Was Glazer’s strategy of beginning with an “upper range” offer wise? What are the drawbacks of that strategy?
Negotiation Overview
The Chinese government invited three companies to bid on supplying a large facility in the city of Lanzhou with a specific technology—called the Trilliamp Process—used in the production of ethylene.
These companies were: the Japanese company Auger-Aiso (recommended by the inventor of the process, Mr. Trillamp, as the most capable supplier) and two U.S. companies—Federal Electric and Pressure, Inc. All three organizations were asked to compete for a multi-million-dollar sales negotiation contract.
To undertake the negotiations with the three prospective sellers, six Chinese officials and three representatives from the Bank of China were selected.
The Auger-Aiso chief negotiator was Todman Glazer, the company’s Japan branch manager from the United States who resided in Tokyo and was assisted by his Japanese colleagues. This was the first potential sales deal with China in the ethylene market, and Auger-Aiso had previously faced stiff competition from Pressure, Inc. for other deals.
The First Week of Negotiations
At the first sales negotiation meeting in Beijing, the Chinese insisted that custom required the visitor—Glazer—to make the first sales negotiation presentation. This he did, even though he was trained to allow his opponents to speak first.
Glazer began by extolling the excellence of Auger-Aiso technology, explaining that the manufacturing would all be done in Japan to ensure product excellence. When the Chinese offered no indication of their position or sales price, Glazer’s training taught him to quote an upper-range price that would allow flexibility. The Chinese still made no comment.
In the afternoon, the Chinese heard sales negotiation offers from the Pressure, Inc. team, and then from Federal Electric. By the end of the day, Federal Electric, having been given the impression that its rivals were radically lowering their prices, dropped out of the sales negotiation race, accepting that it could not compete.
During the first week of negotiations, a pattern emerged. The Chinese would meet with Glazer and his colleagues in the morning and ask for a price, saying that their competitors had already bid such-and-such a price, which was invariably lower than the last Auger-Aiso bid. They would then meet with Pressure, Inc. in the afternoon and use the same sales negotiation tactic, causing the latter to drop its price. Moreover, each meeting would end with the Chinese saying, “We will call you tomorrow.”
But, because they never called, both Pressure, Inc. and Auger-Aiso became panicky and visited the Chinese office without notice to present an even lower bid. As the Chinese kept the vendors guessing and in the dark, Glazer began to understand how the Chinese had earned a reputation as master negotiators.
The Second Week of Negotiations
During the second week, sales negotiation tactics changed and there were different people representing the Chinese side. An antagonist would suddenly burst out in loud Chinese and harangue the Auger-Aiso side for some fifteen minutes, complaining about the quality of the machines they were offering. A protagonist would then intervene and, apologizing for his colleague, explain that his colleague had been upset about the current sales negotiation situation.
Glazer regarded these outbursts as no more than a “Good Cop/Bad Cop” sales negotiation tactic, designed to make the protagonist appear more trustworthy to the foreigners. But, Glazer realized, all the participants had likely been play-acting.
Then there was yet another change. The Chinese located the Auger-Aiso and Pressure, Inc. teams near the meeting room, in adjacent rooms.
Pressure, Inc. would be called in and asked for its best sales price.
After the team had returned to its room, Auger-Aiso would be called in, told the latest offer from Pressure, Inc., and asked if it could beat it.
When the prospective vendors could drop their price no lower, they would add something to the package. Auger, for example, added oil gauges for its turbines, effectively a three-percent add-on. Even so, the Chinese’s negotiation team remained uncommitted.
Glazer could hardly believe that he had lowered his price twenty per-cent that week; to do so would have been out of the question in the United States. On the final day, Auger-Aiso made another sales negotiation offer—and, for the first time, the Chinese made a counter offer. Auger-Aiso accepted, and agreement was reached.
Glazer believed that Auger-Aiso had been awarded the contract because it had been the preferred supplier right from the start.
[This negotiation case study appears in Dr Bob March’s excellent book The Chinese Negotiator and is republished with his kind permission.]
Questions to consider:
1. Was Glazer’s strategy of beginning with an “upper range” offer wise? What are the drawbacks of that strategy?
2. What might have happened if Glazer had quoted a realistic offer and then stuck by it, refusing to lower his price “in the dark”?
3. How could either company have justified lowering their prices so dramatically?
4. During the second week, what changes did the Chinese make to throw the two vendors off balance?
5. The Chinese set the rules of the game, but did either company really have to play by those rules? How could either company have taken a stand?
6. What logistical advantage, from the very beginning, did Auger-Aiso have?
7. If Glazer suspected his company was actually preferred by the Chinese, why did he feel compelled to be low bid?
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