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Allen Irwin

Basic International Business Negotiations Principles

Negotiation is an art developed through study and practice. Effective negotiation requires and understanding of the social, cultural, political, and economic systems, as well as an expertise in technical, financial, accounting, and legal analysis. Negotiation is here defined as the use of common sense under pressure to achieve objectives. However, reaching explicit agreement on all points is not necessarily the only objective of negotiation; in fact, agreement may be reached on only some of the explicit proposals being negotiated. Even then agreements vary widely in their degree of specificity and in the extent of disagreement which is left unsettled. The outcome of negotiations is more than merely an explicit agreement.

  1. First, negotiation takes place within the context of the four Cs represented in the second circle in figure 1-1. The four Cs stand for common interests (something to negotiate for), conflicting interests (something to negotiate about), compromise (give and take on points), and criteria or objectives (determining the objective and the criteria for its achievement).

  2. Second, negotiation takes place within the context of an environment composed of the political, economic, social, and cultural systems of a country. The strategies and tactics of negotiation are directly influenced by the environment which varies with each country.

  3. Third, the negotiators must develop a broad perspective that includes the larger context within which they negotiate. Such perspective is developed through answering such questions as "Besides the factors directly related to the ongoing negotiation, what other developments influence the approach to negotiation of the opposite group(s) and of various levels of the organization we represent?" For example, in negotiation with a government, the international corporation (IC) should recognize questions such as "What other similar and related projects has the government negotiated in the past? What has been the reaction of political and economic interest groups within the host country to the terms of investment granted to foreign investors in these projects? What pressures are being placed by external groups on the host government for a particular pattern of development of the industry?" Such question would need to be raised by the IC and other major groups involved with or influenced by the negotiations. In essence, perspective requires that the negotiators understand the characteristics of the broader framework within which they negotiate and be able to interpret the framework for its implications for the specific negotiations they are engaged in.

  4. Fourth, over time, the four Cs change and the information, know-how, and alternatives available to the IC and the host country also change, resulting in a fresh interpretation of the four Cs, the environment, and perspective.

  5. Fifth, the unique characteristic of international versus domestic business negotiations is that international negotiations are influenced by a wide diversity of environments that require changing perspectives which determine the selection of appropriate negotiation tactics and strategies to be adopted. Specific groups in different environments have their own concept of what is "right," "reasonable," or "appropriate" in negotiations; each groups also has its own expectations of the likely response of an opposing group to and issue, event, or mood determined by its "self reference criterion" - that is, "the unconscious reference to one's own cultural values."

A negotiation, both the process and outcome, is influenced by a vast range of issues, events, and personalities. Developing a list of "do's" and "don'ts" in negotiation is always fraught with dangers of simplification and oversight.

Briefly stated below are major aspects to be kept in mind during negotiations, organized into the four broad and interrelated categories of: empathy, role of governments, decision making characteristics, and organizing for negotiation.

A) Empathy

The environmental context (political, social, cultural, economic) is different between countries. Negotiators need to understand the nature and reasons for the differences. Some of the major setbacks in negotiations between the IC and the host government or company take place because of insufficient empathy of each other's environmental context. Try to:

  1. Place yourselves in the other persons' shoes. It is not sufficient to merely know the position and approach of your opponents to a negotiation; even more important is to understand the reasons which prompt them to adopt the particular stance. This requires that the negotiators view the four Cs and the particular environmental context in a country form the view point of the individuals they are negotiating with. For example, a government official in a developing country might place particular weight on the political influences on him instead of emphasizing the economic dimensions of a project because the official's power and continuity in office is determined by his ability to satisfy individuals with political power. Such a context is significantly different from what the American negotiator is used to, especially in the United States.

  2. Understanding the different ways of thinking. Reaching the same conclusions is important, but in negotiations it is even more important to know the thought process by which individuals from different cultures reach the same conclusions. The environmental factors have a direct influence on the ways of thinking, outlook toward, and the manner in which problems are solved. For example, bribes to government position and a means of supplementing very low government salaries. Most IC executives, on the other hand, in keeping with the values of their own country, view such a practice with disdain and disfavor, and as illegal.

  3. Pay attention to saving face of the opponent. "Winning" in a negotiation situation should not result in a loss of face for the opponent, especially in countries where personal honor is a sensitive issue. Unlike the United States, many countries typically possess hierarchical structures of society where a superior-subordinate relationship exists between two individuals. Caste, family name, and type of occupation are some of the determinants of status. The "image" of "face" of an individual determines the extent to which he can influence others.

  4. Improve your knowledge of host country. Often negotiators do not have sufficient knowledge of the history, culture and political characteristic of a country in which they are negotiating. Yet, host country nationals are proud of their heritage and traditions and feel flattered when a foreigner reflects some knowledge and understanding of their country. For example, in the mid 1960s when Singapore first started to attract foreign investments, host government officials received letters from American companies addressed to "Singapore, care of the Republic of China." Needless to say, they were offended and did not feel that inquiries from such companies were worthy of further exploration.

B) Role of the Government

Unlike the United States, governments in most emerging countries and in Japan play a major role in planning, regulating, and often participating in industrial ventures. Insufficient recognition of the important role of the host governments in economic matters results in serious setbacks in negotiations in emerging countries. Keep in mind:

  1. Recognition of the nature and characteristics of the role of government in centrally planned economies. The desire for rapid development, distrust of private enterprise, lack of indigenous entrepreneurial talent - these and other considerations have prompted host governments in many countries to play a major role in planning for the economic development of their countries. The planning is often highly detailed, as in India, and at times it is general administrative guidance, as in Japan. The planning process is based on both economic and political considerations and the international company has to fit in such a context. The IC executives, used to a far more laissez-faire context of the United States, have to understand and interpret the environmental context of a planned economy in undertaking a negotiation.

  2. Recognition of the relatively low status assigned to business people. Not only are government officials in planned economies powerful, but they often look down upon business people, who are viewed as being concerned only with questions of profits and not the broader national aspirations of the society. In many countries, broader environmental factors (historical, cultural, etc.) have created such an attitude. For example, in India the business community was viewed as being too closely associated with the British colonizers for purposes of economic benefits. The Hindu religion does not stress material achievements by deals more with the spiritual aspects of life. In Indonesia the loyalty of the Chinese business community is questioned by the "pure" Indonesians, resulting in distrust and suspicion of the Chinese businessman. The IC business people, therefore, have to recognize the environmental factors that have created the existing attitudes toward private enterprise and plan their negotiation accordingly.

  3. Recognition of the role of the host government in negotiations. Negotiations in emerging countries are generally tripartite in nature, involving the foreign company, the local company, and the host government. The government approves the terms on which the foreign enterprise is permitted to invest in the country. Therefore, planning for negotiations by the IC must recognize at least a triangular situation. For example, the IC often needs to develop direct access to appropriate host government officials to learn firsthand their views on the investment, instead of depending solely for such information on the local partners who might be wish to promote a particular orientation of the project that suits his interests but not necessarily those of the IC. Again, the broader environmental context needs to be understood in planning for this dimension of negotiations in developing countries.

  4. The perception in host countries of the role of the IC's home government in negotiation. Regardless of what the reality of the situation is, the host government believes that the foreign company uses the muscle of its home government in negotiations with the host government. The broader environmental context of many emerging countries largely explains such a perception. It is consistent with theirs own tradition where indigenous businessmen seek the protection of their government for economic benefits. Historically, especially during the colonial period, foreign enterprise from the colonizing country gained benefits in the colony because of protection of the government of the colonizing country. Also, and to a far greater extent than is true for US companies, European and Japanese governments play an active role in assisting companies from their countries in dealing with host government. In Southeast Asia, for example, host governments exposed to such behavior by the Japanese government assume that US companies also engage in similar practices, although in a more covert manner.

C) Decision Making Characteristics

The structure, orientation, human skills, objectives, and goals of and organization influence the approach to decision making. Governments, as organizations, are different in these respects form the IC. Insufficient recognition of the characteristics of decision making leads to setbacks in negotiations with host governments. Keep in mind to:

  1. Acknowledge the weights assigned to economic and political criteria in decision making. Host government officials place particular stress on political consideration in evaluating investment proposals in keeping with the general orientation of the type of organization to which they belong. For example, the central government in Indonesia first granted and then rescinded a timber concession to an American company. The military governor of the area where the concession was located had entered into an agreement with the Chinese and Japanese interests. Given the delicate internal political situation in the country, the central government did not with to challenge the authority of the military governor.

  2. Understand the difference between approval at one level and implementation of such approval at other levels of the government. Gaining approval of the central government for and investment does not mean that other levels of the government will automatically implement the approval. Internal organizational problems, personality and jurisdictional conflicts and lack of trained personnel, especially at lower levels of government, are some of the reasons for delays between approval and implementation that must be understood by the executives in negotiating with governments. The earlier example of timber concession illustrates this dimension of negotiation. In Japan, different ports of entry were charging different rates of import duty for the same items because the responsible ministry in Tokyo had not adequately communicated the duty schedule to the custom authorities.

  3. Understand the role of personal relations and personalities in decision making by the host government. Host government officials possess considerable discretion in interpretation of policies and regulation relating to foreign investments. Often it is the individual who determines the power of and office and not the other way around. Because of the importance of the individual, it is necessary for the foreign negotiator to develop a personal relationship with appropriate government officials.

  4. Allocate sufficient time for negotiations. It simply takes longer in certain countries to present a proposal, to gain a reaction, and to offer a response because of distance, mutual suspicion, different ways of thinking, and the internal decision making structure of both the government and the IC. The consensus approach to decision making in Japan and the hesitation of a government official to assume responsibility, especially in projects which are not keeping with precedents, are some of the reason for the delays in host government decision making.

D) Organizing

Negotiation is a complex and time consuming activity involving a range of individuals from the IC and the host government company who negotiate to achieve their respective objectives within a changing environmental context. Insufficient attention to organizing effectively for negotiation results in delays and setbacks especially in negotiations with host governments. Pay attention to:

  1. Planning for changing negotiation strength. The negotiation strength of the IC and the host country often changes over the duration of an investment; and such changes in negotiation strength result in renegotiation of the terms of the original investment. Therefore, both the IC and the host government should explicitly recognize and integrate changes in negotiation strength in planning for negotiation.

  2. Interference by headquarters. Headquarters personnel sometimes interfere directly in negotiations, causing serious damage to the credibility of the country level managers and the field negotiations. Host government officials prefer to negotiate with executives who in their opinion have the power to decide on behalf of the companies they represent. At times, headquarters interference without sufficient communication to the country level results in promoting an unfavorable government decision. For example, the American Chamber of Commerce in Mexico was making representations to the host government for greater clarity of policies on foreign investment. Senior government officials of Mexico, on a visit to the United States, were entertained by corporate level executives of US companies with operations in Mexico. Corporate executives stressed the need for clarity of government policies on foreign investment. This representation partially contributed to codes on foreign investment. It was an outcome considerably different from what the American Chamber of Commerce and its member companies were seeking to gain from the Mexican government.

  3. Planning for internal communication and decisions. Several parts of an organization have an interest in an ongoing negotiation and their views and preferences have to be recognized in negotiating for a particular package of terms of investment. Often in an ongoing negotiation a rapid response to developments is required from the interested parties; a rapid response might not be forthcoming. Of course, at times a response is purposely delayed because of the need for additional review or because of disagreement with what is being proposed by the field negotiators. In any event, in negotiation it is just as important to develop effective channels of communication within one's own group as it is to have effective channels of communication with the opposing groups.

  4. The role of the negotiator in accommodating the conflicting interests of his/her group with those of the opposing groups. The IC seeks certain terms of investment in a country that might be greater than what the field negotiator believes can be secured. Conversely, the host government might make demands on the IC that are greater than what the field negotiator believes would be acceptable to the IC. Therefore, the negotiator plays a crucial role as interpreter, intermediary, and counselor both to his/her own group and to the opposing group on what can be achieved in a particular negotiation.

  5. Recognition of the loci of decision making authority. Decisions are seldom made by any one branch of government but are shared across agencies and ministries because of the particular characteristics of government organizations. Therefore, the IC must know the diverse centers of influence within the government and be skilled in dealing with them. For example, in a South American country, the IC recognized that the central government would be strongly influenced by the wishes or a powerful state government. It therefore make a special effort to inform the state government of the benefits it would derive from the project in the hope of gaining its influence in dealing with the central government.

  6. Recognition of the strength of competitors. The emerging countries have access to a growing range of alternative sources of supply of the resources they seek. Therefore, in planning for negotiation, the IC needs to recognize the unique characteristics (including the terms of negotiation) that are likely to be accepted by the competition emanating from Western Europe, Japan and elsewhere. Note: The tendency to underestimate the competitive strength and negotiation skills of non-American companies is a source of weakness in many of the American companies' planning for negotiations.

  7. Attention to training executives in the art of negotiation. Negotiating, especially with host government officials, consumes a growing amount of the time of an American executive at the country level. Effective negotiations can serve to promote and protect the interests if the IC. Yet executives are seldom trained or encouraged to develop negotiating skills.

OTHER IMPORTANT NEGOTIATION TIPS:

  1. Do Not Bargain Over Positions

    Arguing over positions produces unwise agreements.
    Arguing over positions is inefficient.
    Arguing over positions endangers an ongoing relationship.
    When there are many parties, positional bargaining is even worse.
    Being nice is no answer.
    There is always another alternative.

  2. Basic Elements of Negotiation

    People:
    Always remember to separate people from the problem. Negotiators are people first.
    Every negotiator has two kinds of interest: in the substance and in the relationship.
    Identify when a relationship tends to become entangled with the problem and when positional bargaining puts the relationship and the substance in conflict.
    Separate the relationship from the substance; deal directly with the people problem.

    Perception:
    Always remember to put yourself in their shoes.
    Do not deduce intention from your fears.
    Do not blame them for your problem.
    Discuss each others perceptions.
    Look for opportunities to act inconsistently with their perceptions.
    Give them a stake in the outcome by making sure they participate in the process.
    Face-saving: make your proposals consistent with their values.

    Emotions:
    First recognize and understand emotions, theirs and yours.
    Make emotions explicit and acknowledge them as legitimate.
    Allow the other side to let off steam.
    Do not react to emotional outbursts.
    Use symbolic gestures.

    Communication:
    Listen attentively and acknowledge what is being said.
    Speak to be understood.
    Speak about yourself, not about them.
    Speak for a purpose.

    Prevention works best:
    Build a working relationship.
    Face the problem, not the people.

    Interests:
    For a wise solution reconcile interests, not positions
    Interests define the problem.
    Behind opposed positions lie shared and compatible interests, as well as conflicting ones.
    How do you identify interests?
    Ask "Why?"
    Ask "Why not?" Think about their choice.
    Realize that each side has multiple interests.
    The most powerful interests are basic human needs.
    Make a list.

    Talking about interests:
    Make your interests come alive.
    Acknowledge their interests as part of the problem.
    Put the problem before your answer.
    Look forward, not back.
    Be concrete but flexible.
    Be hard on the problem, soft on the people.

  3. Inventing Options for Mutual Gain

    Separate inventing from deciding:
    Brainstorm with your side.
    Consider brainstorming with the other side.

    Broaden your options:
    Multiply your options by shuttling between specific and the general.
    Look through the eyes of different experts.
    Invent agreements of different strengths.
    Change the scope of a proposed agreement.

    Look for mutual gain:
    Identify shared interests.
    Dovetail differing interests.
    Any difference in interests?
    Different beliefs?
    Different values placed on time?
    Different forecasts?
    Differences in aversion to risk?
    Ask for their preferences.

    Make their decision easy:
    Making threats is not enough.

  4. Insist on Using Objective Criteria

    Deciding on the basis of somebody's will is too costly.
    Principled negotiation produces wise agreements amicably and efficiently.

    Developing objective criteria:
    Fair standards and fair procedures.

    Negotiating with objective criteria:
    Frame each issue as a joint search for objective criteria:
    Ask "What's your theory?"
    Agree first on principles.
    Reason and be open to reason.
    Never yield to pressure.

Note: Based on "Getting to Yes" by Roger Fisher and William Ury