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Published on Jan 18, 2013 in Europe, News, slider

Negotiating a Transaction in Germany

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We’ve assisted clients in negotiating transactions in most parts of the world. China, in particular, seems to be a country where we’re constantly asked to assist clients in negotiating a contract or other business arrangement. After nearly a decade in China, we seem to understand the Chinese culture and negotiating process so well that we almost think like the Chinese at this point – a scary prospect! However, we’ve also had extensive experience and success in negotiating transactions in other parts of the world, particularly Germany, where negotiations couldn’t be more different from those we conduct in China.

What triggered this blog is that my partner Dave Dodge and I were recently talking about the growing number of Chinese companies that are acquiring the technology of companies in Germany. We also expect this to be a continuing trend as labor rates continue to escalate in China and as China evolves from being just a source of cheap labor into a source of manufacturing technology.

Since we both had a considerable amount of experience negotiating transactions in Germany, we started listing what we considered to be the basic behavior characteristics that someone would encounter when negotiating with a German businessman. Knowing these characteristics will not only give you an indication of what to expect, but also allow you to develop your own strategies with regards to the transaction you’re contemplating.

Characteristics of German Negotiations:

  1. 1.    They’re prepared. In our experience, a German businessman is extremely well prepared and probably knows a great deal about your industry, company, and potential synergies. In addition, when negotiating, he’ll generally use a scripted approach and will seldom, if ever, shoot from the hip. Therefore, it’s important for you to demonstrate the same level of meticulous preparation. This will not only save time but also show the German businessman sitting across from you that you’re as serious and well prepared as he is. Also, he’ll be very patient and will show no discernible prejudice. He’s there to make a deal and he’s prepared to take his time to make that happen. Therefore, at the beginning of negotiations he’s likely to break the ice by discussing non-controversial items meant to build rapport. He’ll then move to more complex items requiring a greater degree of discussion between the parties. I experienced this, for example, in a transaction I was negotiating in Munich where the CEO of a company my client was interested in acquiring took me to a beer garden shortly after my arrival. It was a beautiful time of year, perfect weather, and the beer garden was located outdoors among an expanse of trees. My host brought to our table a couple of huge pretzels and two large steins of beer that seemed to be of a size made for Paul Bunyan. My host didn’t directly talk about business but, instead, tried to build a rapport with me while at the same time probing my experience and business philosophy. I’m sure at the end of this meeting he knew quite a bit more about me, and I about him as I also asked questions which gave me a greater insight into what was important to him. As it turned out the negotiations went smoothly and my client eventually purchased the company.

 

  1. 2.    Their positions are presented in a well-reasoned and logical context. German businessmen tend to present their positions from a pre-existing written or mental script that’s both logical and direct. Therefore, any counter to their position is likely to be effective only if it’s logical and well-reasoned. If it isn’t, there’s likely to be a long and protracted negotiation process. German businessmen don’t believe that feelings or personal relationships have a place in negotiations as they form a bias to the fairness of the transaction. Also, nothing counteracts a German businessman’s argument better than a well thought out and presented counter position. Therefore, it’s important for you to set your goals ahead of your first meeting and determine what is and isn’t negotiable, where you can make concessions, and where you draw the line. This sounds logical but, in our experience, few people take the time to script their positions. They believe they know their business extremely well, know what they’re looking for, and have legal and accounting experts to tell them if they missed anything. That doesn’t always work as, in the pace and emotions of the moment, it’s easy to get diverted and forget to probe areas that might otherwise seem obvious. In negotiations with a German businessman, script everything.

 

  1. 3.    They’re not prone to compromise. Most German businessmen are not prone to compromise on their core positions. Core positions are those that your counterpart wants to remain unchanged and where there is no compromise. Instead, he will usually hold tight to his original position or concept. To many, it’s as if he’s drawn a line in the sand and he’ll do his best to try and convince you to change your position or cross over the line and accept his. Be prepared for a long negotiating process if you have a differing view on his core positions, as getting him to accept your vision will involve a philosophical change in his beliefs. In addition, in the event he compromises or changes his position he’ll have to alter his script and, in doing so, will more than likely have to get acceptance from the various team members who originally gave their input. This is often difficult as any change to a German businessman’s core positions is likely to be looked upon as an error or weakness in his analytical process. Therefore, expect most German businessmen or negotiators to be inflexible and forceful in trying to bring you over to their side. This also means that your typical German businessman is in no hurry in trying to consummate a transaction unless there’s some external reason for doing so. Instead, the negotiating process will continue in an unhurried and logical manner until agreement is reached. He’ll want to get it right and craft an agreement where all parties fully understand the transaction and where there was consensus on the path forward.

 

  1. 4.    They tend to take advantage of those who are weak in business. This is, of course, not a trait particular to German businessmen. But, in the numerous M&A and other business transactions we’ve participated in, German businessmen tend to have no respect for those who are weak in their business beliefs. If you’re not as committed, focused, and as knowledgeable as your German counterpart then you can expect to be bullied during the negotiation process. The German businessman respects strength and despises weakness. He wants to impart his philosophy and business decisions on the other party and he’ll view a weak business counterpart as an opportunity for him to dominate the negotiations and impose his will. If he views you as a weak negotiator he’ll be less likely to compromise. A strong and knowledgeable negotiation stance on your part will result in a faster and more equitable business transaction.

 

  1. 5.    They’re becoming more Anglo-Saxon. In the past, German businessmen were more consultative. Today, they tend to be more individualistic, frequently negotiating in English and having more of an Anglo-Saxon point of view when conducting negotiations. In addition, younger German businessmen tend to be more informal than previous generations and also tend to hold the other party to the letter of the contract rather than the spirit and a handshake, as was done in previous generations. As a result, don’t expect to renegotiate or change the contract in the future. That rarely, if ever, happens. Instead, any breach of the contract is more than likely going to end up with both parties litigating.

 

  1. 6.    They negotiate in bite-size pieces. A German businessman will normally negotiate and get consensus on small pieces of the contract at one time. He’ll normally proceed step-by-step through the contract, discussing his views and resolving differences before he proceeds on to the next negotiating point. Consequently, he’s not likely to say “we’ll come back to that.” Instead, he’ll resolve each issue in a linear manner until he reaches the end of the contract and attains consensus. Therefore, make sure you’re in agreement before you proceed to the next negotiating point as going back and renegotiating a decision that’s previously been agreed to will be looked upon as acting in bad faith and will damage the trust established between parties. If you have to get approval from a higher authority prior to agreeing to a term or condition, then your German counterpart will fully understand. However, he’ll lose his respect and trust for you if you have to renegotiate a previously agreed to part of the contract.

 

  1. 7.    They want to negotiate the transaction at the negotiating table. Once there’s agreement on points he considers encompassing and critical, a German businessman will take the brakes off the negotiations. He’ll go from “not being in a hurry” to placing a lot of energy into closing the transaction as quickly as possible. He won’t waste time. Once he has what he wants, and knows that you’re also satisfied, he’ll push for a close believing that any delay at this point would only jeopardize the deal.

 

  1. 8.    They’re not emotional. Our experience is that the typical German businessman is logical, methodical, and non-emotional during the negotiation process. They’ll also expect you to be the same. Therefore, even if you find their “logical” position illogical, avoid getting emotional. If you do, they’ll likely lose respect for you and getting through the negotiation process will take longer and be all that more difficult. Remember, to a German businessman and negotiator, the transaction is not personal, but transactional.

 

  1. 9.    They’re more social than you think. Germans, as well as Americans, tend to value relationships. Therefore, it’s not unusual during the negotiation process for both sides to have an informal beer, dinner, or other event as a way of getting to know one another. In these social events, unless you have a close relationship with your German counterpart, it’s best not to discuss business. Instead, relax and enjoy the moment while you each learn more about each other. In addition, it’s best to stay away from political or historical jokes or stereotypes. Your German counterpart is likely to have, as we also do, sensitivities in these areas. Instead, he’s more likely to respect you for your business savvy rather than your historical and political insights or your ability to entertain. A social relationship will lead to trust which will enable both parties to resolve business differences and successfully conclude the negotiating process.

 

In many ways German business negotiating tactics are a reflection of their national strategy of steady and gradual growth. German businessmen and negotiators are knowledgeable, well organized, and methodical. They know what they want and they believe they know how to best attain their goals. Knowing these negotiating characteristics will be very beneficial when you’re working with German companies and negotiating a transaction.

 

 

If you have any questions please e-mail them to info@thornhillcapital.net