© 2001 prentice hall12-1 international business by daniels and radebaugh chapter 12 international...

© 2001 Prentice Hall 12-1

International Businessby

Daniels and Radebaugh

Chapter 12International Business Negotiations andDiplomacy


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


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


OPERATIONS

OBJECTIVES

STRATEGY

OPERATINGTERMS

Governmentalenhancementsand restrictions

Business/governmentnegotiations

Home- and Host-Country Influences on Companies’ Use of FDI


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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

© 2001 prentice hall12-1 international business by daniels and radebaugh chapter 12 international...

Documents

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domestic companies

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