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.
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).
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.
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.
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.
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.
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:
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.
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.
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.
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:
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
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.
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
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:
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.
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
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.
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.
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:
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.
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.
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.
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
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.
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.
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
OTHER IMPORTANT NEGOTIATION TIPS:
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.
Basic Elements of Negotiation
Always remember to separate people from the problem. Negotiators are
Every negotiator has two kinds of interest: in the substance and in
Identify when a relationship tends to become entangled with the problem
and when positional bargaining puts the relationship and the substance
Separate the relationship from the substance; deal directly with the
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
Face-saving: make your proposals consistent with their values.
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.
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.
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 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.
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 values placed on time?
Differences in aversion to risk?
Ask for their preferences.
Make their decision easy:
Making threats is not enough.
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