Many corporations continue to do business with the same large suppliers they have used in the past. Diverse tech suppliers must develop strong negotiating abilities that present a clear picture of their unique value and strengths.
By James Hsu
Many supplier diversity programs are 10 or more years old. Yet, diverse suppliers are still struggling to break into corporate supply chains as collaborators and innovators. Corporate procurement functions tend to utilize the same large tech suppliers for major purchases and contracts because they see them as reliable and affordable. But it is diverse suppliers that can bring innovation, new perspectives, and a better understanding of markets – the qualities corporations need to remain competitive.
To overcome the tendency of corporate buyers to stay with "legacy" suppliers, diverse tech suppliers must master the ability to negotiate from a position of strength rather than as the "little guy" hoping to land a contract. Strategies include considering the perspective of the client in shaping the presentation and framing the process as a value producer, rather than a lowest price negotiation or a process in which a small business should feel "lucky" it got a chance to negotiate.
Diverse tech suppliers are often smaller and younger than the suppliers corporations have traditionally included in their supply chains, and the same corporations seem very reluctant to make significant changes in the type of suppliers utilized.
Supplier diversity programs have opened up opportunities, but in many cases, they are more like marketing strategies to strengthen a corporation's social responsibility brand in the eyes of the public. Diverse suppliers are up against a difficult situation because companies must balance their need for suppliers that can reliably provide goods and services on a global basis with the desire to do business with diverse tech suppliers who offer state-of-the-art innovation and disruptive technologies.
One of the most important steps in landing corporate business is developing the ability to negotiate from a position of strength. All too often, SMEs approach corporate buyers with the perspective the corporation is doing the small business a favor by its willingness to negotiate. Smaller suppliers must also, through negotiation techniques, overcome some of the challenges that corporations present. CVM Solutions conducted a survey of supplier diversity professionals, and one question asked them to name the biggest challenge faced in the supplier diversity space. The answers offer clues to diverse tech suppliers as to how a position of negotiating strength is developed.
The challenges named varied. One response was, "Changing the perception that diverse business equals less quality and more risks." Another said the challenge was, "Convincing internal stakeholders to move away from 'brand-name' suppliers when able." Another said the challenge faced is, "Identifying diverse suppliers that can scale and grow rapidly with us." Of particular interest to diverse tech suppliers is the corporate challenge of "Identifying qualified suppliers in the specialty space."
To negotiate from a position of strength, the tech supplier must be able to address issues like risk management, quality control, and scalability.
Five Forces
Many discussions on negotiation strategies begin with Porter's Five Forces as a foundation for understanding an industry's competitive forces and developing appropriate responses. The five forces are the bargaining power of buyers, the bargaining power of suppliers, the threat of new entrants, the threat of substitutes, and the rivalry among existing competitors.
Within these five forces are important negotiation factors. For example, the bargaining power of buyers is partially determined by the amount of differentiation among competitive products. When there are many competing products, price becomes the main negotiating factor. The bargaining power of suppliers is influenced by a variety of factors also. In the tech industry, many corporate clients are unwilling to switch technologies because of issues like data migration and the cost of switching.
The strongest supplier position is when there is limited competition because the supplier's products or services are unique.
Identify business strengths and focus on those and be prepared to respond to inquiries about weakness.
For example, a disruptive technology is a bargaining chip. The key is to present the new technology within context of enabling an improved competitive position which could be reduced costs through greater operational efficiency, automation of customer services, etc.; opening up new markets; solving problems like the need to improve global logistics; or becoming a tech leader through adoption of technologies like artificial intelligence and predictive analytics. These are just a few examples.
Developing Strength Before the Negotiation Meeting
Beyond negotiating the value proposition, the supplier must approach the negotiation process with the right perspective. According to Harvard Business School professor Deepak Malhotra, it is what goes on before the actual meeting that is as important to determining strength of negotiating position as the amount of value offered. He offers four ways to improve negotiation strength and avoid surprises.
First, Malhotra suggests, negotiating the process before walking into the meeting. A tech company thought it had an agreement for a $10 million investment hammered out, but at the face-to-face meeting there were new people there (lawyers and bankers) who made new demands. The tech company had to decide if it wanted to accept a less desirable offer to get the money, knowing it would significantly undervalue what they offered. They walked out, and a few days later the CEO restored the original offer. The professor's advice is to focus on the process first and then the substance of the deal. The tech company representatives should not have been blindsided by the presence of new people at the meeting.
The second suggestion is to address head–on the things that could go wrong on both sides, especially when crossing cultures or in highly competitive situations. Successful negotiators recognize the risks of doing business. The third suggestion is to map out the negotiation space. In the case of diverse tech suppliers, it means identifying what matters most to the buyer – price, reputation, quality, innovation, adopting new technologies, etc. – and negotiating within that context. The fourth negotiation technique is to control the frame or psychological lens. This is where the buyer's perspective of small diverse suppliers comes into play. Does the buyer perceive the supplier as less than equal, a short–term association, or willing to make concessions?
No Apologies Needed
Diverse tech suppliers must not apologize for being small, for their pricing or for what is offered. Walking into a negotiation process with the mindset "My company is small and lucky to be here" is self-defeating.
A diverse tech supplier offers many things a non-diverse supplier cannot, like a deep understanding of a particular diverse market and new perspectives. Identify business strengths and focus on those and be prepared to respond to inquiries about weakness. The buyer says, "I am concerned you cannot meet our product demand." The supplier does not say, "I agree we are small, but…" because it gives the buyer the impression the supplier believes its size is an impediment to doing business. Instead the supplier responds, "You seem to be asking how we plan on achieving scalability. Here is our strategy…"