Credibility of a contracting party in business negotiations

Negotiations are a communication-decision-making process that aims to bring two parties together who are in conflict to find a resolution in a way that the outcome is acceptable for both partners. Decisions taken by a negotiator during the course of a negotiating process can concern a lot of areas, e.g. determining the purpose of the negotiations and the best alternative to a negotiated agreement, adopting a specific strategy and the choice of negotiating style, methods, techniques or tactics that will be used.

The prerequisite for achieving satisfactory results in negotiations is an appropriate preparation. In order to conduct effective negotiations a negotiator first of all needs the background knowledge of a negotiated issue. Undertaking economic actions by an enterprise, often abroad, imposes the necessity of establishing new business contacts, concluding contracts and making transactions with new contracting parties. Such relationships are often burdened with a risk connected with unreliability or dishonest practices of entrepreneurs. What seems very important is a problem of verification of a multifaceted credibility of a potential negotiating partner.

In order to draw adequate conclusions it is indispensable to get information related to a contractor’s reputation in a sector and also their history and image. What proves really useful is information about the efficiency of order realization, meeting obligations, reliability of deliveries, timeliness as well as the quality of products. Information needed to verify the economic credibility of a contracting party should also include a company’s profitability, financial credibility, current turnover and its financial results. The analysis can be complemented with information about development dynamics, a company’s innovativeness, conducted research and development activities as well as patents and certificates. The stability of a company can also be judged on the basis of its absolute market share and market share in a target segment. Additional useful information is the size of a company (measured by the number of employees), its assets, technical base and machinery park.

To gather the abovementioned information, negotiators can use secondary sources such as: archives and public registries, the internet, professional literature, information bulletins, prospectuses, state institutions and embassies, trade and marketing associations, market research agencies, credit information agencies, Economic Information Bureaus and etc. Negotiators can also obtain necessary information from primary sources i.e. from former business partners, contractor’s clients and the contractor himself, consultants and specialists from a given sector.

In the context of gathering the information needed to verify a negotiating partner’s credibility, the sources that are considered most useful are Economic Information Bureaus, i.e. the National Debt Register or the Info-monitor. The purpose of these organizations is to gather and share information about companies and individuals who do not settle their financial liabilities. The list of debtors that they offer are a useful tool while preparing for negotiations, both when deciding about the co-operation with new partners and constant monitoring of current partners’ credibility are concerned. Information bulletins that are issued due to a public offer or application for admission for trading of securities in a regulated capital market are also a very useful source of information. Prospectuses in particular provide potential negotiators with the data to assess economic, financial, property situation as well as prospects for a contractor’s development. They enable them to obtain knowledge about current investments, basic company activity or ongoing legal proceedings, which have influence over a contractor’s financial situation.

In highly developed European countries, the source that is used most frequently are the credit information agencies whose aim is to support an enterprise in decision-making in the area of establishing and concluding trade contracts. These specialized institutions deal with the professional and lawful collection of information about economic entities, its gathering and processing. They also offer commercial reports containing the description of legal-organizational and financial situations of a contractor’s company as well the assessment of their credibility.

(from Bogdan Gregor and Magdalena Kali ska-Kula The Economic Security of Business Transactions / Management in business / Edited by Konrad Raczkowski and Friedrich Schneider, 2013)

Text 3 (A)