OLCBIBT01 – INTERNATIONAL BUSINESS AND TRADE

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CHAPTER 1- CONFLICTS AND NEGOTIATIONS IN INTERNATIONAL

BUSINESS

Objectives:
a.) Identify the factors that cause conflict in international business; and
b.) Describe the basis of conflict between host country and
transnational company

A. INTRODUCTION
- All of us have experienced conflict of various types, yet we probably fail to recognise
the variety of conflicts that occur in organisations. Conflict can be a serious problem
in any organisation. A better understanding of the important areas of conflict will help
managers to use the people in the organisation more effectively to reach the
organisation’s objectives. Failure to be concerned about conflict is very costly, since
ignoring it will almost guarantee that work and interpersonal relations will deteriorate.
Conflict refers to a disagreement, opposition, or struggle between two or more people
or groups.
- Where there are conflicts, there are negotiations. It is imperative to understand the
various negotiation tactics, negotiation styles, unique regulations, and other cultural
issues that influence behaviors during negotiation in international business. The topic
area of international trade negotiation was identified because it is an emerging field
of inquiry resulting from globalisation.
- Knowledge is being developed about it, which compares different races, countries
and cultures. Negotiation is the process by which at least two parties try to reach an
agreement on matters of mutual interest. The negotiation proceeds as a perception,
and information processing and reaction. “Negotiation is a dynamic process, and
outcomes develop from patterned exchanges between negotiating parties and their
constituencies”– Druckman.

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B. FACTORS CAUSING CONFLICT
- The factors causing conflict are divergent. The factors differ for organisational
conflicts, project conflicts and so on.
a. Causes of Organisational Conflicts
• Structural factors cause organisational conflict. Structural factors
normally impose rigidity while businesses need dynamic adjustment.
Personnel who could not tend or mend the organisation, but required
to show targeted results see conflict between responsibility and
authority. This is an organisational conflict.
• Specialisation of functions in organisations leads to conflict because
generally the experts in fields fail to agree. Interdependence amongst
organisational divisions/departments is the order of the day and
conflicts develop between departments because one department is
either lethargic in its commitment or it is over-smart and others could
not find home. As none can operate without the other, conflict arises.
This is an organisational conflict.
• Sharing Common Resources such as a facility leads to conflict because
one person/ division over draws and the deprived others disagree to
pull together. This is an organisational or social conflict. There are
societies claiming stake in the same resource – land, water, temple,
etc. interstate water disputes and conflicts are common in South India.
In some villages stakes to access temples pose conflicts.
• Goal Differences such as one person wants to push production and
others want R&D to rise, leading to conflict. This is an organisational
conflict. The parent organisation and subsidiary may see different
opportunities and conflict mutually.
• Authority relationships may lead the boss and employees beneath
him/her do not see in the same inclination, especially when the boss
claims ‘boss is always right’, conflict arises. This is an organisational
conflict.

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• Status Inconsistencies such as excessive/scanty power, power without
sincerity, and too much politically charged atmosphere cause conflict.
This is an organisational conflict
• Inconsistencies in asset endowments cause conflict. May be it is class
conflict the communists leaders project.
• Jurisdictional Ambiguities who will report/discipline who lead to conflict
in issuing and receiving communications. This is a kind of intra-
organisation conflict.
• Personal Factors like perversion, misunderstanding, selfishness, etc. of
people lead to conflict of opinions and hence actions. This happens at
home / office / private or social or official gatherings. Personality clash
where two equally placed persons or heads do not simply accept one
another, leads to conflict. Perception differences where the sensitivity
or understanding of people on certain phenomena differs, lead to
conflict.
• Values and Ethics can cause conflicts: Differing commitment levels
to, or interpretation of values and ethics of people may lead to conflict.
Eventually ‘means-ends’ tussle erupt. Communication barriers result in
no communication, missile-like communication or misleading
communication. Eventually somewhat long-term conflicts form.
• Cultural Differences: Culture tells people what emotions ought to be
expressed in particular situations and what emotions are to be felt.
Cultures differ. These differences like lack of tolerance for diversity
result in conflict of cultures. One suggests rituals simply not acceptable
to others. Conflicts creep.
• Emotion causes result in conflicts: Conflict involves emotion
because something ‘triggers’ it. The events triggering conflict are
events that elicit emotion. Some hold the view that ‘Conflict is
emotionally defined and driven’, and ‘does not exist in the absence of
emotion’. Conflict is emotionally defined and is emotionally balanced.
Emotion levels during conflict can be intense or less intense. The

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intensity levels may be indicative of the importance and meaning of the
conflict issues for each party. Where applicable, there are many
components to the emotions that are intertwined with conflict. There are
behavioral, physiological and cognitive components.
• Behavioral: The way emotional experience gets expressed which can
be verbal or non-verbal and intentional or un-intentional.
• Physiological: The bodily experience of emotion. The way emotions
make us feel in comparison to our identity.
• Cognitive: The mental process of “assessing or appraising” an event to
reveal its relevancy to oneself. These three components collectively
constitute ‘emotional experience’ determined by cultural values, beliefs,
and practices’. The emotion conflict relationship is not acceptable to the
Economists.
• Scarcity leads to conflict, according to Economists: This is not
acceptable to Psychologists. It can be said, scarcity of emotional
balance is the cause of conflict! Deprivation, economic or emotional,
leads the conflict. In the circumstance of economic deprivation
emotional disturbances are rational as well. Thus subject of conflict is
purely rational and related to deprivation.
• Moral stance leads to conflict: When an event occurs it can be
interpreted as moral or immoral. Judging something as immoral may
lead to conflict.
• Identity or individuality issues may lead to conflict: Emotions and
Identity are a part of conflict. When a person knows their values, beliefs,
and morals they are able to determine whether the conflict is personal,
relevant and moral. Identity related conflicts are potentially more
destructive.
• Conflict is relational: Conflict is relational in the sense that emotional
communication conveys relational definitions that impact conflict. Key
relational elements are power and social status.

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• Societies with weak institutions witness more conflicts: Violent
conflict is more common in societies with weak institutions and chronic
poverty.
b. Causes of Project Related Conflicts
• Large infrastructure projects and conflicts: Second, large infrastructure
projects and conflicts go together.
• Project loans/advising/promotion for controversial projects and
conflicts: Project finance draws a clear line of responsibility connecting
financiers with the social impacts caused by particular projects
• Capital flight and money laundering and conflicts: Every corrupt
dictator that has transferred money offshore for personal enrichment has
done so with the aid of correspondent and/or private banking services.
Such grand-scale corruption is often a correlate with violent conflict.
• Financial advising and conflicts: Financial advising is an important
service offered to sovereign governments, but sometimes this advice is
employed for dubious ends.
• Sovereign loans/bonds/book-runners and conflicts: Financiers provide
loans to sovereign governments that may engage in human rights abuses
or war-mongering activities.
• Financing state-owned enterprises and conflicts: According to the
NGO Global Witness, much of the money from loans from global bankers
especially from Swiss ostensibly got for funding an Angolan state-owned
oil company was used to purchase weapons.
• Trade facilities indirectly used to war-purposes and conflicts:
Merchant banks provided trade facilities that enabled governments to
import weapons, communications equipment, and other articles of wars.
Financiers may also support the manufacture of these items.
• Export credits and support of arms sales and conflicts: A significant
proportion of export Notes credit guarantees awarded by banks in support
of the defence industry to recognized sovereign governments and in line
with international regulation has slipped into faulty hands.

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• Conflict commodities and conflicts: Timber, cobalt, tin, diamonds, gold
and oil may generate hard currency for tyrannical regimes, civil war or
violent conflict, as has been the case in some African countries such as
Liberia and Angola. Links between international financial markets and
conflict commodities are well documented. Terrorist organisations have
started making money through the investment markets, it is reported, even
in developed countries.
• Host Governments against the MNE projects: Host Governments are
against the MNE projects in some countries now and most countries 3
decades ago.
C. CONFLICT BETWEEN HOST AND TRANSNATIONAL COMPANY
- Profit is the motivating force that drives multinational corporations, which also are
driven to occupy larger market shares and to ensure long-term competitiveness
in the host countries. Conflict of interest between these corporations and host
societies arise on a range of issues including intellectual property rights,
operational decisions that may affect the environment or human rights, and the
repatriation of profits. While multinational corporations base their decisions on
economics, many host countries want these decisions to be in sync with the
country’s social and political needs.
- Exporters should project a good image of the country abroad to promote exports.
With this objective in mind, an enduring relationship with foreign buyers is of the
utmost importance, and trade disputes, whenever they arise, should be settled as
soon as possible.
- The majority of complaints from foreign buyers are with regard to quality. Other
complaints are usually for unethical commercial dealings on the part of Indian
exporters and can be categorised as non-supply of goods after confirmation of
the orders, non-payment of agreed commission, non-adherence to the delivery
schedule etc. The work relating to dealing such complaints of foreign buyers has
been centralised with the ‘Nodal Officer’ and its assisting cell viz., the Trade
Disputes Cell in the office of the Director General of Foreign Trades, Ministry of
Commerce, Udyog Bhawan, New Delhi.

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REFERENCES:

Vasudeva, P. K. (2010), International Marketing, 4th edition, New Delhi:

Excel Books

Bhattacharya, B, Going International Response Strategies for Indian

Sector, New Delhi: Wheeler Publishing Co

Black and Sundaram, International Business Environment, New Delhi:

Prentice Hall of India

Gosh, Biswanath, Economic Environment of Business, New Delhi: South

Asia Book

LINKS
TOPICS LINKS FOR VIDEO
Causes of Organisational Conflicts https://youtu.be/djdHPMZN8gM

Causes of Project Related Conflicts https://youtu.be/ls64NhYeJCY

Conflict Between Host and Transnational https://youtu.be/GqyyhhueFms

Company

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