When a company expands to new countries, negotiation is a mandatory step for future successful partnership creation and long term penetration of international markets. On its path to internationalization, the company comes into contact with several service providers such as the shipper for products, distributors, purchasing centers or resellers. It is also possible to be in contact directly with the end customers. All these stakeholders can have a significant impact on the company’s entry in the target countries and margins. Indeed, internationalization often requires more investment than the development of its domestic market. Costs can increase rapidly and ultimately cause the company to lose its competitive advantage over local products or services. To get the best out of the game, the person in charge of international development will have to negotiate conditions, prices or benefits with all these stakeholders. International negotiations can be overwhelming if one is not properly prepared as there are more factors to consider. In this article, we will see what these factors are and their impact on international negociations and provide some tips to make your negotiations as successful as possible.
International negociations
International negation is a strategic discussion around a contract, partnership or problem in a way that is acceptable to both parties. The parties are based in different countries and come from different cultural backgrounds. In a negotiation, each party tries to persuade the other to accept its point of view. In negotiating, all parties involved try to avoid arguing but agree to reach some form of compromise. The parties involved in negotiations can vary. They may be discussions between buyers and sellers, between an employer and a potential employee, or between the governments of two or more countries.
In this article, we adopt the perspective of the company as an international seller and a prospective buyer from the target country.
Negotiation steps
With the aim to put all the chances on your side, it is beneficial to follow certain steps during the interview. These steps allow you to structure the interview, collect the necessary information and bring up the right subjects at the right time. They of course need to be adapted and sometimes even country by country. For example, the American negotiator has a distinctive style: forceful, explicit, direct, urgent, and results-oriented, the Japanese negotiator will be more impersonal and unemotional. Spanish negotiators may jump back and forth between topics rather than addressing them in sequential order. All these considered, the steps we recommend to succed your international negociations are structured as follows:
First contact
The contact phase is when you meet your interviewer. This phase is very important because it determines the first impression that your client will have and it will strongly influence the rest of the exchange. You should therefore start by greeting each other and checking each other’s identity. To do this, exchange business cards and check your customer’s position in the company. It is interesting to identify whether the person in front of you is a decision maker or not because your approach depends on it. It is advisable to “break the ice” which can set a framework for exchange and negotiation from the beginning; and this is not a bad thing.
The last step consists in proposing a structure for the interview and announcing the next step and asking for your interlocutor’s approval to answer certain questions.
All the same, do not forget to structure your first contact according to the country you’re in. Let’s take the example of Finland. The first contact will be shorter and quite direct. Finns do not usually make small talk when negotiating, but tend to get straight to the point. The style of discussion is often factual.
The discovery phase
The discovery phase is the one during which you will ask as many questions as possible to the interviewer to understand their needs, pains and obstacles. You can use the 80/20 rule by giving your prospect 80% of the time to speak and only 20% of the time will be used by you. On average, 7 to 10 questions are asked in a one-hour interview. Depending on where you come from, some patience and adaptation will be required. Every negotiator belongs to a society with its own style, behavior and social interaction. During this phase you will have to see if your partner is aware of your differences and if not, you might have to invest a greater effort to balance the situation.
The discovery synthesis
In order to avoid any misunderstanding, it is advisable to summarize what you have understood about the client’s needs and obstacles. It allows you to clarify certain points and to make your interlocutor feel listened to and understood. A good synthesis will allow you to rebound on a targeted argumentation.
The argumentation
This is the fastest phase, as incredible as it may seem. Companies should not unroll their entire catalog. But only the part that interests their client. You must propose the argument that will allow your client or prospect to see the advantage of working with you. That is, the personal benefit to the client to work with you. Using figures will be more impactful and will be useful to use when the other party makes objections. For example, the Japanese negotiators want to know, appreciate and trust the people they are doing business with. We recommend trying to approach the negotiation with a mix of facts and statistics as well as personality and warmth.
Closing phase
In the conclusion you remind the client of what you have agreed or not agreed upon and propose to set up the next steps with a deadline to keep the client engaged in the negotiation process. This step is quite sensitive to perform and it will help to understand if you both are in agreement.
Challenges and risks
Negotiating even in your own country is not always easy because you have to deal with the personalities of each person, their bias and manage them to get out of the game. International negociations are much more challenging than domestic negotiations since there are additional factors to take into account. However, with proper preparation, this is not an impossible exercise. Before entering into negotiations with an international buyer, keep in mind that there are additional elements to consider. Entering a new market involves additional risks and challenges such as political and legal pluralism, differences of currency, and culture differences. These factors can constrain businesses that operate internationally, and it is important that negotiators understand and appreciate their effects to succeed in their negotiations.
Here is a non-exhaustive list of these challenges which must be taken into account below:
Political and Legal Pluralism
Companies that sell internationally work with different legal and political systems. There may be implications for the taxation an organization, the labor codes or standards to be met. Moreover different contract law codes and enforcement standards (e.g., civil law versus common law versus no operating legal system). These implications should be taken into account during the negotiation. The type of laws used should be agreed upon by both parties and stipulated on the contract to avoid further inconvenience if there is a dispute. There are also international trade agreements between certain governments such as the e United States–Mexico–Canada Agreement (USMCA) which establishes the largest trade zone with very few trade barriers between United States, Canada and Mexico. These agreements must be taken into account during negotiations.
International currencies
The exchange value of international currencies naturally fluctuates, and this factor must be considered when negotiating in different countries. Depending on which currency the agreement will be made, the risks can be very high. The risk is typically greater for the party who must pay in the other country’s currency. The less stable the currency, the greater the risk for both parties. In addition, any change in the value of a currency (upward or downward) can significantly affect the value of the agreement for both parties, changing a mutually valuable deal into a windfall profit for one and a large loss for the other. Many countries also control the currency flowing across their borders. Frequently, purchases within these countries may be made only with hard currencies that are brought into the country by foreign parties, and domestic organizations are unable to purchase foreign products or negotiate outcomes that require payment in foreign currencies.
Culture differences
As we have presented and illustrated with examples when introducing the negotiation phase, the culture of an individual is the filter through which his or her vision of the world is altered: our behaviors, our beliefs, our way of communicating with others, the basic rules to follow in society. The influence of culture on an individual should not be underestimated. Within a multinational group, the impact of culture can modify the meaning of a communication between two people, this phenomenon is all the more important during a commercial negotiation between two foreigners. Perceptions, representations and behaviors that are too different and insufficiently taken into account can be a source of blockage and conflict in commercial relations.
Tips for international negotiations
You will have understood by now that international negociations are more complex and require more preparation than a classic negotiation.Our recommended approach is to prepare a guide on a country by country basis and sometimes if possible do some research on the person you are meeting to understand their personality and interests. In this second part of the article, we are going to give you some tips to prepare yourself for your future negotiation.
Prepare your negotiation
The importance of good preparation before a negotiation meeting should not be overlooked.. Before you meet face-to-face with your customer or potential distributor, you need to make sure you have the right skills in place. Anticipate the people you’ll need to have in the room or on standby to support negotiations, such as people with decision-making authority on issues at hand, specialized technical experts, translators, legal drafters, tax advisors, and local counsel.
You will also need to define objectives before your meeting. A price range, volumes, mode of transportation, payment and shipping terms, etc. It is also a wise practice to review the history of the relationship with your counterpart.
Know your interlocutor
You should research your interviewer to adapt your approach and your speech on the day. Look at the company’s website, the LinkedIn page of your interviewer. You will be able to find topics to break the ice and get a better idea of their degree of autonomy in decisions. Understanding your buyer is a key element of success in your negotiation.
Still in the preparation stage, you must try to understand or imagine what your interlocutor wants. That is to say his expectations, his objectives and his interests to put forward relevant arguments and to propose an offer in line with these expectations.
Take cultural differences into account
Referring to our previous argument, cultural differences can be a real obstacle to negotiation. It is not always easy to know how to navigate. A handy tool we propose to consult is hofstede-insights which uses a proven method to compare the cultures of countries according to different aspects: power distance, masculinity, uncertainty avoidance, long term orientation, indulgence and individualism. You can also read some useful books with practical examples such as “The Culture Map” by Erin Meyer.
Sometimes the differences are far too great and it is reasonable to have some fears of making a mistake as the stakes are high or because a dispute has already arisen during the negotiation. In these cases, it may be appropriate to delegate the negotiation phase to a proven professional who is a specialist in your culture and that of your counterpart, who will act as an intermediary.
Prepare different scenarios
Imagining several scenarios allows you to prepare several offers and arguments and be more serene during the interview. We advise you to imagine three scenarios. An optimistic one, a pessimistic one and one which you think will be more likely to happen. This way, you will have prepared several reactions and will be less likely to be caught off guard. You will keep your emotions under control more easily and make better decisions. Some buyers like to test the seller’s cool and it can be difficult to stay calm and know how to react. Using several scenarios can help you at this stage.
Key takeaways
Entering into negotiations with foreign interlocutors is more complex than a negotiation in a domestic setting. We usually think more about cultural differences which are certainly very important and learning about them is crucial to the success of your international negociations. However, one should not neglect the other challenges that this exercise represents such as inter-country policies and regulations, and currency differences. These can be complex to deal with in the event of disputes, political instability, or economic crises for exchange rates.
Doing a good and thorough preparation empowers you to reduce the impact of these risks on your negotiations by learning about your counterpart, trying to put yourself in his or her shoes, understanding the needs, and establishing objectives for the negotiation. Preparing scenarios on the outcome of the negotiation or the obstacles of your interlocutor will help you to keep control of your negotiation and your emotions. Obviously, books on cultural differences specific to the culture of your interlocutor will help you avoid blunders that can play a key role in the failure or success of your negotiation.
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