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What differentiates arbitration from negotiation?

On Behalf of | Dec 8, 2023 | Business & Transactional Law

If you’ve been running your business for a while now, you understand that disputes can arise over virtually any issue and at any time. Thankfully, you have options for resolving your business disputes that hinge on the kind of ongoing relationship you want with the other party upon achieving conflict resolution.

Understandably, entrepreneurs can get confused by the various conflict resolution approaches available. For example, while business people commonly use the term alternative dispute resolution, few can distinguish between the various resolution techniques. Two of the most confusing are arbitration and negotiation.

The dynamics of negotiation

Negotiation is a consensual process where conflicting parties engage in discussions to reach a mutually agreeable solution. It’s an informal yet strategic method requiring effective communication and compromise. Negotiation is voluntary, allowing parties to choose when and how they wish to engage. This flexibility is both a strength and a challenge, as it demands effective communication and compromise skills.

Ultimately, negotiation fosters relationship-building as parties collaborate to find common ground. This collaborative element distinguishes negotiation as a method that can encourage ongoing business relationships.

What sets arbitration apart?

Arbitration is a dispute resolution process where parties present their cases to an impartial third party, the arbitrator, who makes a binding decision. It’s a confidential and flexible alternative, often preferred for its efficiency and neutrality. Unlike negotiation, where parties aim for a mutually agreed solution, arbitration involves a decision-maker. The arbitrator’s experience is crucial in demonstrating a fair and informed resolution. This key distinction sets arbitration apart as a more formal and structured process in which both parties give up a degree of control over the outcome of the process.

Choosing the right path

For time-sensitive matters, arbitration’s streamlined process may be the optimal choice. Negotiation, while effective, can be time-consuming and might not suit pressing business needs. But, if maintaining relationships is a priority, negotiation’s collaborative nature may be more suitable. The voluntary aspect of negotiation helps to ensure that both parties are committed to finding a resolution that meets their needs.

Business conflicts are not always roadblocks but can, instead, serve as opportunities for growth and improvement. Whether opting for arbitration or negotiation, businesses can strategically navigate disputes under a variety of circumstances, fostering resilience and innovation along the way.