Successfully Negotiating International Business Contractual Agreements
Overcome problems before they occur with your foreign partner so that both parties succeed in their business objectives.
Western business people are often in too much of a hurry, and rush into making a deal. In international partnerships, we should spend more time thinking about how ‘haste makes waste‘ rather than succumbing to the belief that ‘time is money’. We’ve all seen psycho-thriller sand what happens when two strangers jump into bed before getting to know each other. Usually, it doesn’t end very well, and after watching the carnage unfold on the screen, you swear you’ll never do that again.
Any solid relationship should begin with a period of introduction, or courtship. It’s the same when we enter into the initial stages of a global negotiation venture with a prospective foreign nation business partner. We need to know something about their culture, and the company’s background, structure and goals. Likewise, they will want to know the same about us. If we don’t have the expertise to investigate a prospective partner, it might be wise to spend a little cash to hire an experienced consultant or professional third party to carry out some snooping and to initiate introductions. The phrase ‘look before you leap‘ has survived the test of time for a very good reason.
The time and money spent before the negotiation courtship even begins is well spent. We need to prepare the groundwork to lessen the possibility of unnecessary expenses being incurred later on. Remember, when the fat hits the fire, you’ll have to invest a lot more time and money in putting it out.
Here are 6 tips to enhance our pre-negotiation time effectively, and to help us think ahead about what will transpire during the negotiation and what might happen after the contract is signed.
1. The negotiation never really ends
Never stop conversing, even after the contract is signed. There are very few seers who can accurately predict the future while gazing into their crystal ball. Nothing remains static in this big wide-open world of ours, as everything is constantly in a state of change. Prices rise and fall, and governments with different ideologies come and go on an almost weekly basis, like a game of global dominoes. Let’s not even try to guess what the weather is going to do tomorrow.
If we’re naive enough to think we can toss the contract into the filing cabinet, put our feet up and allow ourselves a nice little snooze, think again! Put the coffee back on and stay vigilant. Be prepared to renegotiate on a whole host of potential problems. Most of them will be small, annoying problems that will spring up here and there along the way throughout the life of the partnership. Don’t ignore them. Deal with them immediately, or risk the dire consequences of putting the negotiated relationship on rocky footing.
Because there is so much instability and uncertainty out there, it would be prudent to make certain that one of the key clauses in the contract specifically ensures that both parties revisit it periodically. By controlling the process in the early stages, we can prevent our arrangement from spinning wildly out of control later on. Keep the dialogue rolling and prevent needless problems from festering due to lack of attention.
2. What do we do when we still can’t agree?
As in many relationships, sometimes the only thing that people can agree on is the fact that they disagree. It’s like being snookered or getting caught behind the eight ball. Neither position is particularly desirable, and if not addressed early on, both sides can end up feeling dissatisfied. We may not necessarily be thinking objectively, and if both parties become ensnared in the mesh of their own self-serving interests, their problem-solving is not likely to be very productive.
To guide us through what may otherwise be an unseen minefield of potential disasters, we might be well-advised to use the expertise of third parties to mediate our disputes. There are several possibilities to choose from. Our own senior management could negotiate the minor disputes at an operational level, or we could use the professional services of legal advisers, specialised consultants or a neutral third-party mediator to help resolve the issue.
A detailed dispute mechanism must be visibly in place if we want our operations to run smoothly.If the operation shuts down because we didn’t bother to put an effective dispute resolution in the contract, and the CEO roars, ‘Heads will roll for this!’, you can guess whose neck is going to be on the block.
3. Keep talking
Before we sign on the dotted line, we need to give thought to what a successful and durable business relationship really looks like. It means that the lines of communication have to be kept open. Of course this does not just mean picking up the phone or sending an occasional email. A relationship means that we have to sit down in the same room and talk face-to-face, perhaps ‘breaking bread’ together. Communication at many different levels is the only way to keep the relationship both productive and vibrant. By agreeing to meet regularly to keep the lines of communication open, we can prevent many hurdles from tripping us up in the future.
4. Do it the right way
Anyone who has participated in a joint relationship based on negotiation will tell you that we always need to go back to basics. Whether our agreement is in the domestic market or the international marketplace, we need to go beyond the simple scope of our limitations. Negotiation skills demand that we understand the real motivating factors that support our positions. Remember, the main question we must try to answer is not ‘What do they want’ but ‘Why do they want it?’.
Now, you’re probably asking why. The reason is simple but not necessarily obvious. We might be able to reach an agreement based on our relative positions, only to find out later that the other party’s real goals and, as a consequence, our own are actually in direct conflict with each other.
5. Who are they – really?
Each company has its own unique structure and way of doing things. It’s common for many small companies to be family owned, when you’ll be dealing directly with the negotiation principal decision maker. Each company has its own individual subculture, and depending on the business philosophy of the owners, this can present a wide range of possible business outlooks and differing organisational perspectives. One company can be very informal, whilst another might be very structured or even bureaucratic and formal in how it conducts business or interacts with its personnel.
It would be very helpful to understand your prospective partner’s approach to business and how they function internally. Similarly, it’s equally sensible to let them know how your own company works. For example, a larger corporation may have to make a decision by going through several layers of management and departments, while their medium-sized overseas partner might simply have to refer the matter to the company president, who has the ability to make a decision on the spot. We can alleviate a lot of frustration and potential misunderstanding by knowing how our partner operates.
6. Understand how the deal will be put in place
Every partnership will require numerous and demanding decisions to be made on both sides of the international equation on an ongoing basis, despite all the exhaustive efforts that initially went into drawing up the contract. Remember that the contract is only a part of the process, and our interaction goes far beyond the contractual bonds. A contract cannot foresee all eventualities and possibilities; so, if an issue that is not covered in the contract arises as the parties work out the minor technical clauses, both parties should agree on how they will deal with this. It all boils down to building a solid base to keep the communication lines open.
The explosion in international business ventures dramatically illustrates the challenges we face as a result of our many differences. It is imperative that we learn how to do things the right way, as our international partners are just as eager as we are to make our respective businesses grow. Language, however, is not the only barrier we need to overcome. We must also learn the many other facets that lie behind the complex social and cultural fibres of our prospective international business partners. Preparation is vital in laying a solid business foundation. We would not want a contractor to skimp on a house they are building for us, nor must we do so when constructing an international business agreement. Always be thinking further down the line.
1) Jeswald W. Salacuse, ‘The Global Negotiator’, Palgrave MacMillan (2003).