© 2001 Prentice Hall 12-1
International Businessby
Daniels and Radebaugh
Chapter 12International Business Negotiations andDiplomacy
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ObjectivesTo show the common and conflicting interests between
countries and MNEsTo illustrate negotiations between business and government
in an international contextTo trace the changing roles of home-country governments in
settling MNEs’ disputes with host governmentsTo clarify the role of companies’ public affairs and political
behavior in international businessTo explain the position of companies and governments in the
uneven global enforcement of intellectual property rights
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IntroductionOperating terms of international companies
• Are influenced by governments of home and host countries
• Shift as priorities shift and as strengths of parties changeNegotiation of operating terms is where business-government
relationships become difficult• Governments may refuse companies original or
continued operating permission• Companies will not operate unless their terms of business
are favorable
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OPERATIONS
OBJECTIVES
STRATEGY
OPERATINGTERMS
Governmentalenhancementsand restrictions
Business/governmentnegotiations
Home- and Host-Country Influences on Companies’ Use of FDI
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Governmental versus Company Strength in NegotiationsHierarchical view of governmental authority
• Governments have regulations affecting international business
• Companies accept regulations as “givens”– will comply, circumvent, or avoid regulations
Bargaining view• MNEs and host countries have mutually useful assets• Bargaining school theory—negotiated terms for a foreign
investor’s operations depend on how much the investor and host country need each other’s assets
• Alternative sources for acquiring resources affect company and country bargaining strengths
• Bargaining relationship depends on perception of it as zero-sum game
© 2001 Prentice Hall 12-6
Governmental versus Company Strength in Negotiations (cont.)Bargaining view (cont.)
• Country bargaining strength—based on size of markets and political stability
– incentives appealing if they fit companies’ corporate strategies and government has credibility to fulfill its promises
• Company bargaining strength—varies by industry– type of bargain struck depends on the number of
companies offering similar resources– company likely to gain a high percentage of
ownership in foreign operations when they control certain types of assets
» technology» marketing expertise» ability to export output» local product diversity
© 2001 Prentice Hall 12-7
Governmental versus Company Strength in Negotiations (cont.)Joint company activities—countries encourage domestic
companies to consolidate to counter dependence on foreign companies
• Companies from different countries invest jointly to improve later negotiations
– government may be hesitant to deal simultaneously with more than one home government
Home-country needs—achieve economic objectives• Provides incentives or imposes restrictions to gain its due
share of rewards• Home- or host-government’s influence on MNE tempered
by political interests and relations of the two governments
• When economic and political stakes are high, companies’ home governments help them negotiate
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Governmental versus Company Strength in Negotiations (cont.)Other external pressures on negotiation outcomes
• Decision makers in business and government must consider opinions of other affected groups
– governments are particularly constrained» local companies» political opponents
– companies face pressure from a variety sources» stockholders» workers» consumers» governmental officials» foreign groups
© 2001 Prentice Hall 12-9
Negotiations in International BusinessNegotiations—means by which a company may initiate,
conduct, or terminate operations in a foreign country• Used to establish terms for direct investment and
other operating arrangements• Home- and host-country governments may
negotiate loans, investment guarantees, and overall economic and political relationships
• Interrelated negotiations
Government-Company
Company-CompanyGovernment-Government
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Negotiations in International Business (cont.)Bargaining process
• Acceptance zones– begins with an array of proposals
» some proposals are used as a basis of compromise or as tokens
– agreement occurs only if there are overlapping acceptance zones
• Range of provisions– domestic and foreign negotiations vary in degree– governments vary negotiating agendas toward
foreign investors– most governments offer investment incentives to
attract MNEs– companies agree to many performance requirements
intended to help countries achieve economic and noneconomic objectives
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a) No overlap in acceptance zones
0 49 51 100
49100 75 51 0
Company’s acceptable ownership 51% to 100%
Government’s acceptable ownership 51% to 75%
Company’s acceptable ownership 25% to 100%0 49 100
b) Overlap in acceptance zones
Government’s acceptable ownership 51% to 100%100 75 51 0
25
Acceptance Zones in Negotiating
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Negotiations in International Business (cont.)Renegotiations—terms for continued operations may be
rebargained• Company has greatest bargaining strength before it
makes investment in a foreign country• Theory of the obsolescing bargain—erosion of MNE’s
bargaining strength– after capital and technology transferred abroad, and
foreign nationals have been trained to direct operations, parent company needed less
– company that is responsive to local economy can maintain or improve its bargaining position by offering additional resources needed by host country
– host country becomes less attractive as a place for investment if it pushes too hard on foreign companies
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Behavioral Characteristics Affecting NegotiationsCultural factors—cultural differences may lead to
misunderstandings and mistrust• Areas of possible misunderstanding include:
– individualistic versus collectivist societies– low-context versus high-context cultures– pragmatist versus idealistic cultures– high- versus low-trust societies– monochronic versus polychronic cultures– differences in the importance of punctuality
Language factors—difficult for negotiators to find words to express their exact meaning in another language
• Use of interpreters prolongs negotiations– cultural factors determine whether interpreters are
acceptable
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Behavioral Characteristics Affecting Negotiations (cont.)Culturally responsive strategies—negotiators from different
cultural backgrounds do not necessarily behave according to their culture’s norms
• Counterpart may be an exception to the norm• Counterpart may know the other’s culture and be
adaptive to it• Five strategic responses possible for negotiating with a
foreign counterpartProfessional conflict—differences in professional status
between business and governmental negotiators may create conflict
• Time required for each to understand and appreciate other’s point of view
• Possible that neither will attempt to develop a relationship designed for long-term objectives
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Low Medium High
High
Medium
Low
1. Induce counterpart to follow one’s own script
5. Improvise an approach (effect symphony)
4. Adapt to the counterpart’s script (coordinate adjustment of both parties)
3. Employ agent or advisor (involve mediator)
2. Follow counterpart’s scriptC
oun
terp
art’
s fa
mil
iari
ty w
ith
neg
otia
tor’
s cu
ltu
re
Negotiator’s familiarity withcounterpart’s culture
Culturally Responsive Strategies and Their Feasibility
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Behavioral Characteristics Affecting Negotiations (cont.)Termination of negotiations—settlement deemed impossible
• Method of cessation of negotiations is important– may affect future negotiations– tendency to blame other for failure of talks– both parties should be allowed to save face
Preparation for negotiations—role-playing• Negotiators better able to anticipate responses and plan
their own actions• Hard to simulate stress-related characteristics of
negotiations• Location of negotiations may give one side an advantage
in bargaining
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Home-Country Involvement in Asset ProtectionCompanies concerned that foreign countries will appropriate
their assets• Urge home-country governments to intercede on their
behalf to protect these assets• International standard of fair dealing—host governments
should give foreign investors prompt, adequate, and effective compensation
• Shift in host-countries’ priorities toward attracting FDI rather than expropriating it
– less concern among home countries about the need for intervention to protect investors
Dependencia theory—emerging economies have practically no power as host countries when dealing with MNEs
• Home countries need not rely on military threats– use trade pressures, aid, and influence with
international lending agencies
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Home-Country Involvement in Asset Protection (cont.)Use of bilateral agreements—improve foreign investment
climates• Provide home-country insurance to investors
– agree to settle investors’ losses on a government-to-government basis
• Other types of bilateral agreements include treaties of friendship, commerce, and navigation as well as prevention of double taxation
• Multilateral agreements and settlements: FDI and trade—disputes handled by a neutral country or group of uninvolved countries
• Government-to-government trade disputes largely handled by World Trade Organization (WTO)
• International Center for Settlement of Investment Disputes—arbitration center
• NAFTA tribunal handles regional disputes
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Home-Country Involvement in Asset Protection (cont.)Multinational agreements: Intellectual property rights (IPRs)—
cover both industrial property and artistic property• Countries differ in their protection of IPRs
– emerging countries offer less protection– even with similar levels of protection, countries differ
in their approaches• Patents—Paris Convention
– current cross-national protection of patents achieved through:
» Patent Cooperation Treaty (PCT)» European Patent Convention (EPC)» European Economic Community Patent
Convention– patent-infringement battles are costly, complex, and
hard to prove
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Home-Country Involvement in Asset Protection (cont.)Multinational agreements: IPRs (cont.)
• Trademarks—protects brand names– some brand names have entered public domain– Trademark Registration Treaty—offers cross-national
protection of trademarks• Copyrights—protect published and recorded materials
– Universal Copyright Convention and Berne Convention—major cross-national agreements
• Piracy—production without consent of the firm holding the patent, trademark, or copyright
– manufacturers’ associations created to deal with piracy
– WTO—taken over administration of international property rights
– companies taking steps to limit piracy
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Collective Actions to Deal with International CompaniesActions of MNEs a cause for concerns for governments
• League of Nations—first attempt to regulate international companies on multilateral basis
• U.N. Center on Transnational Corporations– collects information on MNE activities– a forum for publicizing common complaints
• Organization for Economic Cooperation and Development—approved a code of conduct
• Nongovernmental organizations and industry associations have instituted codes dealing with specific practices
• U.S. issued voluntary code for foreign operations of American companies
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Corporate Citizenship and Public RelationsCompanies publicize good-citizenship activities
• Business conduct that satisfies social objectives• Nonbusiness functions that help society
MNEs under conflicting pressures from different groups• MNE responses often perceived as defensive
Companies work to increase the number of supporters• Use advocacy-publicity to win support for international
activitiesCompanies mitigate criticism by:
• Permitting local managers to determine policies• Consulting with stakeholders about employment• Foster participation that develops local proponents• Take on additional social functions
MNE may have to be uncompromising with government
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