A Beginner's Guide to International Business Negotiations
By Jeswald Salacuse
This Article Summary written by: Tanya Glaser, Conflict Research Consortium
Citation: Salacuse, Jeswald. "Making Deals in Strange Places: A Beginner's Guide to International Business Negotiations." Negotiation Theory and Practice. Eds. J. William Breslin and Jeffrey Z. Rubin. Cambridge, MA: The Program on Negotiation at Harvard Law School, 1991. 251-260.
Salacuse describes six distinctive features of international business negotiations. The author begins by pointing out two mistaken assumptions about doing business in an international setting. Many economic commentators assume that international business deals will happen naturally if only the correct governmental policies and structures are in place. Corporate leaders assume that they can simply extend their successful domestic strategies to the international setting.
Both of these assumptions are mistaken. Policies alone do not create business deals; companies do. Business executives will need to be much better educated about international negotiating in order to make successful deals. International business negotiations are fundamentally different from domestic negotiations, and require a different set of skills and knowledge. Salacuse explains that "domestic business dealings probably have about the same relationship to international business as domestic politics do to international diplomacy."[p. 252]
Salacuse identifies six elements which are common to all international business negotiations, and which as a set distinguish international business negotiations from domestic negotiations. The first is that in international negotiations the parties must deals with the laws, policies and political authorities of more than one nation. These laws and policies may be inconsistent, or even directly opposed. For example, in the early 1980s U.S. companies operating in Europe were caught between the American prohibition on sales to the Soviets for their Trans-Siberian pipeline, and European nations' demands that these companies abide by their supply contracts. International business agreements must include measures to address these differences. Such measures typically include arbitration clauses, specification of the governing laws, and tax havens.
A second factor unique to international business is the presence of different currencies. Different currencies give rise to two problems. Since the relative value of different currencies varies over time, the actual value of the prices or payments set by contract may vary, and result in unexpected losses or gains. Another problem is that each government generally seeks to control the flow of domestic and foreign currencies across their national boundaries. And so business deals will often depend upon the willingness of governments to make currency available. Unexpected changes in such governmental currency policies can have dramatic effects on international business deals.
A third element common to international business negotiations is the participation of governmental authorities. Governments often play a much larger role in foreign business than Americans are accustomed to. The presence of often extensive government bureaucracies can make international negotiation processes more rigid that is usual in the American private sector. Sovereign immunity can introduce legal complications into contracts. State-controlled businesses may have different goals from private companies. Whereas private firms are usually primarily concerned with profits, state entities may be willing to sacrifice some profitability for social or political ends such as greater employment.
Fourth, international ventures are vulnerable to sudden and drastic changes in their circumstances. Events such as war or revolution, changes in government, or currency devaluation have an impact on international businesses which is much greater than the impact that the usual domestic changes have on national businesses. These risks "require that international business negotiator to have a breadth of knowledge and social insight that would not ordinarily be necessary in negotiating a U.S. business arrangement."[p. 255] International businesses try to protect against these risks by employing political risk analysts, by foreign investment insurance, and by force majeure clauses which allow for contract cancellation under certain conditions.
International business negotiators also encounter very different ideologies. In particular, different countries may have very different ideas about private investment, profit and individual rights. Effective negotiators will be aware of ideological differences. They will present their proposals in ways that are ideologically acceptable to the other party, or that are at least ideologically neural.
Finally, cultural differences are an important factor in international negotiations. In addition to language differences, different cultures have differing values, perceptions and philosophies. As a result, certain ideas may have very different connotations in different cultures. For instance, Americans and Japanese tend to have a different view of the purpose of negotiations. Americans see the goal of negotiations as to produce a binding contract which creates specific rights and obligations. Japanese see the goal of negotiations as to create a relationship between the two parties; the written contract is simply an expression of that relationship. What the Japanese see as a reasonable willingness to modify a contract to reflect changes in the parties relationship, Americans see as a tendency to renege. American insistence on adherence to the original terms of the contract may be perceived as distrust by the Japanese.
Some cultures prefer to start from agreement on general principles, while other prefer to address each issue individually. Some cultures prefer to negotiate by "building up" from an initial minimum proposal; other prefer to "build-down" from a more comprehensive opening proposal. Cultural differences also show up in the preferred pacing of negotiations and in decision-making styles. Salacuse cautions, however, that individual negotiators do not always conform to cultural stereotypes.