Introduction
Negotiation is an everyday activity. Children negotiate with parents about household chores; the adults negotiate the salary with the company. When it comes to buying, the negotiation is always there. Although it is not an ability that comes naturally. Fortunately, everyone can learn the skill and practice makes it better. Like other skills, good preparation can increase your success rate and make the negotiation process effective.
The specifics of the hospitality industry
If you are serious about the hospitality business, you will know that negotiation plays a very important role in business. Customers negotiate with hotels for room prices, room types, and special updates every minute. Speaking from a business perspective, for many years, it is always an evolving topic in the hospitality space: what is the best business model? The service-oriented model and the customer-oriented model are the two most popular recently. In addition, according to a research article presented at the 2015 International Economics and Management Scientific Conference, for the hotel services industry, four essential factors that influence success are: value creation, development of the relationship with partners, information and communication technologies and customer relationship management. . Taking services, customers, and these four factors into account, it is reasonable to conclude the importance of negotiation skill for hospitality professionals. Instead of negotiating at the individual level, the focus of this article will be negotiating between companies.
The case of the Marriott-Starwood consolidation
The recent merger case between Marriott and Starwood is an excellent example to discuss the importance of negotiation. The case itself can provide many different perspectives to discuss the negotiation. As of April 29, 2015, Starwood was introduced to the market for the first time. Since then, Starwood, Marriott and a Chinese insurance company, Anbang, have engaged in a trade negotiations battle. It took almost a year for Marriott to finally succeed with a total settlement of $13.6 billion on April 1, 2016. But that wasn’t the end of the story. Marriott has waited another six months for authorization from the Chinese government. On September 23, 2016, Marriott announced that the merger with Starwood had been completed.
The whole story is a negotiation between: Marriott, Starwood, the Chinese insurance company, Anbang, and even the Chinese government plays a role. Did Starwood prefer to merge with Marriott or start a whole new chapter with another company like Anbang? From a business perspective, whoever can have a better offer will win the battle. But an effective and successful negotiation will bring the company more than money!
Key points to prepare for the negotiation
Talking about the objective of investing in the hospitality business, it is essential to obtain the best ROI (return on investment) effectively. To achieve this, investors will want to prepare well for the anticipated trading activity. Here are the main points:
A. Price is number one but not ONLY
Yes, profitability is definitely a priority for all hotel investors and profits come from high room occupancy and average daily rate. Profitability also comes when you get the best time to sell the property. When it comes to negotiating with your potential partner (maybe that’s your current competitor), the number on the offer isn’t the only benefit to consider. Other potential benefits, such as brand reputation, likely new market, or even potential marketing effects along with business, are all valuable.
I. Positive negotiating attitudes and intentions
Preparation will begin by getting to know your potential opponents as much as you can. The information will cover, among others, the financial status, operational skills and legal aspects of the company. In addition to the “data” you can collect, attitudes toward negotiation are even more important. You must maintain a positive attitude and intention towards the process, at the same time, you will expect the opponents to be positive as well. Positive about the possible results as well as the intention towards the process can be helpful for mutual benefit.
According to a Chinese media report, the Anbang insurance company did not maintain sufficient financial capacity to meet Chinese legal criteria for investing in foreign markets. (A Chinese insurance company is not allowed to invest more than 15% of net assets in foreign markets. At the time Anbang negotiated with Starwood, the offer was more than 15% of Anbang’s net assets.) The three companies’ attitudes and preparation can be improved under the circumstances.
II. Long-term relationship
Besides the money offer, what else can you get from a business negotiation? This is also part of the preparation. Many times the company focuses solely on the money supply. The party may consider a long-term cooperative relationship. With sufficient research on the opponents, establish the final result of what the company must secure after the negotiation. For example, opponents may seek technical innovation ideas; there is a creative executive team on your side. Opponents may need advice on improving guest services, your firm can offer excellent advice on this. These are things that could be offered in the process instead of adjusting the money supply. When preparing for the win-win situation, maintaining or even creating the value of the hotel is also crucial.
Beginning with the Marriott case, a common business consolidation occurred between two experienced hotel groups. Both groups have unique trading systems. One thing worth watching in the near future is how Marriott will embed the value of Starwood or create a new value system in the combined company.
B. Schedule the negotiation process
In addition to gathering as much information as possible and deciding the final outcome of the negotiation, the time required should also be planned in advance, especially when you want the process to be effective. Estimating the time frame reasonably will also help you thoroughly evaluate the process. In the case of the Marriott-Starwood merger, after April 1, 2016 for the two to sign the contract, Marriott still waited another six months for the Chinese government to assent. However, when Anbang started its action from the beginning, it is not difficult to predict the next interruption by the government if you observe and study the political environment in China from the beginning. Time is money!
C.Culture, culture and culture
There are many cross-cultural discussions and studies on cultural differences in business negotiation. Dr. Nancy Adler discussed the characteristics of American, Japanese, Chinese, and Brazilian negotiators. It is interesting to see how people from different cultural backgrounds classify negotiating characteristics so differently. Take American and Chinese negotiators as an example, the ranking of the key characteristics you listed for Americans are: preparation and planning ability, thinking under pressure, judgment and intelligence, verbal expressiveness, product knowledge, perceiving and exploiting power and integrity. As for the Chinese negotiators, she presented the following characteristics: persistence and determination, earning respect and trust, preparation and planning skills, product knowledge, interest and judgment, and intelligence. Culture defines your opponent’s negotiation “definition,” the preparation process, and the variety of meanings for upcoming conversations.
Dr. Chang also described the differences between Chinese and American trade negotiations in the article published in the Journal of Human Resource and Adult Learning in 2006. Generally speaking, Americans prefer to persuade other people based on logic. For this reason, if you are negotiating with a US company, providing data and statistics to support your proposal can easily convince your opponent. For the Chinese group, the key point is to establish the mutual relationship between the two sides and to know who is the crucial person. Trust is the core value of this type of relationship. Once the relationship is there, every subsequent discussion is a flux.
I. Non-verbal communication
In addition to knowing the different styles of communication based on culture, pay attention to non-verbal communication as well. About 70% of human communication occurs non-verbally. The preparation to observe and interpret non-verbal communication is sometimes ignored during the negotiation process. Body language, such as facial expression and gestures, can be targeted. Keep this in mind that whatever your company has set up for negotiation, it’s mutual. The other party could organize a similar observation.
II. Active listening, respect and search for specific meanings behind the conversation
American culture encourages clear and direct speech. This does not apply to all other cultures. Unspoken language is common in some cultures, such as Chinese, British, and Japanese. The interpretation of unspoken language is part of the culture that is passed down from generation to generation and is not limited to commercial situations. As you prepare to negotiate with another organization based on culture, practice active listening skills. If possible, a person who comes from the culture will be perfect to be the interpreter. An interpreter not only for the spoken language but also for the “unspoken” one.
It is impossible to decipher the entire process of negotiating the Marriott case for an outsider. However, it is not difficult to imagine the potential clues throughout the process. By learning from the case, with careful attention to latent vocabularies, it is conceivable to move the case forward faster than it is now.
D. Address potential conflicts
No matter how well the preparation has been, there is always the possibility of conflict. Smart trading preparation includes risk management. For a hotel business investor, remember that a successful business negotiation begins with respecting and understanding the cultural and cognitive backgrounds of your opponents. Keep in mind that the price is the priority but not everything. There is an old Chinese saying: “Money comes and goes, the relationship is forever!” Here the “relationship” refers to the one we discussed earlier. Confidence is the key.
conclusion
On a larger scale, trading is not only a process of profit but also of other potential benefits. When you want to exchange and influence the thoughts or behaviors of the other party, you are negotiating time. Mutual benefits and needs can reach a consensus if they prepare well. In the end, you can still maintain the long-term relationship.
References:
Adler, N. (2008). International Dimensions of Organizational Behavior, 5th ed. Cincinnati, OH: South-Western College Publishing, 2008.
Chang, L.C. (2006). Differences in business negotiations between different cultures. Journal of Human Resources and Adult Learning, 135 – 140.
