, suggesting that the perception of the transaction’s outcome as a fixed pie is very apparent for inexperienced bargainers. As the negotiators gain more experience over time, they acquire the information to break this bias and are better able to reach integrative agreements that increase joint gain. (Bazerman et al., 1985, p. 309)

Abbildung in dieser Leseprobe nicht enthalten

Figure 3: Relevant Findings from Bazerman et al. (1985) Self-illustrated.

4.2 Goals

Researchers like Bazerman et al. (1985) take the view that negotiators stick to their initial chosen strategy throughout the process of negotiating.

In contrast, Olekalns and Weingart argue in their theoretical paper that this static view on negotiations is far away from the actual negotiation process in real life. They state that only when negotiations are seen as dynamic processes, it can be studied how and why strategies change over time and how this is influenced by the other party. (Olekalns & Weingart, 2008, p. 136)

[...]

Excerpt out of 39 pages

Details

Title
Contract Negotiation Strategies. The Relationship between Distributive and Integrative Negotiating and their Touchpoints
College
Free University of Berlin
Grade
1,3
Author
Year
2021
Pages
39
Catalog Number
V1022432
ISBN (eBook)
9783346424242
ISBN (Book)
9783346424259
Language
English
Keywords
contract, negotiation, strategies, relationship, distributive, integrative, negotiating, touchpoints
Quote paper
Niklas Rieder (Author), 2021, Contract Negotiation Strategies. The Relationship between Distributive and Integrative Negotiating and their Touchpoints, Munich, GRIN Verlag, https://www.grin.com/document/1022432

Comments

  • No comments yet.
Read the ebook
Title: Contract Negotiation Strategies. The Relationship between Distributive 
and Integrative Negotiating and their Touchpoints



Upload papers

Your term paper / thesis:

- Publication as eBook and book
- High royalties for the sales
- Completely free - with ISBN
- It only takes five minutes
- Every paper finds readers

Publish now - it's free