NEGOTIATIONS
NEGOTIATIONS
Americans are accustomed to a fixed-price system. We usually pay what is advertised on the label or we don't buy at all. However, many countries are on the barter system, and most people of other nations understand bargaining much better than we do. For instance, when a trader receives a quote, it is just the beginning of negotiations. For most Americans, the quote is the end. Pay for it, or don't buy it.
Bargaining
Bargaining or negotiating is integral to international trade and an importer/exporter should be ready to offer or ask for alternatives using simple letters or the telex.
In the highly-competitive international business world, a trader's ability to offer reasonable terms to customers might mean the difference between winning and losing a sale. Become thoroughly familiar with "terms of sale" as well as the other aspects of "Risk Avoidance"
Agreeing to a Contract
After obtaining the initial quotations as explained in chapter 2, the next step in any international business arrangement is to reach an agreement, or a sales contract, with your overseas partner. The agreement must specify terms for the cost, quality, and delivery of the product. Quality can be assured only by someone seeing the product, but cost and delivery terms are the result of a quote agreed to by the seller.
Exporters are finding it increasingly necessary to offer terms ranging from cash against shipping documents, to time drafts, open accounts, and even installment payments spread over several years. More sophisticated ideas such as countertrade, counterpurchase, and after-sales service are also negotia-bles.
Let your banker, freight forwarder, or customhouse broker review the final offer or quotation. A second pair of experienced eyes can save you money. (See chapters 5 and 6 respectively for an explanation of the freight forwarder and customhouse broker).
In Japan, young executives role-play negotiations before they make an initial quote. They form teams, sit around a table with a chalkboard nearby, and pretend to negotiate the deal. Each team has a set of negotiating alternatives related to the country they are pretending to represent. Sometimes they cut
their offer price by 10%. If that doesn't work, they cut it another 5% or 10%. Other ploys are: (a) offer lower-interest-rate loans than their competitors, (b) offer better after-sales service warrantees, or (c) provide warehouses for parts. Sometimes, even the cost of advertising can make the difference in the sale.
Countertrade International trade in which the seller is required
to accept goods or other instruments of trade, in partial or whole payment, for its products.
Counterpurchase One of the most common forms of countertrade in which the seller receives cash but contractually agrees to buy local products or services as a percentage of cash received over an agreed period of time.
Shipping documents Commercial invoices, bills of lading, insurance certificates, consular invoices, and related documents (explained in chapter 4).
Draft The same as a "bill of exchange." A written order for a
certain sum of money to be transferred on a certain date from the
person who owes the money, or agrees to make the payment, (the
drawee) to the creditor to whom the money is owed (the drawer
of the draft). See glossary, "Date draft", "Documentary draft",
"Sight draft", "Time draft".
The American trader also must have a list of alternatives ready. Keep negotiations open and don't firm them up on paper until you have reached a general agreement.
The following is a partial list of alternatives and conditions you might wish to consider during negotiations:
• Quantity price breaks (Don't offer just one price)
• Discounts for cash deals or even down payments
• Offer countertrade to those countries short on foreign exchange
• Guaranteed loans
• Low-interest loans
• Time payments
• Home-factory trips for training
During your negotiations make sure you stay on the right side of the Foreign Corrupt Practices Act (FCPA) of 1977. In essence, this act makes it illegal for companies to bribe foreign officials, candidates, or political parties. Make certain that everything is in the contract and has a price; don't get caught making illegal payments or gifts to win a contract or sale. The penalties are severe—subject to a 5-year jail sentence and a fine of up to $10,000.
The law does not address itself to facilitating payments, those small amounts used in most countries to expedite business activities euphemistically called "mordida," "grease," "baksheesh," "cumsha," or "squeeze." Nevertheless, you should exercise great care in this regard as well.
Americans are accustomed to a fixed-price system. We usually pay what is advertised on the label or we don't buy at all. However, many countries are on the barter system, and most people of other nations understand bargaining much better than we do. For instance, when a trader receives a quote, it is just the beginning of negotiations. For most Americans, the quote is the end. Pay for it, or don't buy it.
Bargaining
Bargaining or negotiating is integral to international trade and an importer/exporter should be ready to offer or ask for alternatives using simple letters or the telex.
In the highly-competitive international business world, a trader's ability to offer reasonable terms to customers might mean the difference between winning and losing a sale. Become thoroughly familiar with "terms of sale" as well as the other aspects of "Risk Avoidance"
Agreeing to a Contract
After obtaining the initial quotations as explained in chapter 2, the next step in any international business arrangement is to reach an agreement, or a sales contract, with your overseas partner. The agreement must specify terms for the cost, quality, and delivery of the product. Quality can be assured only by someone seeing the product, but cost and delivery terms are the result of a quote agreed to by the seller.
Exporters are finding it increasingly necessary to offer terms ranging from cash against shipping documents, to time drafts, open accounts, and even installment payments spread over several years. More sophisticated ideas such as countertrade, counterpurchase, and after-sales service are also negotia-bles.
Let your banker, freight forwarder, or customhouse broker review the final offer or quotation. A second pair of experienced eyes can save you money. (See chapters 5 and 6 respectively for an explanation of the freight forwarder and customhouse broker).
In Japan, young executives role-play negotiations before they make an initial quote. They form teams, sit around a table with a chalkboard nearby, and pretend to negotiate the deal. Each team has a set of negotiating alternatives related to the country they are pretending to represent. Sometimes they cut
their offer price by 10%. If that doesn't work, they cut it another 5% or 10%. Other ploys are: (a) offer lower-interest-rate loans than their competitors, (b) offer better after-sales service warrantees, or (c) provide warehouses for parts. Sometimes, even the cost of advertising can make the difference in the sale.
Countertrade International trade in which the seller is required
to accept goods or other instruments of trade, in partial or whole payment, for its products.
Counterpurchase One of the most common forms of countertrade in which the seller receives cash but contractually agrees to buy local products or services as a percentage of cash received over an agreed period of time.
Shipping documents Commercial invoices, bills of lading, insurance certificates, consular invoices, and related documents (explained in chapter 4).
Draft The same as a "bill of exchange." A written order for a
certain sum of money to be transferred on a certain date from the
person who owes the money, or agrees to make the payment, (the
drawee) to the creditor to whom the money is owed (the drawer
of the draft). See glossary, "Date draft", "Documentary draft",
"Sight draft", "Time draft".
The American trader also must have a list of alternatives ready. Keep negotiations open and don't firm them up on paper until you have reached a general agreement.
The following is a partial list of alternatives and conditions you might wish to consider during negotiations:
• Quantity price breaks (Don't offer just one price)
• Discounts for cash deals or even down payments
• Offer countertrade to those countries short on foreign exchange
• Guaranteed loans
• Low-interest loans
• Time payments
• Home-factory trips for training
During your negotiations make sure you stay on the right side of the Foreign Corrupt Practices Act (FCPA) of 1977. In essence, this act makes it illegal for companies to bribe foreign officials, candidates, or political parties. Make certain that everything is in the contract and has a price; don't get caught making illegal payments or gifts to win a contract or sale. The penalties are severe—subject to a 5-year jail sentence and a fine of up to $10,000.
The law does not address itself to facilitating payments, those small amounts used in most countries to expedite business activities euphemistically called "mordida," "grease," "baksheesh," "cumsha," or "squeeze." Nevertheless, you should exercise great care in this regard as well.
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