International Business

by Daniels and Radebaugh

Chapter 12 International Business Negotiations and Diplomacy

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Objectives
To show the common and conflicting interests between countries and MNEs To illustrate negotiations between business and government in an international context To trace the changing roles of home-country governments in settling MNEs disputes with host governments To clarify the role of companies public affairs and political behavior in international business To explain the position of companies and governments in the uneven global enforcement of intellectual property rights

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Introduction
Operating terms of international companies Are influenced by governments of home and host countries Shift as priorities shift and as strengths of parties change Negotiation 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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Home- and Host-Country Influences on Companies Use of FDI

OPERATIONS
Business/government negotiations

OBJECTIVES

STRATEGY

Governmental enhancements and restrictions

OPERATING TERMS

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Governmental versus Company Strength in Negotiations

Hierarchical 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 theorynegotiated terms for a foreign investors operations depend on how much the investor and host country need each others assets Alternative sources for acquiring resources affect company and country bargaining strengths Bargaining relationship depends on perception of it as zero-sum game

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Governmental versus Company Strength in Negotiations (cont.)

Bargaining view (cont.) Country bargaining strengthbased 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 strengthvaries 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

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Governmental versus Company Strength in Negotiations (cont.)

Joint company activitiescountries 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 needsachieve economic objectives Provides incentives or imposes restrictions to gain its due share of rewards Home- or host-governments 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

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Negotiations in International Business

Negotiationsmeans 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

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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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Acceptance Zones in Negotiating

a) No overlap in acceptance zones 0 Companys acceptable ownership 51% to 100% 49 51 100

100

75 51 49 Governments acceptable ownership 51% to 75%

b) Overlap in acceptance zones 0 Companys acceptable ownership 25% to 100% 100 49 25

100

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Negotiations in International Business (cont.)

Renegotiationsterms for continued operations may be rebargained Company has greatest bargaining strength before it makes investment in a foreign country Theory of the obsolescing bargainerosion of MNEs 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 Negotiations

Cultural factorscultural 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 factorsdifficult 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 strategiesnegotiators from different cultural backgrounds do not necessarily behave according to their cultures norms Counterpart may be an exception to the norm Counterpart may know the others culture and be adaptive to it Five strategic responses possible for negotiating with a foreign counterpart Professional conflictdifferences in professional status between business and governmental negotiators may create conflict Time required for each to understand and appreciate others point of view Possible that neither will attempt to develop a relationship designed for long-term objectives

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Culturally Responsive Strategies and Their Feasibility

High 1. Induce counterpart to follow ones own script 4. Adapt to the counterparts script (coordinate adjustment of both parties) 3. Employ agent or advisor (involve mediator) Low Medium Negotiators familiarity with counterparts culture 2001 Prentice Hall 12-15 2. Follow counterparts script High

Counterparts familiarity with negotiators culture

5. Improvise an approach (effect symphony)

Medium

Low

Behavioral Characteristics Affecting Negotiations (cont.)

Termination of negotiationssettlement 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 negotiationsrole-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 Protection

Companies 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 dealinghost 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 theoryemerging 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 agreementsimprove foreign investment climates Provide home-country insurance to investors agree to settle investors losses on a government-togovernment 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 tradedisputes 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 PatentsParis 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.) Trademarksprotects brand names some brand names have entered public domain Trademark Registration Treatyoffers cross-national protection of trademarks Copyrightsprotect published and recorded materials Universal Copyright Convention and Berne Convention major cross-national agreements Piracyproduction without consent of the firm holding the patent, trademark, or copyright manufacturers associations created to deal with piracy WTOtaken over administration of international property rights companies taking steps to limit piracy

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Collective Actions to Deal with International Companies

Actions of MNEs a cause for concerns for governments League of Nationsfirst 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 Relations

Companies 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 activities Companies 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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