Creative Solutions to Global Business Negotiations, Third Edition

Claude Cellich

• Publisher: Business Expert Press
• Year: 2020
• ISBN:
  9781952538797
• Topic: Personal Development
• Subtopic: Negotiation

Practical and user friendly, the author describes all the key elements needed to negotiate deals that are doable, profitable, and sustainable.

Based on decades of teaching and consultancies around the world, the author provides a useful guide for business executives operating in today's digitalized global economy. This latest edition will help readers enhance their preparation, anticipate objections, create value for tangibles/intangibles, and avoid cultural blunders to reach mutually beneficial outcomes.

By sharpening negotiation skills, business executives will be able to interact more effectively with their counterparts in the fast changing global business environment and the rising influence of third parties. Practical and user friendly, the author describes all the key elements needed to negotiate deals that are doable, profitable, and sustainable.

PART 1

Introduction

CHAPTER 1

Overview of Global Business Negotiations

In business you don’t get what you deserve, you get what you negotiate.

—Chester L. Karras

Business requires undertaking a variety of transactions. These transactions involve negotiations with one or more parties on mutual roles and obligations. Thus, negotiation is defined as a process by which two or more parties reach agreement on matters of common interest. All negotiations involve parties (i.e., persons with common interests who deal with each other), issues (i.e., one or more matters to be resolved), alternatives (i.e., choices available to negotiators for each issue to be resolved), positions (i.e., defined response of the negotiator on a particular issue: what you want and why you want it), and interest (i.e., underlying needs a negotiator has). These should be identified and stated clearly at the outset.

In recent years, one of the most important developments has been the internationalization of business. Today companies of all sizes increasingly compete in global markets to seek growth and maintain their competitive edge. This forces managers to negotiate business deals in multicultural environments.

While negotiations are difficult in any business setting, they are especially so in global business because of (a) cultural differences between the parties involved, (b) differences between the business environments in which the parties operate, and (c) the impact of digital technologies on businesses. For these reasons, business negotiations across borders can be problematic and sometimes require an extraordinary effort.¹ Proper training can go a long way in preparing managers for negotiations across national borders. This book provides know-how and expertise for deal making in multicultural environments.

The book is meant for those individuals who must negotiate deals, resolve disputes, or make decisions outside their home markets. Often, managers take international negotiations for granted. They assume that if correct policies are followed, negotiations can be carried out without any problems. Experience shows, however, that negotiations across national boundaries are difficult and involve a painstaking process. Even with favorable policies and institutions, negotiations in a foreign environment may fail because individuals are dealing with people from a different cultural background within the context of a different legal system and different business practices. When negotiators have the same nationality, their dealing takes place within the same cultural and institutional setup. But where negotiators belong to different cultures, they have different approaches and assumptions relative to social interactions, economic interests, legal requirements, and political realities.

This book provides business executives, lawyers, government officials, and students of international business with practical insights into international business negotiations. For those who have no previous training in negotiations, the book introduces them to the fundamental concepts of global deal making. For those with formal training in negotiation, this book builds on what they already know about negotiation in the global environment.

Negotiation is interdependent, since what one person does affects another party. It is imperative, therefore, that a negotiator, in addition to perfecting his or her own negotiating skills, focuses on how to interact, persuade, and communicate with the other party. A successful negotiator works with others to achieve his or her own objectives. Some people negotiate well, while others do not. Successful negotiators are not born; rather, they have taken the pains to develop negotiating skills through training and experience.

Negotiation Architecture

There are three aspects to the architecture of global negotiations: negotiation environment, negotiation setting, and negotiation process. Negotiation environment refers to the business climate that surrounds the negotiations; this is beyond the control of negotiators. Usually, negotiators have influence and some measure of control over the negotiation setting. Negotiation process refers to the events and interactions that take place between parties to reach an agreement. Included in the process are the verbal and nonverbal communication among parties, the display of bargaining strategies, and the endeavors to strike a deal.

Negotiation Environment

Negotiation environment can be thought of as having the following components: legal pluralism, political pluralism, currency fluctuations and foreign exchange, foreign government control and bureaucracy, instability and change, ideological differences, cultural differences, and external stakeholders.²

Legal Pluralism. A multinational enterprise in its global negotiations must cope with widely different laws. A corporation must not only consider its country’s laws wherever it negotiates, but also be responsive to the laws of the negotiating partner’s country. For example, without requiring proof that certain market practices have adversely affected competition, U.S. law, nevertheless, makes them violations. These practices include horizontal price fixing among competitors, market division by agreement among competitors, and price discrimination. Even though such practices might be common in a foreign country, U.S. corporations cannot engage in them. Simultaneously, local laws must be adhered to even if they forbid practices that are allowed in the United States. For example, in Europe, a clear-cut distinction is made between agencies and distributorships. Agents are deemed auxiliaries of their principal; distributorships are independent enterprises. Exclusive distributorships are considered restrictive in European Union (EU) countries. The foreign marketer must be careful in making distribution negotiations in, say, France, so as not to violate the regulation concerning distributorship contracts.

Negotiators should be fully briefed about relevant legal aspects of the countries involved before coming to agreement. This will ensure that the final agreement does not contain any provision that cannot be implemented because it is legally prohibited. The best source for such briefings is a law firm with in-house expertise on legal matters of the counterpart’s country.

Political Pluralism. A thorough review of the political environment of the counterpart’s country must precede the negotiation process. An agreement may be negotiated that is legal in the countries involved and yet may not be politically prudent to implement. There is no reason to spend effort in negotiating such a deal.

A thorough review of the political environment of a country, therefore, must precede the negotiation exercise. A rich foreign market may not warrant entry if the political environment is characterized by instability and uncertainty. Political perspectives of a country can be analyzed in three ways: (1) by visiting the country and meeting credible people; (2) by hiring a consultant to prepare a report on the country; and (3) by examining political risk analysis.

Currency Fluctuations and Foreign Exchange. A global negotiation may involve financial transfers across national lines in order to close deals. Financial transfers from one country to another are made through the medium of foreign exchange. Foreign exchange is the monetary mechanism by which transactions involving two or more currencies take place. It is the exchange of one country’s money for another country’s money.

Transacting foreign exchange deals presents two problems. First, each country has its own methods and procedures for effecting foreign exchanges—usually developed by its central bank. The transactions themselves, however, take place through the banking system. Thus, the methods of foreign exchange and the procedures of the central bank and commercial banking constraints must be thoroughly understood and followed to complete a foreign exchange transaction.

A second problem involves the fluctuation of rates of exchange that occurs in response to changes in supply and demand of different currencies. For example, in 1992 a U.S. dollar could be exchanged for about three Swiss francs. In early 2001, this rate of exchange went down to as low as 1.3 Swiss francs for a U.S. dollar, and in late 2020, the U.S. dollar was worth less than one Swiss franc. Thus, a U.S. businessperson interested in Swiss currency must pay much more today than in the 1990s. In fact, the rate of exchange between two countries can fluctuate from day to day. This produces a great deal of uncertainty, as a businessperson cannot know the exact value of foreign obligations and claims.

Foreign Government Controls and Bureaucracy. An interesting development over the years has been the increased presence of government in a wide spectrum of social and economic affairs it previously ignored. In the United States, concern for the poor, aged, and minorities, as well as consumers’ rights and the environment, has spurred government response and the adoption of a variety of legislative measures.

In a great many foreign countries, such concerns have led governments to take over businesses to be run as public enterprises. Sympathies for public sector enterprises, successful or not as businesses, have rendered private corporations suspect and undesirable in many countries. Also, public sector enterprises are not limited to developing countries. Great Britain and France had many government corporations, from airlines to broadcasting companies to banks and steel mills. Thus, in many nations, negotiations may take place with a government-owned company, where profit motive may not be as relevant as for a private company.

Some nations look upon foreign investment with suspicion. This is true of developed and developing countries. Take, for example, Japan, where it is extremely difficult for a foreign business to establish itself without first generating a trusting relationship that enables it to gain entry through a joint venture. Developing countries are usually afraid of domination and exploitation by foreign businesses. In response to national attitudes, these nations legislate a variety of controls to prescribe the role of foreign investment in their economies. Therefore, a company should review a host country’s regulations and identify underlying attitudes and motivations before deciding to negotiate there. For advice on legal matters, the company should contact a law firm, which may know an expert in the host country.

Furthermore, the company should examine the political risk analysis of firms.

The government of a country sometimes imposes market control to prevent foreign companies from competing in certain markets.

Obviously, in nations with an ongoing bias against homegrown private businesses, a foreign company cannot expect a cordial welcome. In such a situation, the foreign company must contend with the problems that arise because it is a private business as well as a foreign one. Sound business intelligence and familiarity with the industrial policy of the government and related legislative acts and decrees should provide clarification of the role of the private sector in any given economy. This type of information should be fully absorbed before proceeding to negotiate.

Instability and Change. Many countries have frequent changes of government. In such a climate, a foreign business may find that by the time it is ready to implement an agreement, the government with whom the initial agreement was negotiated has changed to one that is not sympathetic to the commitment by its predecessor. Consequently, it is important for international negotiators to examine, before making agreements, whether the current government is likely to continue to be in office for a while. In a democratic situation, the incumbent party’s strength or the alternative outcomes of the next election can be weighted to assess the likelihood of change. To learn about the political stability of a country, a company should contact someone who has been doing business in the host country for some time. A company may also gain useful insights on this matter from its own country’s government agencies.

More than anything else, foreign companies dislike frequent policy changes by host countries. Policy changes may occur even without a change in government. It is important, therefore, for foreign businesses to analyze the mechanism of government policy changes. Information on the autonomy of legislatures and study of the procedures followed for seeking constitutional changes can be crucial for the global negotiator.

Sovereign nations like to assert their authority over foreign business through various sanctions. Such sanctions are regular and evolutionary and, therefore, predictable. An example is increase in taxes over foreign operations. Many emerging economies impose restrictions on foreign business to protect their independence. (Economic domination is often perceived as leading to political subservience.) These countries are protective of their political freedom and want to maintain it at all costs, even when it means proceeding at a slow economic pace and without the help of foreign business. Thus, the problem posed by political sovereignty exists mainly in developing countries.

The industrialized nations, whose political sovereignty has been secure for a long time, require a more open policy for the economic realities of today’s world. Today, governments are expected simultaneously to curb unemployment, limit inflation, redistribute income, build up backward regions, deliver health services, and protecting the environment. These wide-ranging objectives make developing countries seek foreign technology, use foreign capital and foreign raw materials, and sell their specialties in foreign markets. The net result is that these developing countries have found themselves exchanging guarantees for mutual access to one another’s economies. In brief, among developed countries, multinationalism of business is politically acceptable and economically desirable, which is not always true of developing countries.

A basic management reality in today’s economic world is that businesses operate in a highly interdependent global economy and that the 200-plus countries and territories are significant factors in the international business area. Today, the largest 25 economies represent 80 ­percent of the global gross domestic product (GDP) and an even larger share of imports, which means that the remaining 175 or so countries account for less than 20 percent of the global export markets. For this reason, few of the world’s largest companies try to penetrate more than 20 to 30 developed markets, mostly leaving emerging economies open to competition.³ To successfully negotiate in developing countries, a company must recognize the magnitude and significance of these differences.

Cultural Differences. Doing business across national boundaries requires interaction with people nurtured in different cultural environments. Values that are important to one group of people may mean little to another. Some typical attitudes and perceptions of one nation may be strikingly different from those of other countries. These cultural differences deeply affect negotiation behavior. International negotiators, therefore, need to be familiar with the cultural traits of the country with which they...