Negotiation Wal-Mart - Procter and Gamble Thesis

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Negotiation

Wal-Mart - Procter and Gamble Negotiation

Throughout the recent decades, the business community has suffered endless mutations. Employees became organizations' most valuable assets, and generated a need for increased on the job satisfaction in order to achieve corporate profits. Then, the customers became the other determinants of organizational success as they would no longer purchase whatever the organizations produced, but would set the trend and demand for corporate production. Finally, as markets opened and globalization became present in various countries, barriers were lifted and economic agents were able to enter various markets. As a result then, competition increased exponentially, as did the demands from the customers, the employees, the non-governmental and governmental institutions, as well as other categories of stakeholders.

In this dynamic environment then, economic entities need to possess superior strengths that allow them to overcome the competition and reach a leading position within the market. The list of such strengths is endless, beginning with a high dedication and competence from the managerial team and ending with an increased and easy access to resources (capital, labor force and technologies). The ability to conduct negotiations is one important skill that has to be possessed by an organization and the one that has the advantage in the technique of negotiation is the one more likely to succeed within the highly competitive market.

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The specialized literature on the matter of negotiation is rather extensive, offering significant information on the matter. Here are some of the most relevant definitions of negotiation offered by various resources:

Richard Luecke (2003): "Negotiation is the means by which people deal with their differences. [...] to negotiate is to seek mutual agreement through dialogue. [...] a business negotiation may be a formal affair that takes place across the proverbial bargaining table, in which you haggle over price and performance or the complex terms of a partnership venture. Alternatively, it may be much less formal, such as a meeting between you and several fellow employees whose collaboration is needed to get a job done"

Thesis on Negotiation Wal-Mart - Procter and Gamble Negotiation Assignment

L.J. Nieuwmeijer (1992): "Negotiation is a process through which two or more parties communicate with one another in an effort to resolve their opposing interest. It occurs in fields as diverse as labor relations, international conflicts, political and constitutional issues, socio-economic development and personal relations"

The current paper will focus on an actual situation of negotiation which occurred between two major economic agents - Wal-Mart and Procter and Gamble. Both organizations operate at international scale and must therefore be able to strongly negotiate their contracts. Before actually analyzing the negotiation, one should first look at the two parties and the existence of any past relationships between them. Once the background to the negotiation has been presented, the paper will shortly discuss the actual negotiation, followed by an analysis of the situation.

2. Background on Wal-Mart and P&G and their Relationship

Wal-Mart was established in Rogers, Arkansas in 1962 and activates in the retail industry. They represent one of the largest supermarket chains in the world, with a market capitalization of $232 billion. Their net income for 2007 has been of $12,731 billion and they currently employ an estimated 2,100,000 individuals (Website of Wal-Mart, 2008). The public perception of Wal-Mart is conflicting in the meaning that the stores attract strong supporters, but also strong opponents. The first category of individuals bases their arguments on the fact that Wal-Mart creates new jobs, supporting as such the U.S. economy and population and that it offers product at low prices, increasing as such the population's access to commodities. The disclaimers on the other hand argue that the retail giant does not fairly treat its employees and that its supermarkets destroy the local businesses.

Whichever the side chosen by an individual, fact remains that Wal-Mart is the epitome of corporate success and it now possesses a strong position on the negotiation battlefield. It has even been stated that they used their organizational strengths in order to sign favorable contracts with their purveyors.

Procter and Gamble was founded in Cincinnati, Ohio in 1837 and activates in the consumer goods industry. They manufacturer a wide variety of products - from diapers to detergents and other hygiene and wellness items. The organization is highly praised within the industry and has been included on numerous Fortune lists, such as the Fortune 500 or Fortune's Most Admired Companies. For 2008, they are estimated to register a net revenue of $12,075; they operate with 138,000 employees (Website of P&G, 2008)

The relationship between Wal-Mart and P&G is based on a simple principle - Procter and Gamble manufacturers various items and Wal-Mart sells them through their supermarkets. The two organizations are leaders within their industry and have managed to use their strengths in a way that further consolidates their market superiority. But this was not always true, as before the usage of technology, around 1988, the two organizations had developed an adversarial relationship: P&G was inflexible and focus on daily transactions; Wal-Mart wanted more freedom; testing or long-term planning did not occur. In 1985, Sam Walton, founder of Wal-Mart called P&G to announce that the retail chain had awarded them the Vendor of the Year Award. He was transferred 5 or 6 times and the inability to reach P&G's CEO determined him to offer the award to another purveyor.

Following this incident (but not directly linked), P&G began to rethink their sales strategy and began negotiations with Wal-Mart. Sam Walton felt it was a shame that two strong organizations could not collaborate more efficiently for their mutual interest. "Mr. Walton indicated that it was a shame that two quality companies could not work together effectively. He shared that P&G had an extremely overcomplicated and inflexible sales organization. He stated if P&G thought of Wal-Mart stores as an extension of the P&G Company, P&G would treat Wal-Mart differently. This challenge became the rallying cry for the two companies" (Grean and Shaw, 2003).

With the introduction of technology, the relationship between Wal-Mart and Procter and gamble improved significantly. Today, the two organizations collaborate at all levels of the supply chain. They united their efforts and now work as a unified team, following the same goals. "The mission of the Wal-Mart/P&G Business team is to achieve the long-term business objectives of both companies by building a total system partnership that leads our respective companies and industries to better serve our mutual customer - the consumer" (Pharma Focus Asia, 2008).

3. The Situation

Once the executives of Wal-Mart and Procter and Gamble decided to work on their relationship, several processes of negotiation commenced. Some of them were linked whilst others were independent. They all had the purpose of improving the collaboration between the two organizations and each of them had to compromise, win and lose in some cases. The suggestions promoted by Wal-Mart were based on the premises of a win-win situation. Since the retail giant desired increased flexibility from the manufacturer, it made most of the demands. However, they could not conduct fruitful operations if P&G decided to close the collaboration with Wal-Mart. "Wal-Mart could clearly live without Frey Farms, but it's pretty hard to live without Tide and Pampers" (Hanna, 2008). Therefore, the "hard-ball" supermarket store had to accept some of the demands made by Tom Muccio, P&G executive.

The negotiations began in 1987 and were concluded in 2003. Throughout that period, Wal-Mart had increased its purchase of P&G products from $350 million to $7.8 billion. Among the major result of the negotiation, one could point out the following:

Procter and Gamble relocated to Wal-Mart's turf in Arkansas

Wal-Mart and P&G eliminated elaborate legal contracts from their relationship and replaced them with Letters on Intent

The manufacturer and retailer come to share a joint vision

The problem solving process also became unified

They began to more effectively share information

Wal-Mart and P&G tried to move away from the root of their past problems - the lowest retail price (Wal-Mart had used it to attract customers, P&G refused it to register revenues)

The success of the negotiation was built on years of discussions, but also on the following of similar goals. It was made easier by the elements of proximity and mutual trust (Hanna, 2008).

4. Analysis of the Negotiation

The details of the negotiation between retail giant and one its main purveyors were undisclosed to the public. However, since the negotiation expended over a period of sixteen years, the reader could for am an opinion and conduct a rather accurate analysis of the discussions.

Stakeholders

Both organizations were striving to better satisfy the buyer. P&G translated this into a high quality of their products. The superior quality however meant increased prices, which were to the dissatisfaction of both retailer and customer. Wal-Mart on the other was willing to sell items of lower qualities as long as they respected the EDLP principles. P&G did not subscribe to their Everyday Low Prices agenda and numerous fights emerged. The disputes were not resolved to the day and the two organizations have… [END OF PREVIEW] . . . READ MORE

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