Smart Shanghai Team

We’ve been discussing Batna and LIM.  Batna, you’ll recall, is your Best Alternative To No Agreement.  It’s what happens if your negotiation falls apart and you can’t reach an agreement.  LIM is simply your framework for stating your priorities in the negotiation. L is what you would really like to get, but don’t expect.  I is your intended outcome, or what you think is more reasonable.  M is your must-get outcome.  If you can’t agree on M, then you should walk away – and go back to your BATNA option.

If you are a buyer, your LIM on a whiteboard would start with a single point — your M.  Say rmb 1,000. Your I would be lower — maybe 750.  You L is theoretically 0, but let’s say that a reasonable figure is 500.  You have a line from 500 (on the left) to 1000 (the point where you started the line).

Your seller also has a LIM, but his moves in the opposite direction.  He will start high — maybe rmb 1,500, and draw his line in the opposite direction.  His I might be 1100, and his M could be 800.

Are you going to reach a deal?  Where?

Your starting position is 500 while he starts at 1,500.  Pretty big difference. If you are not careful, this could get personal and emotional.  His offer sounds unreasonable — yours is insulting.  But hold on.  

His counter-offer of 1100 and yours of 750 are still pretty far apart.  But if the negotiation continues, it becomes clear that neither of you are in BATNA territory.  Your LIM-MIL profiles overlap from 800 to 1000.  That means that THEORETICALLY you should be able to do come to an agreement at around 900.

What can go wrong?  2 things.

1)  Your opening offers can be so far apart that it seems unlikely you’ll ever reach a deal.  That’s the danger of setting unreasonably high Ls (opening positions).  If the buyer has offered rmb 1 in the opening round, the seller would probably walk away and invest the time in finding other counter-parties.   And that leads to the next problem;

2)  Lack of visibility.  If both sides in the above negotiation had showed each other their positions at the very start, then this deal could be arrived at quickly and easily.  But transparency is not a common tactic in China, and very few counter-parties will show you their M (bottom line price) at the beginning of the negotiation.