clive

The tacit negotiation between Governments and debt Rating Agencies in relation to Eurozone debt (and indeed UK debt) illustrates some of the rules of power in negotiating very nicely.

Ratings Agencies seem to have the upper hand. Standard and Poor’s downgrading of the US ‘Triple A’ credit rating sparked a round of market falls and introspective comment concerning US debt and the way its political parties are managing the problem. Its constantly gloomy prognosis concerning Greek debt and the likelihood of default helps promote an air of ongoing crisis surrounding the Euro.

In recent days Moody’s Agency has cut the credit ratings of French Banks Societe Generale and Credit Agricole, partly because of their fears over exposure to Greek debt, immediately causing a further market funk across Europe. Only two days ago Standard and Poor warned that a widening of the debt crisis could have ratings serious consequences for German Banks, against a backdrop of another hastily arranged crisis conference call between Germany, France and Greece, and an anxious gathering of European Finance ministers in Poland

How do the Ratings Agencies do this? Firstly they are seen as having some expertise, because they often get their calls right. They say that a particular debt obligation or debt instrument should have its rating lowered and hey presto the markets respond to that judgement. This is of course self-fulfilling but the Agency’s expertise is nonetheless reinforced.

Ratings Agencies also do something else which devotees of power plays advocate. They win through action not argument. Some say that from the point of view of exercising power, argument or debate weakens your position, and that action is far more important. Standard and Poor’s don’t negotiate, they simply announce their decisions. This […]

Dell’s decision to launch tablets via a joint venture with Baidu in China rather than in the US or Europe is only reported in passing in this article (Reuters.com) but it is fascinating when examined from the perspective of bargaining power. First of all it suggests a further subtle shift in the tipping of bargaining power from West to East. It would seem China can now potentially deliver greater scale than Europe or the US for a technology company like Dell. This is an important source of bargaining power. China can also deliver greater “network” bargaining power – literally; the giant Baidu search engine can deliver 294 million users – that’s 70% of China’s online users. China can also deliver “authority” power – trading success here counts for an increasing amount in the rest of the world.

The move is also interesting for what it says about Dell’s negotiating power. Some analysts are very cynical about the development and Dell’s weak market position – one is quoted as suggesting that it is just “grasping at straws to get any kind of publicity”. Yet companies can create “authority” in many different ways. One way is for a company to be prepared to recreate itself. This creates an air of unpredictability which wrong-foots opponents. In addition, carrying out a strategic course of action boldly and decisively rather than timidly helps develop your authority.

Dell has a reputation for steady reliability rather than flair, but launching products exclusively in China is an unusual and perhaps unexpected step, and tying up with the leading Chinese search engine is an innovative form of partnership. This kind of initiative gets noticed by commentators (as this article demonstrates). And whether or not this […]

The announcement of the Deezer UK launch and its tie up with Orange shows how important it is to be clear when you make your “bid” as a negotiator. If you don’t then the impact of your bid will be lost and the other side will be much less likely to accept it. In this case the “negotiation” with users over whether to accept the Deezer offering may already have been somewhat lost

There was definitely some initial confusion over what the Deezer offer is in the UK. The Telegraph reported the UK launch of Deezer by simply stating the standard Deezer offering:

– £4.99/month to listen to unlimited streaming via computer only
– £9.99/month to listen to unlimited streaming via computer or/ mobile device and an offline mode (presumably recently streamed songs are stored somehow in the device/pc)

This was followed within days by Mobile Today reporting the Deezer/Orange offering which provides mobile streaming only to all of their pay-monthly customers (but not PC streaming from what I can gather) to bypass the £9.99/month tariff that would otherwise have been paid for this service.

To cap it all I also read that Deezer are still finalising their licensing agreements with the UK labels and publishers, so it is not clear if this offering is ‘live’ yet (there is nothing on Orange’s website about it despite the announcement that this would be in place from last week).

When you are negotiating, offering confusion and complexity are not great ways of persuading other people (in this case the public) to accept your bid. So, it will be interesting to see what impact (if any) this service has on Orange’s sign-up rate in the UK.

The visit last week by David Cameron to Russia signals a desire to re-set the climate in negotiations between Russia and the UK.

The climate has been hostile ever since the murder of Alexander Litvenenko in London by a suspected Russian agent, Andre Lugovoi, in 2006. In fact even before that, back in 2003, things took a bad turn when Britain gave sanctuary to oligarch Boris Berezovsky, an arch Putin opponent.

The murder of Litvinov and how to deal with it has created a relationship conflict fuelled by strong emotions on both side. As has been the case here, these kinds of conflicts are often characterised by stereotyping on both sides and negative behaviour with mutual accusations and recriminations. Overlaying this “relationship” conflict is a ‘values” conflict. This kind of conflict arises where parties have different ideas for evaluating ideas or behaviour, or different ideologies or culture. The murder of Litvonov has created exactly this kind of values conflict. Whilst eliminating your opponents is certainly illegal in Russia, there is a long history of politically inspired violence which probably makes the UK Government’s horrified and indignant reaction to Litvonov’s death seem rather over the top To Mr. Putin and his regime. Especially given that they will feel that Britain taking in Boris Berezovsky was a hostile act.

Against this backdrop the visit by Cameron signifies a desire to re-set the climate. Climate is very important in negotiations – it’s one of the first stages, and it influences everybody’s state of mind and behaviour. If the climate is wrong the negotiation cannot be successful. It’s impossible to go from a “hostile” climate, which the UK and Russia have set, straight to a “warm” and open climate. However a […]

The hostile state of mind at the TUC conference last week, and the ominous planning of strikes, does not bode well for Industrial relations in the UK over the coming months.

The problem here seems to have been that all the normal stages of a negotiation have been skipped, as a result of the Government’s Pensions Review, and the desired outcome has been declared by the Government without there really being a negotiation.

No doubt the urgent need to control public sector spending has been the driving force behind the Government’s thinking. As they look at the turmoil in EuroZone countries like Greece and Italy, and even the volatile US sovereign debt position, they must feel that the only sensible course of action is to continue to squeeze the public sector’s reliance on the taxpayer so as to demonstrate to Financial markets that the UK has its government spending under control. This makes sense logically – the UK is like any other business or family; if you owe too much money you either have to increase your revenues or cut your costs. Against this backdrop, a requirement for public sector workers to contribute more to their own pension plans as the population ages has some logic.

However, whilst the decision to curb the tax payer’s potential exposure to public sector pensions may make logical sense, it is clearly a decision in in which Union members have a stake and so they will have expected a negotiated solution. When you seek to impose a pre-determined solution on a party that is expecting to negotiate about it then you have to expect that a hostile climate is going to develop. This then results in the party that feels unfairly […]

This may seem like a simple question to answer, but it is often the case that people think they are cutting a deal, when in fact they are getting nowhere.

In order for a ‘negotiation’ to happen, a set of six core ingredients need to be in place:

1. There are two or more parties
2. Everyone is at least prepared to reach an agreement
3. There are both interests in common and conflicting interests
4. Those involved have the freedom to meet each other’s needs
5. Everyone is willing to be explicit about their wants and needs (if they are not then there is no basis for negotiation)
6. People are prepared to compromise to some extent, so that everybody can feel they at least got something in the end.

So before starting a negotiation, ask yourself “are all of these ingredients present?” If they are not, then that might explain why it feels like a bit of a struggle, and you should work at adding the elements that are missing before continuing.

Many public ‘negotiations’ are in reality nothing of the sort, as one or more of these ingredients is missing. Where you have discussions with a protracted impasse, that is often the case – e.g. the Israeli-Palestinian negotiation.

Watch out for my follow up article next week entitled “What Makes an Effective Negotiator?”.

One of the keys to any successful negotiation is confident bidding. If you are assertive and look like you believe what you are saying then the other party may believe that you mean what you say. If you are anxious, hesitant or evasive then the other side won’t believe you and are likely to exert pressure on you to get more of what they want.

This is the story of the Euro crisis in a nutshell, and the latest vote in the German Parliament to endorse a rescue package will not alter this dynamic in anything other than the short term.

The financial markets do not believe that the Eurozone governments and the ECB are really willing or able to ensure that struggling economies like Greece will honour their huge sovereign debts. This is particularly so with regard to Greece. Market sentiment seems much less concerned with Ireland now, Spain and Portugal are seen to be making headway in solving their problems, and Italy is not seen as quite such a basket case.

The doubts about Greece are partly caused by prevarication within the Eurozone itself. Every time the Eurozone Governments avoid dealing with the issue or pass the buck to the ECB these concerns are intensified and market panic ensues. It is fine that the German Bunderstag has endorsed the expansion of the EFSF rescue fund available for buying debt bonds from Eurozone governments including Greece. However, other countries still have to endorse the package, so the markets remain sceptical of the outcome, and will continue to demand sky-high yields from government bonds in the meantime, or avoid buying them – both of which enhance the prospects of a default.

The same thing happens every time […]

Mediators have many tasks that they have to juggle. They must seek to understand the causes of the conflict, monitor the state of the relationships, keep an eye on process and background legalities, and facilitate the generation of compromise positions.

But they have one other duty above all else, which is that they must remain neutral. If they are not perceived as neutral then they cannot possibly succeed, Only if both parties trust the mediator can the mediator influence the outcome – otherwise the parties will not share their secret hopes and fears, and reveal the areas where they may be prepared to compromise.

Tony Blair was always a curious choice as a Middle Eastern peace envoy, given that he is chiefly remembered for allegedly misleading his country into fighting a bloody war in the Middle East, in Iraq. It felt almost as though Gordon Brown was determined to shunt him off as far as possible from either domestic politics or Blair’s own comfort zone.

Blair’s own apparent relentless pursuit of financial gain since he left office also counts against him in establishing his credentials as a neutral. He has a £2 million a year contract with JP Morgan, and has been accused of championing clients of JP Morgan in two large business deals in the West Bank involving telecoms and gas. How can he be a credible member of the mediating Quartet, critics say, if he puts his own financial interests first?

Now it is suggested by the Palestinians (in this article in the Telegraph.co.uk) that he lobbied against them among European powers prior to their UN application for statehood, with officials like Nabi Shaath calling him “an Israeli Diplomat”.

There are many obstacles to Middle […]

President Obama is of course absolutely right in saying that the Middle East peace process can only be addressed by direct negotiation between Palestinians and Israelis, and that there are “no shortcuts”. Whilst the Palestinian attempt to secure state recognition at the UN is borne of understandable frustration, it is not a way to solve this enduring dispute. Indeed by seeking to paint the Israelis into a corner it probably decreases the prospects for progress. Furthermore, making the US veto the decision is embarrassing for Obama and will not be forgotten – in any negotiation it is very important not to offend players of influence.

So, marks awarded for recognising that the UN is not the place to resolve the dispute. However, relying on the Quartet of Mediators to resolve it may not achieve anything either. This Quartet of representatives from the UN, the US, Russia and the EU is already in the news. It is reported that it may issue a statement requiring Israel to accept a return to its pre-1967 borders, an end to settlements and a two state solution as a basis for settlement discussions, whilst the Palestinians are required to recognise the right of existence of a Jewish state.

If this is true, I see some clear problems with this approach:

1. Mediators would not normally set out the parameters of a deal – that is the responsibility of the parties, and it is not for the Mediators to tell them what to do. Mediators should not have a “position”.

2. Mediators would not normally set preconditions of this kind. The most important thing is to get the conversation going, not to pre-determine the outcome before it has even started.

3. […]

The launch of the Amazon Kindle Fire is attracting attention, with commentators suggesting its low price point may supply meaningful competition for Apple’s iPad in the tablet market.

Certainly in the “negotiation” for the consumer’s wallet, Amazon does enjoy certain advantages. An attractive price can provide “market” bargaining power as it does in a range of consumer products from electronics to cars, and the price differential here is significant – US$199 versus US$499. Moreover Amazon are able to link the device to content offerings in relation to digital books and latterly digital videos and digital music. Being able to link products in this way offers another type of “market” bargaining power and indeed this is exactly the way that Apple first generated breakthrough sales for its iPod – spinning out of its iTunes content offering.

However, Apple still has some enormous bargaining power with consumers which should not be under-estimated. Firstly it has 80% of the current market for tablets – a huge source of “market” power. Equally Apple brings “expertise” to the table, another potent source of bargaining power. It also has tremendous “network” bargaining through its access to its massive base of existing users. In addition Apple is working hard on bringing the power of “rules and regulations” to bear in its favour through its concerted legal campaign to enforce its patents against the likes of competitors such as Samsung. This may not be sustainable as a source of power, but it is clearly a form of bargaining power to which they attach great importance.

These sources of bargaining power suggest that Apple is not going to be eclipsed just yet in the tablet market. There is one Achilles Heel though which may yet […]