International Business Negotiations

Dr. Brian Monger

The negotiation process is a very complicated social process, involving an intricate structure of attitudes and opinions, social relationships – both inside and outside the firm – and the way such attitudes, opinions, and social relations are changing.  It contains various elements of individual and organisational behaviour, influenced by the past and perception of the future as well as the present.  It is composed of a large number of decisions, made by different people at different points in time.  The understanding of the final outcome of such a process depends on an understanding of all its stages and parts.

These days, the name of the game of any international business venture success is interactive planned negotiation.  Had Adam been a better negotiator he might still be in the Garden of Eden.

Many executives and policy makers tend to regard negotiation like most people view having children – it is something one does almost instinctively, with varying amounts of skill, confidence, and pleasure, but not a likely subject for analysis or scholarly research.  These people believe that good negotiators are born, not made; and if made, made in the trenches, not in the classroom.

Most of the time poor communication plays a role in the failure of business negotiation or becomes a serious barrier.  And when people of one nation negotiate with people of another, they often unwittingly trample all over the other customs of those people and the negotiations are consequently doomed to failure before they even start.

Linguistic and cultural myopia is losing friends, business and dust.  Linguistic and cultural myopia is losing them friends, business and respect in the world.  Their negotiating style doesn’t work well overseas and there are innovative approaches in the future.

Negotiation as an art and a skill which should be learned

The view of negotiation as an art and a skill which should be learned in order to achieve desirable success with foreign partners, is shared by a number of scholars.  Some emphasise the importance of cross cultural relations to negotiations.  Others demonstrate how the presence or absence of certain key variables affects the structure, process and the results of negotiation.  Thus, using decision analysis to assess the probabilities of various results as trial can help during the negotiation processes with realistic consideration of ‘ethical issues’ and ‘strategic choice’ in all interactive competitive bargaining.

Looking at the future, from a strategic window, realistic international business negotiation solutions should depend, in large part, on a continuous learning process.  The long-run solutions to the cultural myopia of  business executives are more challenging. If companies are to take advantage of technology, creativity, and other natural resources, they must invest in the education and training of potential business leaders.  This training must start early, for true understanding of other cultures comes from immersion in it.  Ideally, training for  multinational executives of the future would begin in high schools.

Definition and nature of negotiations

The term ‘negotiation’ can be described in terms of two elements which normally should be present for business agreements to take place: there must be both common interests and issues of conflict.  Without common interest there is nothing to negotiate for, and without conflict there is nothing to negotiate about.  In addition, negotiation can be defined in either a narrow or a broad sense.  A relatively narrow definition is:  Negotiation is a process in which explicit proposals are put forward for discussion in order to reach agreement on an exchange or on the realisation of a common interest where conflicting interests are present.  It is the confrontation of explicit proposals that distinguishes negotiation from tactical bargaining and other types of conflict behaviour.

In discussing certain proposals, the negotiating parties make some moves – those of tactical bargaining – to strengthen their position and weaken that of the opponent or to influence the outcome in various ways.

Negotiation does not necessarily lead to explicit proposals being negotiated.  Even then agreements vary widely in their degree of specificity and in the extent of disagreement which remains.  The outcome of negotiations is more than just an explicit agreement.

The negotiation process includes strategies and tactics expressed within a broader framework of interactions between groups with both common and conflicting interests.  Each group has its own concept of what is ‘right’, ‘reasonable’, or ‘appropriate’ in negotiations; also each group has its own expectations of the likely response of an opposing group to an issue, event, or mood.

A negotiator’s expectations or the response of opposing groups are determined by his own ‘self-reference criterion’, i.e. ‘the unconscious reference to one’s own cultural values’.  Foreign countries,  are compared to Western countries and judged according to western standards.  The larger the variation in habits, culture and business conduct between a foreign country and the home country, the stronger the subjective uncertainty.

International business negotiations take place within a broader framework than domestic negotiations.  This, in terms of the art of politics and the concepts of social science, can become as important, or even more important, to the success of an investment venture negotiation as hard-headed technical and financial calculation or a carefully prepared legal and administrative basis for an overseas organisation.

Sociocultural determinants

Values systems

When executives travel to other countries to negotiate business, they are frequently shocked to discover to what extent the many variables of foreign behaviour and customs complicate their efforts.  This is why it is so important for businesspeople to truly understand the various societal aspects and cultural values they usually face when negotiating business overseas, if they are to achieve any successful ventures.  Value systems affect many human aspects that are important in shaping the society’s economic behaviour and performance.  The study of different cultural values indicates that an act considered right in one society may be repugnant in another.  Value systems or the ideological aspects of a culture refers to the ways of looking at life – philosophical, tenets, religious beliefs, and rules of behaviour.  Values are beliefs upon which people built their lives.

Each individual’s perception of the world around him is to some extent viewed through his enculturative screen.  To the ancient Greeks, to the Chinese, and to most other known people, one’s own culture and values were taken as the standard against which all others were judged.  This ethnocentric mentality still characterises the behaviour of many people.

In Latin America, for example, it is important that each negotiator show an interest in the concern for others’ family before discussing business.  The executive who charges into a discussion of business without realising this perfectly legitimate cultural difference is not going to have much success in those countries.

In any Japanese delegation, it is usually the oldest member who does all the talking at the conference table, the other members having expressed themselves in earlier, private discussions.  But when they sit across the table from a western delegation where everyone presents their opinion, there is an immediate cultural gap which often results in little being achieved.

The Chinese cultural factors that affect negotiating style with westerners are national pride and interest.  The Chinese stress patience, general trust, and ethical and moral principles; whereas, westerners tend to be highly legalistic.  The Chinese also try to influence negotiation processes by shaming practices.  This permeates Chinese relations with others reflecting their cultural values and traditional belief that others can be controlled by shaming them.

Scandinavians generally like to have plenty of space around them when they talk with people; some Middle Eastern people like to stand close.  None of them is ‘right’ or ‘wrong’; they are just different.  Yet, while lip service is often paid to the understanding of these differences, they are rarely accorded the necessary respect.

Personal contacts

Western executives and investors know by their experience that to facilitate their business negotiations, they should, at a price, communicate sometimes with people who make things happen and who have good contacts with key officials.  Otherwise they have to wait, sometimes long waiting, just to meet certain decision-makers in order to negotiate business.   In many countries, personal contacts have more effect in speeding negotiations and related business than in bureaucratic systems.

Personal contacts may however be considered part of international bribery.  In many countries bribery has been, and still is an acceptable way of doing business, but is illegal in most Western Countries.  The use of illegal payments has become an ordinary method of business by many Western companies.  This is because they believe that a flat and righteous decision not to bribe may make it impossible to do business in some countries.

Patterns of negotiation agreements

Businesspeople should know the rules for negotiating agreements in other countries.  Even if they cannot be expected to know the details of each country’s commercial legal practices, just the awareness of and the expectation of the existence of differences will eliminate much complication.

These days, no westerners will conduct any business without some written agreement or contract.  In some cultures however, once a man’s word is given in a particular kind of way, it is just as binding, if not more so, than most Western contracts.  Informal patterns and unstated agreements often cause untoward difficulty in a cross-cultural situation.

It is difficult for executives to adjust their frame of reference to the fact that what constitutes one thing to them is something entirely different to others.  For example, a critical factor in business negotiations is whether to bargain at the beginning of any business deal or at the end of the deal.  As a general rule, in the Middle East, one cannot bargain at the end of a business deal.  If he does not bargain at the beginning, a native businessman is entitled to whatever he asked for.

One of the greatest difficulties businesspeople have comes from the fact that they often think they have a commitment when they do not.  The Westerners failure to recognise binding obligations, plus their custom of setting organisational goals ahead of everything else, has put them in hot water far too often.

The cure for ignorance of the social and legal rules which underlie business agreements is not an easy one.  This is because the subject is complex, little research has been conducted to determine the different cultural concepts of what is an agreement, the people of each country think that their own code is the only one and that everything else is dishonest and, finally, that each code of conduct is different from the Western code.

Publicity vs. secrecy

Foreign investment proposals are frequently accompanied by publicity.  Publicity can be a major tool of negotiation.  Frequently, parties to a negotiation will purposely disclose confidential information to strengthen their bargaining position.  However, in the some countries publicity should be avoided at least until a final agreement has been reached between the foreign investor and the host government.  A major influence on international business negotiation in the Middle East is the ability of different participants to keep their deliberations a secret.  Any leaks of such negotiations can lead to undesirable outcomes.

Economic and political determinants

Nationalism

Nationalism  is a complex problem to international business negotiators.  Citizens of a nation share a sense of common identity stemming from a common community, history, language, religion, race, or ideology, nationalism is the emotional cement which binds a people together to make a nationality.  It is marked by loyalty and devotion to a nation exalting it above all other nations.  Nationalism often carries an anti foreign bias and injects an emotional energy into international relations, bedevilling cross-national communication and inciting governments to behaviour that can undermine the achievement of their own economic and political objectives.

In many nations, the concept of “nation” may be different among different communities within the geographic nation.  The business person needs to be fully aware of regional, ethnic, religious groupings.

Executives must not let their own nationalism colour their business programs; their task is to accomplish a business mission, not to carry the flag.

Westerners are foreigners out of their country and may be victims of local nationalism, or xenophobia.  A possible strategy to avoid this might be to develop as national an image as possible.  Indeed, one of the challenges facing international executives and negotiators is finding how best to adapt to the demands of local nationalism without diminishing the international strength of their interests.

 Internal groups 

They are the groups who have economic and political clout in the country.  The views of such groups exercise an important influence on negotiation between foreign investors and the host country.  Indigenous business interests, especially the big establishments, often fear the entry of foreign companies based on the fact that they would have access to larger and better resources and become latter competitors in domestic markets.  Government officials usually listen seriously to the views of these groups regarding foreign investment proposals.  This is because they are contributors to political parties and because they can motivate political leaders of opposition parties to agitate over the desirability of certain investment plans.

Economic benefit/cost perception

From the early stage of the business negotiation process, the success or failure of such a process depends, in the large part, upon the negotiators’ perception of the economic benefits/costs and the common interest.  In a simple economic model, if the perception of one of the negotiating parties is positive, in terms of the gained benefits exceeding the investment costs of other alternatives available in that time, he would continue the process to reach an agreement.  Conflict occurs if there is a perception gap between the parties involved.  Conflict can be solved by negotiating further to close such a gap or reaching an acceptable compromise.

Common interest

Without common interest there is nothing to negotiate for, and without conflict there is nothing to negotiate about.  If a business agreement cannot be reached through two-party negotiators, a three-party process, which involves a mediator, is a better answer.

 

These are outline notes from a MAANZ course.  If you are interested in obtaining the full set of notes (and a PowerPoint presentation) please contact us – info@marketing.org.au

Dr. Brian Monger is the Executive Director of MAANZ International and a Principal Consultant with The Centre for Market Development.  His profile can be found on LinkedIn.

He is available for consulting tasks and speaking engagements

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