Finance and Investment

Power, Leverage and a Strategic Approach to the Negotiation Process

Even before the first group of Peruvian students at the Goldman Sachs 10,000 Women business skills training program began its sessions in 2010, the women entrepreneurs all had practical experience negotiating with their suppliers, partners and customers, notes Rosa Maria Fuchs, associate professor in the management department of the Universidad del Pacífico. What they lacked, however, was a strategic approach for maximizing their results in the negotiation process, adds Fuchs, who prepared the curriculum for the Peruvian program, a partnership between Goldman Sachs, the Multilateral Investment Fund of the Inter-American Development Bank (MIF/IDB), Mibanco, the leading microfinance institution in Latin America, Universidad del Pacífico in Ecuador and Thunderbird School of Global Management in Glendale, Arizona.

Figuring Out the Break-even Point

Rather than focus simply on negotiating for lower purchasing prices and/or higher selling prices, each of the women has learned how to write a customized business plan that makes it easier to pursue a clear path toward clear goals. At each step in that process, negotiation skills play a vital role. The curriculum provides them with a broad view of the negotiation process, ranging from the fundamental concepts to very practical tips for getting the best results, notes Fuchs. Assuming no previous knowledge of basic concepts, the written curriculum instructs the students, for example, that "Power is the ability to influence another person to do what you want them to do," and "Leverage is the degree to which, at any given moment, one person has more ability to influence the other." The coursework -- and intensive class discussions -- also stress the importance of forming alliances with others who have complementary skills and strengths.

"A key lesson of the curriculum is that the women always have a clear target in mind, and a plan for reaching their goal," notes Pedro Franco, dean of the School of Business Administration and Accounting at the Universidad del Pacífico, who supervises the training sessions. Another fundamental lesson involves figuring out their break-even point so they know in advance how low they can go in their pricing negotiations, yet still make a profit. "They need to know how much they need to sell in order to make money," says Franco. "That is the first step in the negotiation process."

Along the way, the students are challenged to discuss examples from their own careers that mirror such curriculum examples as this: "If the factories for making school uniforms don't have enough fasteners, and Silvia has lots of those fasteners, that provides leverage for Silvia. Silvia can then use that leverage to negotiate to have her uniforms made before those of other schools, and enable the factories to use those fasteners when making other uniforms."

"Information is power" when it comes to the negotiation process, the curriculum also stresses. If, for example, "Lucia wants to buy a delivery truck, but finds out in advance that Mr. Garcia is willing to accept a lower price for the truck he wants to sell, she can make an initial offer at that lower price -- without worrying about having to raise her offer."

The women are also instructed in the nuances of various gestures and movements that are involved in a successful negotiation process. Rather than jump into the negotiation process and rely on their instincts and experience, the women learn "to concentrate on the preparatory stages" before the actual negotiations, "so they can get better results" when they do meet for the negotiations, says Fuchs.

Better Sales Terms with Backus

What results does this yield? Take, for example, 45-year-old Martha Naveros, who owns and operates El Tunche, a small convenience store in Lima that sells soda, beer, water and both local and foreign liquor. In business for five years, the company has seven employees. 

Following her participation in the 10,000 Women program, Naveros has been able to implement several improvements in her business, based on her ability to determine her precise break-even point. Naveros says she was able to figure out that, based on her current level of sales of beer alone, she could cover all of her fixed costs. That gave her the confidence to negotiate with suppliers of other products without worrying about the survival of her business.

Using her new skills at negotiation, Naveros requested meetings with Backus and Johnston -- the largest Peruvian producer of beer, water and soda -- and negotiated better sales terms that reflect her high volume of purchase from that company. Backus even offered her one free bottle of beer for every dozen bottles that Naveros purchased from the company. Naveros was able to calculate that she would not only break even as a result, but increase her profits. In return for her commitment to stocking a greater volume of its product, Backus also paid Naveros about USD$5,000 to sponsor a special promotional event for her company, footing the bill for all the music, lighting and free drinks (Backus soda and beer) for her guests.

The 10,000 Women training has opened a broad window of new possibilities for the students, says Marry Sully de Luque, assistant professor of management at Thunderbird School of Global Management. At the most basic level, it has helped them understand this lesson: "You have a right to negotiate what you want." Peru is a very classist society, she says, and some women don't understand that they have this right to negotiate, no matter how limited their financial assets.