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Negotiating agreements abroad challenging - Graham Clayton (6/01)

One of the more interesting and challenging areas of pursuing business internationally is that of negotiating agreements.

One of the more interesting and challenging areas of pursuing business internationally is that of negotiating agreements. I'm not talking about something simple, like setting the terms for a pro forma invoice for a single export sale, but about more involved dealings covering business activities over an extended period of time. When approaching such dealings it is well to keep in mind three factors: the Self Reference Criterion (SRC); your Best Alternative to a Negotiated Agreement (BATNA); and the zone of doability.

How often have you heard the expression "business is business" used to imply that certain things either go without saying or else are so commonplace in our business dealings as to constitute a standard practice? Fairly often in all probability.

We generally conduct business within a larger set of social norms, values, expectations, interpretations and practices that are part of our de facto business culture and which are widely understood, plus we speak a common business language and comply with a common body of commercial law. This makes it easier to both talk and conduct business by relieving us of the need to identify, explain and agree upon a huge range of items that permeate our routine business dealings here in Canada.

Unfortunately, once we step outside of Canada in the pursuit of business we make any such assumptions at our peril. SRC is the term that is used in connection with certain people's ethnocentric thinking and behaviour when they go abroad. A critical part of the process of preparing to negotiate business agreements internationally entails research. Your foreign business counterparts live in a different society and business environment, and that fact can result in their thinking and behaving in ways quite different from what we encounter here in Canada. Do your cross-cultural homework. Learn about their culture, their economy and their commercial practices. Pay particular attention to how they approach negotiating business agreements, to the kinds of agreements that they sign, and to how they view and honour such agreements.

Part of the process of preparing for negotiations entails determining your objectives and priorities and deciding what is to be on the negotiating table. This will entail consideration of both quantitative and qualitative targets, determining ranges of acceptable outcomes, and developing an understanding of what you have to offer and its worth to others.

It is a mistake to enter into negotiating a business agreement before determining your BATNA. This is your "Best Alternative To a Negotiated Agreement" with the party that you are going to negotiate with. Know your real options and use them to determine your trade-offs and your bottom lines on key items. The idea here is that no deal is better than a bad deal, and that knowing your best alternative is essential to making that determination.

This brings us to the zone of doability. The basic notion here is that there must be overlap in the acceptable ranges of outcomes on key items for the parties involved. This doesn't mean that you need to know their bottom line, and they yours, but there does have to be a reasonable expectation of a mutually successful outcome. Failing this, there is no possibility for a negotiated outcome that satisfies both parties. This can result in either a failed negotiation process or in a flawed agreement which one or both parties will resist honouring down the road. The sooner the existence, or non-existence, of such a zone can be determined, the better. Unfortunately, differences in culture, views on disclosure and approach to negotiations can sometimes complicate this determination.

How to deal with this issue is the question. The parties concerned might agree to exchange essential specified company information as a first step to entering into a negotiating process. Such a request could be extended on the grounds of being mutually beneficial and a first step in establishing goodwill. Alternatively, the development of some kind of relationship and rapport between the principal people involved may have to come first. This might come about through exchanges of communication followed by an international visit by one or both parties. Either way, sooner or later the determination about the existence of the zone must be made, sooner generally being preferable to later in so far as the negotiating process is concerned.

Graham Clayton is an economist and general manager at International Confederation College