International Business Negotiation

Principles and Practice

Barry Maude

• Publisher: Bloomsbury Academic
• Year: 2020
• Print ISBN: 9781352010046
• eBook ISBN: 9781350305168
• Edition: 2
• Topic: Business
• Subtopic: International Business
• Index: Business

Expertly blending theory and practice, this accessible and up-to-date textbook offers a clear and comprehensive introduction to international business negotiation. The book draws on the practical experiences of managers, consultants and entrepreneurs who have successfully conducted business negotiations around the world, offering practical and realistic guidelines for improving negotiation practice in a wide range of international and cross-cultural contexts. It covers the key negotiation theories, concepts, strategies and practices needed to succeed in contemporary business negotiations. Thoroughly updated throughout, this edition contains new content on ethical, cross-border M&A, and international joint ventures negotiations. With engaging pedagogy and rigorous coverage of key theories and research findings, this textbook is an essential companion for modules in negotiation and international negotiation at undergraduate, postgraduate and MBA modules. It is also suitable for managers and practitioners who are interested in, or participate in, international negotiation.

PART
1

PRINCIPLES

INTERNATIONAL BUSINESS NEGOTIATION: AN OVERVIEW

1

Introduction

Many thousands of international business deals are negotiated every day using a wide range of communication methods, including face-to-face discussions, phone calls, emails, faxes, letters, video conferencing and virtual negotiation. Managers negotiating international business deals must be capable of using all these methods skilfully to achieve satisfactory outcomes. To be successful negotiators they also need to develop the right mindset – to recognise that negotiation is essentially a process which involves compromise, concessions and trade-offs. In many international business negotiations power is critical to improving a party’s negotiated outcomes (Khakhara & Ahmed, 2017).

Negotiation process involves cooperative exchanges of information and offers between the parties. The process is one of give and take. The negotiators make initial offers but then keep modifying them and making concessions to come closer to each other and eventually to reach a negotiated agreement. Most Western negotiators see the production of a binding contract as an essential part of the negotiation process, while Asian negotiators are more likely to see the building of a lasting business relationship with the other party as the main outcome (Leary et al., 2013). Such basic differences show the importance of cultural awareness and sensitivity in international business negotiations.

International business negotiation is not a monolithic activity. Numerous activities are involved such as procuring raw materials and supplies; distribution activities; licensing; technology transfer agreements; franchise agreements; cross-border mergers and acquisitions; establishing international joint ventures, among others – although sales comprise the great majority of international business transactions. In some international business negotiations government plays an important role as either a participant or a regulator (Gunia et al., 2016).

No single model of international business negotiation has gained general acceptance. Early researchers supposed that negotiations begin with a focus on power, with the most powerful party forcing the other to accept their demands. Later studies have found that successful negotiators rely less on power and more on coordination and cooperation. Often high joint benefit occurs when negotiators are concerned about the other party’s outcomes as well as their own outcomes (Das & Kumar, 2011).

Much negotiation theory has been developed based on game theory and the search for optimal solutions. But approaches based on economic models of negotiation falsely assume the rationality of negotiators and ignore the realities of real-life business negotiations where psychological factors and the impact of culture on negotiator behaviour are always present. Many studies adopt the perspective of large, technology-driven and manufacturing companies from Western economies that seek international markets to sell their products or cheap labour to reduce their costs (Nippa & Reuer, 2019).

After an international business negotiation has been concluded, clauses may need to be inserted into the contract specifying the governing law in case of future disputes between the parties. A recurrent source of disagreement between EU and UK negotiating teams during the Brexit negotiations in 2017 was about which court would decide any future disputes about the rights of EU citizens in the UK – the European Court of Justice or the UK’s Supreme Court.

Different types of negotiation

Scope

International business negotiations deal with numerous issues ranging from the sale of goods and services to negotiating strategic alliances and joint ventures – all of which require a large number of issues to be negotiated and mutually acceptable solutions to be achieved. Typical examples are:

• A European manufacturer and a Chinese state-owned company negotiate to set up a joint venture in China.

• A Japanese multinational negotiates a licensing agreement with a small Korean manufacturer.

• A trading organisation in Russia negotiates a supplier agreement with a Turkish electronics group.

• Two South American governments embark on negotiations to resolve a long-standing trade dispute.

In all these cases, poorly conducted negotiations could create misunderstanding, conflict and the loss of overseas customers and earnings. That is why the ability to effectively plan and conduct international business negotiations is increasingly recognised as one of the single most important global business skills.

Many international business negotiations are large-scale and complex, and may involve third parties, such as agents, consultants, advisers, sub-contractors and governments. In some international business negotiations government plays an important role as either a participant or a regulator in the background. The participation of government representatives can make the negotiation slow and bureaucratic and affect the outcome. Sometimes, for instance, a government insists on clauses being inserted into the contract aimed at creating employment opportunities or better infrastructure in the country concerned.

Domestic versus international negotiations

Some of the factors that lead to success in both domestic and international business negotiations are the same, including:

• Negotiator preparedness

• Negotiating skills of the negotiators

• Quality of information brought to the table

• Amount of shared information.

In many other ways international business negotiation differs from domestic negotiation and requires a different set of skills and capabilities – the ability to deal with complexity, for instance. International business negotiation can be a slow and difficult process because the negotiators have to take into account tariff structures, import regulations, fluctuating exchange rates and numerous other complex details. Failure to do so means that any agreement reached may be inconclusive and short-lasting.

Complications faced by managers embarking on international business negotiations have been identified by Salacuse (2003) and other authors. They include:

• International business negotiators must take into account the laws of two or more countries, depending on the number of parties involved in the negotiation. These laws are often inconsistent. As a result, clauses may have to be inserted into the contract specifying the governing law in case of disputes between the parties and specifying contingency arbitration arrangements in case of serious disputes.

• There may be sudden changes in the international business environment triggered, for instance, by devaluation of a foreign currency or an increase in taxes payable by foreign investors. Such reversals are commonplace in international business. Toyota’s vehicle sales in China in 2011 rose at the slowest pace in seven years after the sudden removal of tax breaks dented demand.

• Force majeure clauses may have to be inserted into contracts allowing for contract cancellation under certain conditions – e.g. in the event of international business conditions being disrupted by war or revolution.

Other complications stem from the differing negotiating customs and expectations of the negotiators. That is why a few basic rules and procedures may need to be agreed at the start of a negotiation to answer many of the participants’ initial questions.

Bilateral and multilateral

Multilateral negotiations are a common feature of international business, yet negotiation research focuses mainly on bilateral negotiation. Most textbooks on negotiation are about two-party negotiation. A possible reason for this emphasis is that two-party negotiations are easier to comprehend and to write about, easier to organise and conduct, than multilateral negotiations.

Bilateral negotiation generally consists of tit-for-tat bargaining with a regular exchange of concessions leading to a negotiated outcome. The two sides either reach an agreement or not. Multilateral negotiations, on the other hand, involve many parties and usually deal with multiple issues. They are difficult to organise and conduct unless well thought-out procedures are imposed – for example, scheduled meetings and timetables, report-back sessions, a nominated or elected chair, and procedures which facilitate orderly discussion.

In multilateral negotiations consensus may be the only practical way of reaching a negotiated agreement. No one party can get what they want unless they are willing to allow other parties to achieve some of their goals. In practice, consensus is often considered to have been achieved when a significant number of parties are in favour of a proposal and the rest do not oppose.

Single issue and multiple issue

Some negotiations focus on a single issue. What price should be paid for a particular export order? What should the deadline for completing an IT project in a foreign country? Lewicki et al. (2005) point out that single-issue negotiations such as these are typically characterised by competitive, distributive bargaining where one side’s gain is the other side’s loss.

In most international business negotiations, however, multiple issues have to be addressed and resolved. This is achieved when negotiators are willing to adjust their opening negotiating positions so that an agreement can be reached which spans all the issues. Whe...

Table of contents

• Cover Page
• Halftitle Page
• Title Page
• Copyright Page
• Contents
• List of Figures and Tables
• Preface
• Part 1 – Principles
• Part 2 – Practice
• Index