Negotiation is an everyday activity. Children negotiate with parents about doing chores; adults negotiate with the company about salary. When it comes to purchasing, negotiation is always there. Although it is not a skill that comes naturally. Fortunately, everyone can learn the skill and practice makes it better. Just like other skills, good preparation can increase the success rate and make the negotiation process effectively.
The Specific Features of the Hospitality Industry
If you are serious about the hospitality business, you will know that negotiation plays a huge part in the business. Customers negotiate with hotels about room prices, room types and special upgrade every single minute. Speaking from the business perspective, for many years, it is always an evolving topic in the hospitality area – what is the best business model? Services-oriented model and customer-oriented model are the two most popular ones recently. Moreover, according to a research article presented in 2015 International Scientific Conference Economics and Management, for the hospitality service industry, four essential factors influencing the success are: value creation, development of the relationship with partners, information and communication technologies, and customer relationship management. Take services, customers, and these four factors into consideration, it is reasonable to conclude the importance of negotiation skill for hospitality professionals. Instead of the individual level negotiation, the focus in this article will be on the negotiation between corporates.
The Case of Marriott-Starwood Consolidation
The recent Marriott-Starwood merger case is an excellent example to discuss about the importance of negotiation. The case itself can provide many different perspectives for discussing negotiation. Started from April 29th, 2015, Starwood first put up itself in the market. Since then, Starwood, Marriott and a Chinese Insurance company, Anbang, has begun a business negotiation battle. It took almost a year for Marriott to finally triumph with a total $13.6 billion deal on April 1st, 2016. But that was not the end of the story. Marriott has waited another six months for the clearance from the Chinese government. It was September 23rd, 2016, Marriott announced the merger with Starwood completed.
The whole story is negotiation among: 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 such as Anbang? From business perspective, the one who can have a better offer will win the battle. But an effective and successful negotiation will bring in the corporate more than money!
Key Points to Prepare for Negotiation
Speaking of the goal for investing in the hospitality business, acquiring the best ROI (return of investment) effectively is critical. To achieve that, investors will want to do well preparation for the foreseen negotiation activity. Here are the key points:
A. Price is number one but not the ONLY one
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 getting the best timing for selling the property. When it comes to negotiate with your potential partner (maybe that is your current competitor), the number appears on the offer is not the only benefit to put into consideration. Other possible benefits such as the reputation of the brand, the likely new market, or even the possible marketing effects along with the business activity are all valuable.
I. Positive Negotiation Attitudes and Intention
Preparation will start from knowing your potential opponents as much as you can. The information will cover but not limited to financial status, operational skills, and legal aspects about the company. In addition to the “data” you can gather, the attitudes towards the negotiation is even more important. You need to keep a positive attitude and intention towards the process, at the same time, you will hope the opponents are also positive. Positive about the possible results as well as intention towards the process can be helpful for the mutual benefit.
According to a Chinese media report, Anbang insurance company did not maintain enough financial ability to meet the Chinese legal criteria for investing foreign markets. (A Chinese insurance company is not allowed to invest more than 15% of the net asset to foreign markets. At the time when Anbang negotiated with Starwood, the offer is more than 15% of Anbang’s net asset.) All the three companies’ attitudes and preparation can be improved under the circumstance.
II. Long-term Relationship
Besides money offer, what else can you get from a business negotiation? This is also part of the preparation. Many times the corporate focuses on money offer only. The party may consider a long-term cooperation relationship. With enough research about the opponents, set up the bottom line what the company should secure after the negotiation. For example, the opponents might look for ideas of technical innovation; there is a creative executive team from your side. The opponents might need advice to improve guest services, the firm you belong to can offer great consultations regarding this aspect. These are things could be offered in the process instead of adjusting the money offer. While preparing for the win-win situation, keeping or even creating hotel’s value is also crucial.
From the Marriott case, a common business consolidation took place between two experienced hotel groups. Both groups have unique business system. One thing will worth to observe in the near future area is how Marriott is going to incorporate Starwood’s value or create a new value system in the united firm.
B. Time the Negotiation Process
Besides gathering as much information as possible and deciding your bottom line for the negotiation, the required time also need to be planned in advance, especially when you want the process to be effectively. Estimate the time frame reasonably will also help you evaluate the process thoroughly. In the Marriott-Starwood merger case, after April 1st, 2016 for the two signed up the contract, Marriott still waited for another six months for the Chinese government to nod. However, when Anbang initiated their action in the very beginning, it is not difficult to predict the following interruption from the governmental side if observing and studying the political environment in China in the beginning. Time is money!
C. Culture, Culture, and Culture
There are many discussions and cross-cultural studies about cultural differences in business negotiation. Dr. Nancy Adler discussed the characteristics for American, Japanese, Chinese, and Brazilian negotiators. It is interesting to see how people with different cultural background rank negotiation characteristics so differently. Let’s take American and Chinese negotiators as an example, the ranking for the key characteristics she listed for Americans are: preparation and planning skill, thinking under pressure, judgment and intelligence, verbal expressiveness, product knowledge, perceive and exploit power, and integrity. As for the Chinese negotiators, she presented the characteristics as the following: persistence and determination, win respect and confidence, preparation and planning skill, product knowledge, interesting, and judgment and intelligence. Culture defines your opponent’s “definition” of negotiation, the preparation process, and the variety meanings for the upcoming conversations.
Dr. Chang also described the differences between Chinese and American business negotiations in the article published in the Journal of Human Resource and Adult Learning in 2006. Generally speaking, the Americans prefer persuading other people base on logic. For this reason, if you are negotiating with an American firm, providing facts and statistics to support your proposal can convince your opponent easily. To the Chinese group, the key point is to establish the mutual relationship between the two parties and know who the crucial person is. Trust is the core value for this kind of relationship. Once the relationship is there, every discussion afterwards is a flow.
I. Non-verbal Communication
In addition to knowing the distinct communication styles based on culture, pay attention to the non-verbal communication, too. About 70% of human communication happens non-verbally. Preparation to observe and interpret the non-verbal communication is sometimes ignored during the negotiation process. Body language such as facial expression and gesture can be focused. Keep this in mind that whatever your corporate prepared for the negotiation, it is mutual. The other party might arrange similar observation.
II. Active Listening, Respect, and Find Specific Meanings behind the Conversation
American culture encouraging speaking straightforward and directly. This does not apply to all other cultures. Unspoken language is common for some cultures such as Chinese, UK, and Japanese. The interpretation for unspoken language is part of the culture passed from generation to generation and it is not limited to business situations. As preparing for the negotiation with another culture-based organization, practice active listening skills. If possible, a person comes from the culture will be perfect to be the interpreter. An interpreter for not only the spoken but “unspoken” language.
It is impossible to figure out the whole negotiation process from the Marriott case for an outsider. However, it is not difficult to imagine the potential clues all over the process. Learning from the case, with care attention to latent vocabularies, it is conceivable to move the case faster than it is right now.
D. Face Potential Conflicts
No matter how well the preparation was, there is always a chance for conflicts. A clever negotiation preparation includes risk management. For a hotel business investor, remember that a successful business negotiation starts with respects and understanding your opponents’ cultural and cognitive background. Bear in mind that price is the priority but not everything. There is an old Chinese saying: “Money comes and goes, relationship is forever!” Here the “relationship” refers to the one we discussed previously. Trust is the key.
From a bigger scale, negotiation is not only a process about profits but also other potential benefits. When wishing to exchange and influence the thoughts or behaviors of the other party, it is time negotiation occurring. Mutual benefits and needs can reach to a consensus if preparation well. At the end, you still can keep the long-term relationship.
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 Resource and Adult Learning, 135 – 140.