How do you bargain with a country with whom you are technically at war?  That was the dilemma facing Israel and Lebanon last year.  In October 2022, the two countries reached a deal addressing the maritime border separating the two Mediterranean nations, allowing the natural gas reserves adjoining the border to be developed.  Today’s post involves many themes of negotiation:  mediation, stakeholders not at the table, anchors, urgency, and international law.

National Rights in the Near Coastal Seas

How do nations know what to expect with respect to maritime rights?  This question lies at the heart of the negotiations between Israel and Lebanon.  There are a broad set of principles laid out in the United Nations Convention on the Law of the Sea (UNCLOS) which were negotiated in the decades following World War II.  Some of the features defined within UNCLOS are included in this schematic diagram:

Coastal nations can claim rights in the waters adjacent to their territory based on the distance from the shoreline.  A coastal nation may define laws and regulation and exploit resources within 12 nautical miles of the coast—the territorial sea.  For reference, it is possible to see approximately 5 miles to sea from the coast—so the extent of the territorial sea is somewhat beyond the coastal horizon.  In addition, customs, taxation, immigration, and pollution laws may be enforced a further 12 nautical miles—the contiguous zone.  This prevents for example smugglers from hanging just beyond the territorial sea and sprinting in to drop off contraband.  Out to 200 nautical miles from the coast, a nation has the sole right to exploit natural resources—the exclusive economic zone (EEZ).

These principles are clear, but issues can become muddier when national waters overlap, when two nations disagree on the interpretation of UNCLOS, or when negotiating countries are not parties to UNCLOS.  In the eastern Mediterranean, Lebanon is party to UNCLOS, though Israel is not.  Nevertheless, UNCLOS represents a standard against which bargaining positions can be measured.

The Israel-Lebanon Maritime Border

The Israel-Lebanon land border has been a flash point in the recent past, chiefly during the 1970s and 1980s with probing attacks from Lebanese territory and Israeli sponsorship of proxies within Lebanon.  PLO attacks preceding Israeli invasions in 1978 and 1982, and Hezbollah attacks preceding Israeli invasion in 2006.

In the early 2000s, gas exploration took off in the eastern Mediterranean.  Off the coast of Israel, natural gas discoveries started in 1999, but the two discoveries that changed Israel’s energy future were the 2009 discovery of the Tamar field (estimated at 310 billion cubic meters of gas) and the 2010 discover of the Leviathan field (estimated at 620 billion cubic meters of gas).  Tamar, Leviathan, and other discoveries along Israel’s coast have allowed the small nation to target production of 40 billion cubic meters per year which places it in the top 25 exporters of natural gas in the world.

To exploit any natural gas discoveries adjacent to Israel’s north and Lebanon’s south, a maritime border had to be established.  With a defined border, blocks could then be delineated within coastal waters, and international energy companies would be able to bid for exploration and commercialization rights.  In 2010, US diplomat Frederic Hof began mediation between Israel and Lebanon to establish the maritime border.  At that time, the Karish and Qana fields were unknown.  In the absence of data about offshore natural resources, both parties advanced proposed borders:

Per UNCLOS, maritime borders of neighboring countries are drawn perpendicular to the coast.  With some slightly different assumptions, Israel offered Line 1 and Lebanon offered Line 23—both lines ostensibly perpendicular to the coast at the Israel-Lebanon land border.  (Note:  the above map is representative of the general features of the parties’ positions, but the lines on the above map were not drawn with GPS accuracy.)  In a classic split the difference solution, Hof proposed an intermediate line between Line 1 and Line 23.

The discovery of significant gas reserves along the maritime border of Israel and Lebanon dramatically raised the stakes for any negotiation.  In 2013, the Karish field (estimated at 85 billion cubic meters of gas) was discovered.  Subsequently, the Qana field (possibly up to 400 billion cubic meters) was also discovered.

In 2011, the Lebanese government commissioned a study from the United Kingdom Hydrographic Office (UKHO) which resulted in Line 29.  In 2020, the Lebanese side proposed Line 29 in response to maritime border talks stalling.  This may have been a negotiating tactic to cast doubt on Israel’s development of the Karish field.  Line 29 never became part of the formal Lebanese bargaining position—it hung in the background when talks resumed later.

Parties

This dispute was a two-sided negotiation with some interesting parties not represented at the bargaining table:

• Lebanon:  Lebanon is a nation that has been divided by civil war and visited by foreign militaries, including the Israeli Defense Force, Syrian Army, and Palestinian Liberation Organization.  Additionally, Hezbollah represents a proxy force for Iran and Syria.  The country has racked up huge financial obligations ($100B in debt) without proportional benefit to its people.  Natural gas revenue would not eliminate Lebanese indebtedness, but it would be a move in the right direction.
• Israel:  Israel has a vibrant economy which was hampered until the early 2000s by a lack of energy independence.  With increased economic ties to the regional economy, Israel hopes that diplomatic progress will follow, leading to more normal relations.  Thus, natural gas is not merely a tool for increasing GDP, to Israel, it represents a potential tool for the advancement of peace efforts.
• United States:  Through its good offices, the United States has invested significantly in these negotiations as a part of its Middle East regional and European political strategies.  The US hopes that natural gas revenue will help stabilize the tenuous domestic political situation in Lebanon.  And, the prospect of additional inputs of liquid natural gas (LNG) into energy hungry Europe is an added bonus in the wake of the Russo-Ukrainian war and loss of Russian natural gas supplies.
• Hezbollah:  On July 2, 2022, launched three drones toward the Karish gas field, asserting its role as a stakeholder not represented at the bargaining table.  The drones were shot down by Israeli forces, but the message was clear—Hezbollah could make production of natural gas difficult if the border issue was not settled.  However, lest it appear that Hezbollah was angling for improved relations with Israel, the primary motivation of its stand was likely that the deteriorating economic situation in Lebanon weakened the group’s political power in the small nation [1]
• Israeli Opposition:  In retrospect, we know that Benjamin Netanyahu was victorious in the Nov. 1, 2022 Israeli elections following the maritime border deal.  But, at the time of the negotiation, he was in opposition and just another stakeholder not at the bargaining table.  He made his dislike of the deal very clear in the press.  Presumably, he had two reasons for criticizing the deal.  First, Hezbollah had supported the deal with its drones, so he viewed the agreement as a capitulation to Hezbollah military action.  Second, the bargain was struck by Yair Lapid’s government, and he no doubt felt obligated to cast shade on his rival.  Since the agreement was completed, he has been quoted as saying that he will “neutralize” the agreement—he however did not say that he would abandon or disavow it.

Issues

In a sense, the issues involved in this negotiation were deceptively simple.  Examining the maritime map of the Israel-Lebanon border, the issue seems to be literally one of how to slice the natural gas cake, but that ignores other issues that represented challenges and opportunities in the negotiation.  One of the most important strategies of negotiation is to perceive all the issues at hand in order to take advantage of hidden breaks.  Some issues and opportunities confronting the Israeli and Lebanese negotiators included:

• Ossified Negotiating Positions:  In any negotiation that proceeds for an extended period of time, the positions of the principals risk becoming hardened and inflexible.  In the case of this negotiation, the first attempt at mediation in 2010 had been followed by a long period without any progress.
• Regional Rivalry:  Israel’s northern border has been the site of recurrent violence since Israeli independence in 1948.  It can be tremendously difficult to work constructively with an old rival.    
• Urgency of the Moment:  As in the case of Nixon’s opening to China [2], the Israel-Lebanon maritime border negotiation benefited from some unique circumstances that created one-time incentives toward breakthrough.  These include:  1) With global warming becoming an issue, hydrocarbon producing nations are under pressure to extract resources from the ground or leave them forever in place.  If Israel and Lebanon do not pump out the Karish and Qana fields in the next few decades, it is possible that the opportunity will pass, like money left on the table.  2) The Lebanese treasury is under massive pressure as Lebanon’s GDP craters.  3) Both the Israeli and Lebanese governments were in flux.  Israeli elections followed in late 2022 and the Lebanese government was in a caretaker role.  So, neither side had time to spare before they might lose power.  4) Israel was ready to bring the Karish field into production in 2022, but without an agreement, there was risk of military attack on gas infrastructure from the Lebanese side of the border—something the Israeli military could deal with but which it no doubt preferred not to.  5) In the wake of the Russian invasion of Ukraine, the world was short of natural gas due to the Russian supply to Europe being interrupted.  So, negotiation of new natural gas agreements would be easy and lucrative from the supplier point of view.

Negotiation

Early mediation efforts in 2010-2012 by US diplomat Frederic Hof were described above.  Unfortunately, although the issues had been explored, no concrete progress had been made.

Negotiations restarted in October 2020 with mediation by Assistant Secretary of State for Near Eastern Affairs David Schenker.  The Lebanese asserted Line 29 which fell outside of the previously discussed Lines 1 and 23.  This was what might be called a late-stage anchor.  Early anchors can improve the bargaining position of a party [3].  Late-stage anchors signal one of two things:  a shift of the balance of power in the negotiation toward the party offering the anchor or a willingness of the party offering the anchor to blow up the negotiation.  Talks quickly deadlocked with the Israeli Energy Minister Yuval Steinitz tweeting hyperbolically [4], “Lebanon has changed its stance on its maritime border with Israel seven times.”

Amos Hochstein was appointed as the new US mediator in October 2021.  A US diplomat born in Israel, Hochstein was familiar with the region, as well as having familiarity with US departments affected by the negotiation (the White House, State, Treasury, and Energy).  A new mediator can often get stalled negotiations moving, and in this case, that seems to have been critical.  He was able to shuttle between the two sides and apply pressure for compromise.

The US pressured the Lebanese side to abandon Line 29; nevertheless, the Lebanese side seems to have benefited from the late-stage anchor.  The final line swung from the split-the-baby Hof line of 2010-2012 negotiations to the Lebanese offered Line 23—a victory for the Lebanese side.

Interestingly, there is another interpretation of what happened in the negotiation.  The Israeli side relinquished some territory that it had earlier claimed (Line 1), but it gained some prospect for peace on its northern border.  The agreement places two valuable economic assets along that border (Karish for the Israelis and Qana for the Lebanese), creating a powerful disincentive to future military conflict on Israel’s norther border.  So, this may have been a sea-for-peace trade.

Once the new maritime border had been agreed on, the question became:  how much of the gas is on the Lebanese side of Line 23 and how much is on the Israeli side?  This was a theoretical question because the field remained unexplored at the time.  The answer the two sides agreed to was in effect 83% on the Lebanese side and 17% on the Israeli side.  The final deal was signed at the end of October, just prior to Israeli elections, and included the features:

• The first 5 kilometers are defined by the buoy line set by Israel for maritime security, farther out, Line 23 governs.
• 17% of profits from the Qana field go to Israel.
• US to mediate royalty disputes.

Conclusions

There are so many interesting themes to the Israel-Lebanon maritime border negotiation.  They were ticked off in the discussion above (mediation, stakeholders not at the table, anchors, urgency, international law).  One that bears additional reflection is the negotiation model.  There are several negotiation models that apply to various bargaining situations (competitive, problem solving, compromise, allocation).  Clearly, some see this negotiation as competitive—for instance, Netanyahu has made it clear that he thinks Israel conceded to Hezbollah—he is embracing a competitive view of the negotiation.  But there are other aspects.  Israel compromised regarding the final line—a consideration that may (or may not) pay off in the long run in terms of improved relations with the US (who appreciated the support of its diplomacy) and with Lebanon.  There was an allocative aspect to the negotiation—which country would receive what fraction of the gas reserve?  Allocative negotiations often proceed in the face of imperfect knowledge of the size of the asset, but this type of negotiation is benefited as more information is provided.  Given that the undersea gas fields of the eastern Mediterranean were better understood in 2022 than 2010, this increased knowledge aided a final settlement.

[1] Marsi, F.  “What to know about the Israel-Lebanon maritime border deal,” Al Jazeera, Oct 14 (2022).

[2] Gallant, S.R.  “Opening to China,” DiscussingTerms, Dec. 1 (2022).  discussingterms.com/2022/12/01/opening-to-china/

[3] Gallant, S.R.  “Making an Offer,” DiscussingTerms, Jan. 9 (2023).  discussingterms.com/2023/01/09/negotiation-tip-making-an-offer/

[4] Daily Sabah.  “Israel accuses Lebanon of changing stance on maritime border,” Nov. 20 (2020).

Disclaimer:  DiscussingTerms^TM provides commentary on topics related to negotiation.  The content on this website does not constitute strategic, legal, or financial advice.  Consult an appropriately skilled professional, such as a corporate board member, lawyer, or investment counselor, prior to undertaking any action related to the topics discussed on DiscussingTerms.com.

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Swifty Lazar was a great negotiator.  No story about him illustrates his negotiating skills more clearly than the tale of how Iriving Lazar became “Swifty Lazar.”  As told in Lazar’s autobiography, he was having lunch with the actor Humphrey Bogart [1].  Bogart asked him, “How many deals do you think you can make for me and in what period of time?”  Swifty replied, “I could make you three deals in one day.”  Within 24 hours, Lazar proceeded to do exactly what he had promised to Bogart, booking the actor with enough motion picture work for the subsequent three years and leading the actor to give Lazar the moniker “Swifty.”

“Swifty” was a sobriquet that accompanied Iriving Lazar through most of his storied career as a literary agent in New York and Los Angles.  His career was bookended by negotiating deals for Henny Youngman in the 1930s and Madonna in the 1990s.  Today’s post focuses on Irving Lazar the negotiator.

Swifty Was On Your Side

There is a professor Adam Grant at the Wharton School who has advanced the idea that helping others is the key to creativity and productivity [2].  Swifty was an original practitioner of the Grant philosophy.  As described by Lazar, when he started out as an agent, “Writers had never heard of an agent giving dinners for groups of eight to twenty in the most fashionable restaurants and picking up the check.  But I did it on a regular basis—what the hell, it was all tax-deductible.  My clients became my friends.  My friends became my clients.”

But, he didn’t limit himself to organizing salons, as he said, “I tried to make myself indispensable.  When I brought writers out to work in the movies, I organized everything for them—apartment, car, servants.”

By being the indispensable man, Lazar grew a fantastic network of friends and acquaintances that he could draw on when trying to make a deal.

Swifty Represented Everyone

The screenwriter Harry Kurnitz had an oft-quoted line about Swifty, “Everybody has two agents, their own and Lazar.”  This line is a little mysterious without some basic facts about talent agents.  Talent agents and literary agents negotiate movie deals and book deals for a 10% (more recently 15%) commission.  The agent typically receives the payments from a studio, takes their commission, and passes the remainder on to their client.

For most of his career, Swifty operated as a one-man talent agency, and he was working essentially all of his waking hours.  Starting at 11 in the morning he would begin calling various high level entertainment executives to test the waters on possible projects.  In the evening, he was socializing and gathering intelligence.  When he found an interested executive, he might make a deal for a studio to purchase a book by a prominent writer to be made into a movie.

The catch was that the writer was often already contracted to an agent other than Lazar.  Swifty made his money by taking 10% of the deal on top of the 10% that the writer’s own agent would make.  The writers were always impressed by the high dollar value of the deals Swifty put together, and as a result, they did not complain about Lazar’s fee.  The other agents were often embarrassed that Swifty put their deal together for them, but their embarrassment was salved by the receipt of their full 10% of the deal.

Lazar summed it up this way, “Sure, I had some charm.  But the reason I was able to poach so successfully was that I knew more, negotiated harder, and made better deals.”

Round Numbers And A Handshake

Lazar put together deals using two basic strategies:

1. Information:  Lazar had better information than anyone in Hollywood (and later when he moved back East, than anyone in New York City).  He knew what type of projects executives were looking for, and critically, what a given deal should be worth.
2. The Lazar Technique:  Swift would open with a strong offer, the most that a deal would conceivably support—a big round number ($150,000, $1,000,000, whatever was appropriate).  He was setting an anchor.  Once he had opened the negotiation, Lazar wanted to move quickly to an agreement, as he said, “When I’m negotiating, I prefer as brief a meeting as possible.”  The deal would be concluded in old Hollywood style based on a handshake.  Interestingly, Lazar rarely had contracts even with the writers he officially represented.  His role was framed by trust—trust from studio executives that he was bringing them good projects and trust from his clients that he was getting them a good price for their work.

Lazar operated in the middle—a risky place to be, but a place that he relished.  He wrote in his autobiography about a conversation with an acquaintance who had become disillusioned by his agency work in Hollywood, “What my colleague was missing was the obvious reality:  this is the greatest time in the world to be an agent.  As the studios have weakened, the agents have become more powerful.  They’re showmen, or they at least have the power to be. [1]”

Swifty Knew Which Way The Wind Was Blowing

Irving Lazar’s career was extraordinarily long by the standards of the entertainment industry.  He made two smart moves in his career.  First, he opened The Irving Paul Lazar Agency in 1947 to represent East Coast playwrights, and to a lesser extent songwriters, lyricists, costume designers, and directors, in Hollywood.  Throughout the 1950s and 1960s, the Hollywood studios were constantly on the lookout for new script ideas and new production talent—a need that Swifty could fulfill with his numerous personal connections within the literary and theater worlds.

But, as the 1960s progressed, the Hollywood studio system began to break down.  This affected Lazar’s business in two big ways:  1) as the churn of studio executives accelerated, it was harder to go to the head executive to get a deal done and 2) financial oversight at the studios became more pronounced, so it was harder to get the kind of quick meeting deals done that Swifty preferred.

So, in the 1970s, he made the second smart move of his career and moved back to New York from Hollywood to focus more on book deals.  The 1970s and 1980s were a time of interest in celebrity biographies.  Fortunately for Swifty, his long list of friends and acquaintances proved a fertile ground for the kind of book deals that led to best sellers.  By leading the pack out to Hollywood, and then back to New York, Lazar was able to define a unique kind of representation within the entertainment industry—the literary agent.

Swifty Could Be Tough

Lazar started out as an agent in New York City in the late 1930s, a time when organized crime played a significant role in jazz clubs, bars, and restaurants.  Because of that experience, Lazar could be the hard guy when he needed to be or wanted to be.

He wrote about an incident from the late 1930s when he was in his early 30s and just getting started as an agent.  He had put Count Basie’s band into the Famous Door, but he felt that the club’s owners were keeping too much of the take for themselves.  He rectified the situation by showing up late at the club several evenings and shoving his hand into the till, pulling out a few thousand dollars each time.

As life went on, Swifty—at least in his telling—developed a thick skin.  This makes sense, given his position in negotiations and in Hollywood.  Producer David Selznick once said of Lazar (at a dinner from which Swifty was absent), “There is one man who is not here who is single-handedly ruining the motion picture business as we know it.  The ridiculous prices he demands for books and plays and writers will surely be the end of us all [1].”

Lazar understood that as the man in the middle of the deal, he would be a magnet for any regret or hard feelings that developed during the negotiation or after, and he was capable of letting some of that criticism pass without need to say or do anything in response.  However, some of the most notorious incidents in Lazar’s life occurred when he did not let things pass.  Once when Swifty was in his late 50s, he got in a dustup with Otto Preminger at the New York restaurant 21.  Preminger held it against Swifty that Preminger had failed to secure the film rights to the novel In Cold Blood.  Some alcohol was involved, words were exchanged, tempers flared, and Preminger ended up being photographed with his head streaming blood from a gash caused by a glass that Lazar had smashed against Preminger’s skull.  Lazar ended up with a court appearance and a conviction on a misdemeanor, reduced from felony assault.

Conclusions

Irving Lazar was born in 1907 in New York City and died at his home in Los Angles, California in 1993.  In the intervening 86 years, he created a place for himself in negotiations on both coasts, making wealth for his clients and enjoying a special status as everyone’s second agent in Hollywood and in Manhattan.

[1] Lazar, I.  Swifty:  My Life and Good Times, Simon & Schuster (1995).

[2] Dominus, S.  “Is Giving the Secret to Getting Ahead?” New York Times, March 27 (2013).

Disclaimer:  DiscussingTerms^TM provides commentary on topics related to negotiation.  The content on this website does not constitute strategic, legal, or financial advice.  Consult an appropriately skilled professional, such as a corporate board member, lawyer, or investment counselor, prior to undertaking any action related to the topics discussed on DiscussingTerms.com.

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There are two reasons that people are hesitant to make the initial offer in a negotiation.  First, they may be unsure of the market value of the item they are trying to buy (or sell).  They are worried of significantly under or overstating the item’s value.  The fear is that the negotiator will telegraph to the other party that they are unprepared for the negotiation—and therefore ripe to be taken advantage of.  Second, the negotiator is worried that the other side will talk them down from their offer—that they will be “ground down” during the negotiation process.  The fear is that the other party has the power in the negotiation, and as a result, the other party will eventually get what they want.  Today’s post addresses the process of making an initial offer, discussing these and other fears.

Preparing to Negotiate

Preparing for a negotiation is a five-step process.  The steps include:

• Think about your personal/your organization’s goals—what do you want to achieve in the next few years?  Starting with this step puts the negotiation in perspective.
• Think specifically about your goals for the negotiation:  what is the best possible outcome you reasonably expect (one end of your range) and what you cannot tolerate (the other limit of your range, “your limit”).  This may require some research (i.e., step 3).
• What is the market of the object?  You can use many resources to answer this question:  internet, the other side’s competitors and customers, your friends and work acquaintances, industry pricelists and databases, comparable sales, etc.
• Does the other party see things differently?  Understanding the other side’s motivations is critical to a successful negotiation.  Do they have an emotional connection to the object?  Does this deal mean that they will be leaving or entering a particular area of business—how will that affect them financially and organizationally?  What do you know about what their range might be?
• Talk to your team, a friend, or a spouse about your goals for the negotiation.  Studies show that talking about goals helps humans invest in them emotionally and stick with them during difficulty.  Talking about the negotiation ahead of time will help you stick with your plan during the hard parts of the negotiation.

Making an Offer

The 2018 film Beirut is a movie about hostage negotiation.  In the climactic scene, two characters haggle over a hostage payment.  Skiles makes an offer, aware that the price he earlier negotiated is out the window because he is dealing with a new man he has not spoken with previously.

Skiles:  This is it. All I got.  ($2 million.)  I’m topped out. Deal speaks for itself.

Kidnapper:  You wouldn’t open with your best offer if your life depended on it.

Skiles:  Two point two-five.

Kidnapper:  Five million.

Skiles:  Three.

Kidnapper:  Four and a half is my floor.

Skiles:  Point blank, I have $3.9 million exactly.

Kidnapper:  Going once.

Skiles:  Why should Bashir be the only person to profit?

Kidnapper:  Going twice.

Skiles:  If you take the three-nine right now, I swear I will tell Bashir you settled for three-five.  You can go back to Arafat with your head held high and $400,000 in your pocket.

Kidnapper:  Deal.

What is driving Skiles in this scene?  First, he is spending someone else’s $4 million—he is willing to go up to that level, but he does not have any more money after that.  He has no incentive to spend less (none of the money will end up in his pocket), but he absolutely needs for the negotiation to succeed (he has no backup plan).  Starting at $2M allows him the room to negotiation inside of his range.  As he reaches his limit, he skillfully offers a consideration to the other negotiator which seals the deal.

So, what are the options for making that first offer?  They include:

• Wait for the other side to make an offer.  When you really do not know what the stakes are, there are advantages to waiting.  If you go first, then you could make a foolish offer—significantly far away from what the other side has in mind.  However, by remaining silent, you take a risk.  They could low-ball you, and you would have left a lot of money on the table.  This is called an anchor.  Even if the negotiation continues after the anchor is offered, and the deal improves, the deal can only move so far from the anchor—limiting the value you will receive.
• 60/80/90/Go.  When I was younger and traveling with friends in Central and South America, we would keep our money divided in convenient amounts in different pockets in case we had to do any bargaining—we did not want to pull out a big roll of cash.  For this method to work, you have to have an idea of a reasonable price for you to pay for an item.  First, you offer 60% of your price.  The seller reacts.  If there is no deal, you can come up to 80%.  If you still do not come to a deal, then you can come up to 90% of your reasonable price, but make as if this is really hurting you.  You can start to walk away at this point (either literally or rhetorically).  Sometimes that stratagem triggers a concession.  If not, there is still 100%.
• Focus on something else.  This strategy works best in salary negotiations.  It is common for an HR person in the initial interview of a job candidate to ask about salary requirements.  In spite of the troves of information that is available online, it can be hard to establish a good range when things like hiring bonus, commission, stock options, time off, and benefits start to come into the picture.  As a result, answering HR’s question can be hard.  Instead of naming a range, come back with, “I would like to be hired with a title of….”  Since many companies have salary ranges assigned by position, you have answered their question—at least within their company.
• Start off small.  I frequently negotiate agreements for contract manufacturing of pharmaceuticals.  Particularly, if both parties are new to each other, constructing a large manufacturing deal can be a challenge.  There are so many variables and so much risk—in order to have drug ready for shipping, there must be:  transfer of manufacturing procedure at small scale, transfer of analytical methods, scale up to full scale, the manufacturing run itself, packaging and labeling, and testing of the pharmaceutical.  Often, starting off with the first steps (small scale process and analytical method transfer) allows both parties to feel comfortable with each other before committing to the higher cost of full-scale manufacturing.  However, if you go with this approach, there is a significant risk—to prevent a bad deal down the road, you must have a fallback plan.  For example, in the pharmaceutical manufacturing world, you must have an alternative manufacturer lined up.  This allows you to walk away if the later negotiation with your initial manufacturer goes poorly.

Make Your Offer Look Good

Frequently, there are aspects of a deal that cost you little or nothing but provide reassurance to the other party.  One way of making a successful deal more likely is to play up these aspects of your offer.  You have financing already in place.  Your offer is all cash.  Your side is prepared to sign as soon as certain details are clarified.

This strategy requires empathy on your part.  What is the other side looking for?  How can you make your deal look as much like what they want as possible?

Also, if you are looking at their initial offer, beware of hidden unpleasantries.  As an example, in the pharmaceutical contract manufacturing business, the sponsor needs the raw data from the manufacturer.  Usually, raw data is supplied free or at some nominal charge.  An illustration of a hidden unpleasantry would be significant add-on charges for the raw data to be supplied by the manufacturer.  These kinds of concealed penalties need to be neutralized as they appear in the negotiation.

Conclusions

The negotiation process involves four steps:  1) preparation, 2) initial offer, 3) bargaining, 4) closing.  Ideally, you would perform all four steps with precision and skill, but that is not always how things go.  For example, perhaps you allow the other side to open, and you realize that they have anchored at a value that is very disadvantageous to you.  You can correct this by addressing the issue directly.  You say something like, “Clearly, we are very far apart,” or “This is a premium service.  Our clients pay significantly more than that.”  You have neutralized their anchor, and now it is your turn to place your anchor.

All of this should be done directly, with good humor, and a clear intention to resolve problems in the negotiation.

Disclaimer:  DiscussingTerms^TM provides commentary on topics related to negotiation.  The content on this website does not constitute strategic, legal, or financial advice.  Consult an appropriately skilled professional, such as a corporate board member, lawyer, or investment counselor, prior to undertaking any action related to the topics discussed on DiscussingTerms.com.

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