Globalization is a reality, and many companies are finding themselves compelled to go international for a variety of reasons. Along this line, many entrepreneurs and companies get their first taste of cross-border transactions and the related negotiations process. There’s little doubt that negotiations in international transactions can be daunting for many entrepreneurs.
Over the last twenty-three years of being involved in negotiating deals and relationships in many countries, I have learned that the basic principles of negotiating are the same the world over, but how they are applied can vary greatly from country to country. The following illustrates typical challenges entrepreneurs might face as they venture into new markets.
Basic Negotiating Styles
Americans take a very legalistic approach to contracts and negotiations. Even simple agreements can run ten to twenty pages, and every point needs to be negotiated and clarified. Contracts try to address every conceivable scenario. And if it isn’t in the contract, then it is considered to be a loophole that can be used or abused for one party’s advantage at a later date.
In other cultures' agreements are often based more on the strength of personal relationships that have been established, and contracts are often a framework for how the parties will work together without dictating the details. They establish the mutual objectives, and if there are any problems, the two sides will sit down and work out a solution.
When Do Negotiations End?
In many cultures they don’t. The Chinese have a saying: “Signing a contract is simply a first step in the negotiations.” Throughout Asia and Southern Europe, a contract is seen as the starting point for a relationship rather than a permanent document that defines the relationship forever and ever. They feel the initial contract is based on the circumstances at the time the agreement is signed, and if circumstances change, so might the rights and obligations of the parties.
Bring Your Own Translator
Don’t be lulled into a false sense of security just because the person you are dealing with at the other company seems to speak English very well. When you are dealing with someone in a foreign language, bring your own translator to the business meetings.
It is amazing how quickly a person’s language skills deteriorate once you get into negotiations. In Japan, for example, your counterpart may have spoken perfect English the night before at the karaoke bar, had known all about the Yankees, and understood everything you were saying, even after countless rounds of Sake and with lots of background noise. But the next day, even the simplest business terms have to be explained and re-explained, and even then they end up with a different interpretation than you had intended.
Identify Who the Decision-Maker Is
The power to negotiate and make commitments is different in almost every country. The United States tends to be more decentralized, and vice presidents often have the authority to make final decisions. In other cultures, especially in places such as Russia and throughout Asia, it is the top executive that decides, but even then you have to determine what title this person holds. In Japan, it usually will be the CEO of the company, while in India it will be the chairman. Very rarely will a vice president-level executive have the authority to agree to terms, and if you are not careful you run the risk of making your concessions to the wrong person, who then has to run the “final terms” by his boss for approval, at which point you find that the negotiations have really just started.
In some European countries the decision will be made by consensus. In the Netherlands, for example, everyone is involved in making decisions, and you have to make sure you bring everyone on board. If you lavish your attention on the senior management and ignore what appear to be junior members of the team, you are likely to find your proposals being voted down.
Is a “Yes” a “Yes” and a “No” a “No”?
One of the most difficult aspects of international negotiations is to understand the meaning of simple words such as “yes” and “no.” In Japan, “yes” does not necessarily mean, “Yes, we agree to your terms”; it usually means, “Yes, we have understood what you just said, and we will consider it before responding.”
In the Middle East, a loud and forceful “no,” especially in the early stages of discussions, usually means, “You have to do better than that, so come back with something more attractive.” Negotiations tend to be animated and sometimes emotional and are seen as an important part of relationship building. Your ability to make your points, defend your position, and gain concessions will determine whether or not they respect you, and this can have a big, long-term impact.
In the United Kingdom, on the other hand, a firm “no,” or “this is our final offer” will normally mean just that. One of our French clients lost a potentially lucrative contract because they insisted on going back one last time to test the British company with which we were negotiating. They had to feel this was the best they could get, but the British company felt their French counterparts were acting in bad faith by offering less attractive terms than what the parties seemed to have agreed upon.
International business relationships are a great way to grow your business and to grow as a professional. However, regardless of the cultural challenges you might be faced with, focus on the business issues, and don’t forget that the objective is for both parties to do well together. Know what an acceptable deal is for you, and be prepared to walk away if the things don’t work out. At the end of the day, business is a language that everyone understands, and good-faith negotiations will overcome any cultural hurdles that might get in the way.
© 2006 Harald Horgen. All rights reserved.
Harald Horgen President and Founder The York Group