Managing Negotiations

A Casebook

Thorsten Reiter

• Publisher: Routledge
• Year: 2021
• Print ISBN: 9780367615345
• eBook ISBN: 9781000522174
• Topic: Business
• Subtopic: Business General
• Index: Business

Managing Negotiations is a collection of seven global, real-life case studies on prominent negotiations in the realm of international business and politics.

The book combines the rigorously researched frameworks of academia with the real-world challenges of negotiations. The cases combine scientific negotiation management practices as well as theories with real-world examples that demonstrate how to conduct successful negotiations and which prominent pitfalls to avoid. The topics discussed reach from mergers & acquisitions, collective bargaining, international diplomatic treaties to international free trade agreements. Each case study starts with an overview comprising three key objectives and ends with the key learnings as well as reflective questions for class discussion.

This casebook can be used as recommended reading on Negotiation and Strategic Management courses at postgraduate, MBA and Executive Education level and serves as a guide for practitioners responsible for contract management, negotiation and procurement.

1 Introduction to the casebook

DOI: 10.4324/9781003105428-1

Negotiations are an integral part of every professional's daily tasks and not seldom essential to their overall success both in their careers as well as their work's objectives. This applies to managers, politician lawyers, economists as well as almost any profession that involves the interaction with other people. It is therefore worrisome to find that a structural education in negotiation management cannot be seen widely spread in the syllabi of Universities and higher education programs around the world – even more so, when we look at the European academic landscape. If at all negotiation management is seen as a subset of marketing and sales or provided in complimentary classes by external coaches, who try to generalize from their individual experience as an FBI negotiator or car salesman. However, if Universities want their students to leave with a full tool kit on what it takes to have a successful career, they must adopt a more structured or – even better – managed approach to negotiations.

A negotiation management approach has multiple benefits – especially when compared to the briefly mentioned generalizations from individual experiences as it is a grounded empirical research and therefore applicable to many different contexts and negotiations across professional fields. One can only try to guess what a management professional is supposed to take away from the stories of a successful hostage negotiation. Furthermore, when understanding how negotiations are structured, students of negotiation management can acquire a sharper conceptualization and also of global negotiations, which they encounter in the daily news outlets, which in turn enables them to come to more accurate conclusions on the parties involved, their motives and the strategies they employ. Most importantly, however, negotiation management improves the negotiation skills of anyone, independently from any predisposition toward specific “favorable” behavior. Most nonmanagement-related approaches to negotiations tend to focus on “how to behave to be a successful negotiator.” Amongst those traits are often “assertiveness” or general mantras such as “never to give in.” Empirical research, however, shows, that again these prescriptions cannot be generalized to any negotiator or any given negotiation. Therefore, by understanding the higher concept behind negotiations, understanding who is involved and how to structure negotiations, any negotiator can use this knowledge to improve her negotiation outcome or still better improve the outcome for all parties involved in the negotiation.

This touches upon another important aspect of negotiation management, which takes into account that most negotiations are not one-shot negotiations, where the winner takes it all and never has to interact with the opposing party again. Relationship building is an important part in any professional's life and cannot be put aside, when negotiating with her stakeholders. Therefore negotiation management puts a high emphasis on “integrativity” or “win-win” outcomes, also by understanding the opposing party's position and finding ways of how both parties can leave the people better off than when they sat down. This is a skill specifically trained by a management approach to negotiations and which generally cannot be found in generic prescriptions.

Besides literature on negotiation management itself, we can also see a lack of real-world cases, which apply those highly useful constructs to real-world and well-known negotiations. This is important to show students of negotiation management that these constructs are in fact widely applicable and train them in their ability to recognize them as well as support them to familiarize themselves with this conceptual thinking when facing real-world negotiations.

These objectives are precisely what “Managing Negotiations – A Case Book” wants to achieve. By seeing the constructs of negotiation management literature applied on world famous negotiations from the past 10 years, students learn how to structure negotiations along important phases, actors, motives and strategies, in order to become better negotiators themselves. The best way to apply this case book in a class or course is to hand out local newspaper articles on the discussed negotiations beforehand. This way students can see the negotiation – or parts thereof – as they would usually perceive them: fragmented, unstructured and without a clearly identifiable construct beneath. After having discussed what they believe to be the different parties involved, their objectives and discussions about the potential benefit or detriment to the relationships of the parties involved, they will have the opportunity to view the negotiation again through a negotiation management lens. This way, they familiarize themselves with the most important concepts needed to improve their own negotiation skills by witnessing them on real-world examples. Most of the cases also specifically discuss the element of “integrativity” mentioned before. Since it is such an important element in an increasingly complex and interdependent world, it will be beneficial to their own advancement in this global environment.

2 The acquisition of Whole Foods Inc. by Amazon

Charles-Armand Roger Sollberger Solari, Piotr Wojtaszewski, and Sandra Frei

DOI: 10.4324/9781003105428-2

The key objectives of this case study for the student is to get a clear picture of the negotiation in the form of negotiation controlling. After reading this case, students should be able to give insights into the following aspects of the negotiation:

1. Identification of the items on the negotiation agenda
2. Analysis of the negotiation tactics used
3. Evaluation of the integrative potential realized in the negotiation
4. Evaluation of the negotiation outcome for the parties involved

Introduction

A negotiation is the process of agreeing on one or more objects of exchange between parties with at least partially different preferences, in the course of which the parties try to influence the generally possible solution in their favor (Voeth & Herbst, 2015, p. 5). We are always dealing with negotiations in our daily lives – for example, when planning a trip with someone. These negotiations arise spontaneously most of the time, and we face them without any kind of preparation or action plan because the result is not of big importance to us. But what about the big negotiations where the outcome significantly impacts those involved? Can they be handled in the same easy way? The answer is no.

An example of a negotiation with significant impact is the recent Amazon Whole Foods merger in which Amazon paid an amount of $13.7 billion for Whole Foods. Given the nature and monetary size of the agreement, we can say without any doubt that these negotiations were of vital importance to both companies and therefore the two parties will do everything possible to obtain the best result with respect to their interests. This means that they will plan, organize and lead the negotiations very carefully.

The careful planning, organization and lead of negotiations are considered as negotiation management. It is crucial for every party involved in the negotiation. To emphasize negotiation management's importance, this chapter analyzes the Amazon Whole Foods merger from a negotiation management perspective. In order to do this, background information will be provided in a first step that will allow a better understanding of the case. In a second step, key negotiation events in which negotiation management played an important role will be analyzed. In the end, a brief summary with the most important results will be given.

Grocery industry

According to Nielsen TDLinx and Progressive Grocer, the U.S. supermarket industry generated approximately $649 billion in sales by 2015, which was an increase of 2% over the previous year (Whole Foods Market, Inc., 2016, p. 2). This represents about 5.6% of the total disposable income of Americans (Basker, 2016, p. 368). With 77,978 operating establishments, this industry also provides 2.4 million employments all over the country (Barnes Reports, 2017, p. 7).

In the recent decades, this mega-industry has become increasingly consolidated. In 1997, the four largest supermarket chains held 21% of the market. Today, they have a market share of 44%. In just 22 years, they doubled their market share to almost 50%. Only Walmart, the biggest player, controls 25% of the market (Kelloway & Miller, 2019, p. 9). Although the structure–conduct–behavior paradigm of the standard industrial organization theory would indicate that this market concentration would lead to less competition and a high profit, it has been empirically demonstrated that this is not the case for the grocery industry (Corstjens & Vanderheyden, 2010, pp. 1, 20). Therefore, the companies holding big market shares are constantly in competition and have to differentiate themselves in order to make a profit.

Another trend in the industry that is increasingly worrying different supermarket chains is the increasing saturation in the grocery industry. "Saturation" in retailing means that a maximum number of profitable stores in a consumer market might exist, which then means that in order for a new store to achieve financial viability, an existing store is forced to close down.

In grocery retailing, the overall expenditure by consumers on food and related products has risen only very slowly over time, when monetary inflation is taken into account. This means that in order to grow, firms have had to attempt to increase their market share (Guy, 1994, p. 1).

Another characteristic of the industry is the importance of technology and innovation. For over a century, the grocery industry has led technological advances and has been the source of the most important innovations in retailing. First were the chain stores, the self-service model and the Bic Box format (Basker, 2016, p. 389). Then, along with the computerization came the first barcode scanners that allows to collect data for the management. After that, loyalty programs were introduced that allow to collect more precise data by connecting each shopper with a loyalty card account. Finally, with the advent of the Internet, came e-commerce shaking up traditional retailing (Lauren, 2016, pp. 5, 6).

History shows that the grocery industry has been reformed several times. With the advent of digitalization and the increasing importance of smartphones, further reforms are certain. Changes are going to happen very quickly, and to survive, retailers are going to have to adapt at an increasingly rapid pace (Lauren, 2016, p. 1). Identifying new trends and adopting new technologies could be key differentiators for the success of retailers’ future growth strategies (p. 45).

One of the latest trends in the market is the increase in demand for natural products. According to Natural Foods Merchandiser, in 2015, sales of natural products were $109.7 billions, corresponding to approximately 16.6% of total sales in the grocery industry. Sales of this type of product increased by 7%, compared to 2% for all sales (Whole Foods Market, Inc., 2016, p. 2). This has led to a rising number of companies offering natural products, increasing competition in this field. In addition to competing for consumers, there is also competition for suppliers who are becoming increasingly scarce.

In conclusion, the U.S. food industry, despite being well consolidated, is highly competitive. The strategy of growing with new establishments is no longer sufficient. In order to grow, companies have to increase their market share by differentiating themselves from their competitors. Innovation and technology will be crucial to lead the industry, as well as quickly identifying new trends in consumption.

Whole Foods

The Whole Foods Market, Inc. is an American public multinational supermarket chain founded in 1978 and based in Austin, Texas. Based on 2015 sales ranking from Progressive Grocer, it is the largest natural and organic foods supermarket in the United States, the fifth largest public food retailer and the tenth larger food retailer overall. By 2016, they operated 456 stores across the United States, Canada and the United Kingdom, visited by eight million customers each week (Whole Foods Market, Inc., 2016, p. 1).

The year 2013 represented a turning point for the company. At the end of the year, their shares reached their historical maximum value with a price of $65 per share. In the last 7 years, the company doubled its revenue and tripled its profits. Whole Foods was planning to expand the number of stores from about 400 to 1,200. It seemed to be at its peak. However, the situation took a turn of 180 degrees. The share price began to decline gradually to half its value, and it has hovered around $30 between 2015 and 2017. In addition, in 2017, the company reported six successive quarters of declining same-store sales and a 3% decline in store traffic, equivalent to 14 million fewer customer visits (Foster, 2017). In February 2017, the company announced the closing of nine stores, representing the first downsize since 2008 (Helmore, 2017). Whole Foods also abandoned its plan to open 1,200 new stores (Daniels, 2017). In just a few years, the future of whole became very uncertain.

There are many reasons that may explain the company's downfall, but undoubtedly one of the most important factors was the increased competition. As mentioned before, despite being a consolidated industry, there is a high level of competition. In such a situation, it is possible for not-market-leading companies to obtain high profits – even higher than the leaders’ profits: in case of the industry being highly segmented and then achieving high-product differentiation by specializing in a particular niche (Corstjens & Vanderheyden, 2010, p. 3). This was the case with Whole Foods. The company was a pioneer in the segment of natural and organic food and one of the main drivers of this trend, which at the time of its first store opening, was still very unknown. The company became highly specialized in this niche and started manufacturing its own exclusive brands. However, with this trend emerging, big competitors, who had not been involved in this niche so far, began to enter aggressively and with lower prices. Sprouts Farmers Market, Whole Foods' most direct rival, was found to be on average 19% cheaper than Whole Foods and by 2016, Kroger, the largest mainstream supermarket chain in the United States, passed Whole Foods in annual sales of natural and organic products (Foster, 2017; Helmore, 2017).

Due to the saturation of the niche, it is crucial to review Whole Foods’ growth strategy. Its strategy is described as follows in its 2016 annual report: "Our growth strategy is to expand primarily through news store openings (...)" (p. 5). As mentioned, this strategy becomes much less effective in a saturated market, because in order to install a profitable store, you have to force another to close. This complicates things for Whole Foods, especially because the company is not characterized by having the lowest prices, being even nicknamed "Whole Paycheck" (Maverick, 2019). Now that more and more companies are getting into the natural and organic products cart, Whole Foods has less and less competitive advantages.

This complex scenario, which Whole Foods’ management faced along with pressure particularly from JANA Partners, was what led to the consideration of selling the company. In search of finding a suitable buyer, tech giant Amazon appeared who is a world leader in innovation, technology and digital services – qualities crucial to succeed in the grocery industry. With these capacities, Amazon could revitalize Whole Foods’ business model. An example of Amazon applying its capabilities in the grocery industry can be seen in the recent opening of its first Amazon Go store, which through the use of cameras and sensors allows shoppers to buy without checkouts – but instead through an app (McFarland, 2018).

Amazon

Amazon.com, Inc., is an American multinational technology company that focuses on e-commerce, cloud computing, digital streaming and artificial intelligence founded by Jeff Bezos in July 1994 in the state of Washington (Amazon.com, 2018). Accordin...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Contents
• 1 Introduction to the casebook
• 2 The acquisition of Whole Foods Inc. by Amazon
• 3 Negotiation of the Iran nuclear deal
• 4 The Air France strikes
• 5 Walt Disney's acquisition of 21st Century Fox
• 6 The Lufthansa strikes
• 7 Bayer vs. Monsanto
• 8 The Trans-Pacific Partnership agreement
• 9 Closing remarks on the casebook
• Index