Chinese : Market Negotiation

• Opening Profile:Sparks Fly at Enrons Power Plant in Jndia
• NEGOTIATION
• THE NEGOTIATION PROCESS
• Stage One: Preparation
• Variables in the Negotiating Process

Adept negotiators do some research to develop a profile of their counterparts so that they know, in most situations, what to expect, how to prepare, and how to react. Exhibit 5-3 shows 12 variables to consider when preparing to negotiate. These variables can, to a great degree, help managers understand the deep-rooted cultural and national motivations and traditional processes underlying negotiations with people from other countries.

After developing thoughtful profiles of the other party or parties, managers can plan for the actual negotiation meetings. Prior to the meetings, they should find out as much as possible about (1. the kinds of demands that might be made, (2. the composition of the opposing team, and (3. the relative authority that the members possess. After this, the managers can gear their negotiation strategy specifically to the other side's firm, allocate roles to different team members, decide on concessions, and prepare an alternative action plan in case a negotiated solution cannot be found.8

In some situations, however, the entire negotiation process is something people have to learn from scratch. After the splintering of the Soviet Union into fifteen independent republics, managers from the Newmont Mining Corporation of Denver, wishing to form a joint venture to refine gold deposits in Uzbekistan, found themselves at a standstill. Officials in Uzbekistan had never negotiated a business contract and had no one to tell them how to proceed.

Following the preparation and planning stage, usually done at the home office, the core of the actual negotiation takes place on-site in the foreign location (or at the manager's home office if the other team has decided to travel there). In some cases a compromise on the location for negotiations can signal a cooperative strategy, which Weiss calls Improvise an approach: Effect Symphony-a strategy available to negotiators familiar with each others' culture and willing to put negotiation on an equal footing.1 Weiss gives the following example of this negotiation strategy:

For their negotiations over construction of the tunnel under the English Channel, British and French representatives agreed to partition talks and alternate the site between Paris and London. At each site, the negotiators were to use established, local ways, including the language,. . . thus punctuating approaches by time and space.

In this way, each side was put into the context and the script of the other culture about half the time.

The next stage of negotiation-often given short shrift by westerners-is that of relationship building; this stage, in fact, usually has either taken place already or is concurrent with other preparations in most parts of the world.

The importance of careful preparation for cross-cultural negotiations cannot be overstated. To the extent that time permits, a distinct advantage can be gained if negotiators familiarize themselves with the entire context and background of their counterparts (no matter where the meetings will take place) in addition to the specific subjects to be negotiated. Because most negotiation problems are caused by differences in culture, language, and environment, hours or days of tactical preparation for negotiation can be wasted if these factors are not carefully considered.

To understand cultural differences in negotiating styles, managers first need to understand their own styles and then determine how their style differs from the norm in other countries. They can do this by comparing profiles of those perceived to be successful negotiators in different countries. Such profiles reflect the value system, attitudes, and expected behaviors inherent in a given society. Later sections in this chapter will describe and compare negotiating styles around the world.

The negotiation process comprises five stages, the ordering of which may vary according to the cultural norms; for most people relationship building is part of a continuous process of preparation in any event: (1. preparation, (2. relationship building, (3. the exchange of task-related information, (4. persuasion, and (5. concessions and agreement.4'5'6 Of course, in reality these are seldom distinct stages, but rather they tend to overlap; negotiators may also revert to an earlier stage temporarily. With that in mind, it is useful to break down the negotiation process into stages to discuss the issues relevant to each stage and what international managers might expect, so that they might more successfully manage this process. These stages are shown in Exhibit 5-2 and discussed in the following sections.

Effecting strategy depends on management's ability to negotiate productively: a skill widely considered one of the most important in international business. In the global arena, cultural differences produce great difficulties in the negotiation process. In fact, ignorance of native bargaining rituals, more than any other single factor, accounts for our unimpressive sales efforts with the Japanese and others.1 Important differences in the negotiation process from country to country include (1. the amount and type of preparation for a negotiation, (2. the relative emphasis on tasks versus interpersonal relationships, (3. the reliance on general principles rather than specific issues, and (4. the number of people present and the extent of their influence.2 In every instance, managers need to familiarize themselves with the cultural background and underlying motivations of the negotiators-and the tactics and procedures they use-to control the process, make progress, and therefore maximize company goals.

The word negotiation describes the process of discussion between two or more parties aimed at reaching a mutually acceptable agreement. For long-term positive relations, the goal should be to set up a win-win situation: that is, to bring about a settlement beneficial to all parties concerned. This process, difficult enough when it takes place among people of similar backgrounds, is even more complex in international negotiations because of differences in cultural values, lifestyles, expectations, verbal and nonverbal language, approaches to formal procedures, and problem-solving techniques. The complexity is heightened when negotiating across borders because of the greater number of stakeholders involved. These stakeholders are illustrated in Exhibit 5-1. In preparing for negotiations, it is critical to avoid projective cognitive similarity-that is, the assumption that others

perceive, judge, think, and reason in the same way when, in fact, they do not, because of differential cultural and practical influences. Instead, astute negotiators empathetically enter into the private world or cultural space of their counterparts while willingly sharing their own view of the situation.

On April 9, 2001, Enron issued a political force majeure notice to the Maharashtra State Electricity Board (MSEB), a standard contractual clause that aggrieved parties use as a first step towards possible quitting. Companies issue the notice if they believe circumstances on the ground have undermined a contract.

It took three years. to February 1999, for Rebecca Mark and her team at Enron's International Unit to bring its Dabhol

power plant in India back into operation. In 1996, the Indian government had canceled the partially built plant because of pressure from environmentalists and a derailed economic

reform plan that had placed the Dabhol plant as the first

foreign-owned power project. But both sides learned from

their mistakes, and Ms. Mark's patient and skillful negotiations eventually brought about consensus to reignite economic

reform and to get the Dabhol plant going again. Enron submitted a proposal in 1997 to build five-to-seven additional power plants in India. The first phase, the Dabhol plant, was completed in December 1998

Ms. Mark had worked on the relationship between Enron International and India, with an on-again, off-again relationship, since the early 1990s, when the Indian government

began to be more open toward foreign investment. Prior to that Gandhi's philosophy of swadeshi, meaning self-reliance, had peretuated protectionism for its domestic industries.

Ms. Mark had an ambitious plan to construct a $3 billion

power plant in Dabhol. in Maharashtra state. She negotiated extensively with the Maharashtra state government and members of India's civil service. She needed 170 different state

and federal permits, along with layers of legal and tax paperwork. She commented on this process:

I've had tea with every bureaucrat in India People don't understand how to get things done in India. Politicians lay out a plan, but that's different from working through the system.

Today, (as of April 2001., Enron's 2.364-megawatt plant at Dabhol is the biggest foreign investment in India. However, officials at Enron, the Houston-based company, announced on April 9, 2001, that it had lost confidence in the state company that is contractually obliged to buy the output of its Maharashtra plant. The problem was that the energy Enron sold to local utilities cost four times the going rate. While there had been an agreement for the Maharashtra officials to pay partly in U.S. dollars, no one foresaw the decline of the rupee or the surge in oil prices. The bill ran up to Rs.2.25 billion (Pounds 33 million), and a Maharashtra government plea to the federal government to bail out the state fell on deaf ears. Enron Dabhol noted that it had been subjected to the politically motivated agenda of both the Maharashtra government and the government of India. resulting in an adverse effect on the company's ability to perform obligations under the Purchase Power Agreement. This situation resulted in Enron Dabhol issuing a political force majeure notice to the Maharashtra State Electricity Board. This is a standard contractual clause in which a company can give warning of withdrawing when their contract has been undermined-in this case where it is locked in a payment dispute. While India's federal power minister. Suresh Prabhu states that the bill will be paid, there are broader ramifications of this situation for foreign investors and for India itself. Although it has been over ten years since India started dismantling its socialist economy and encouraging foreign investors, only a few of the two dozen foreign power players who invested there remain.

It seems that Ms. Mark's tireless negotiations may not have been enough to contend with India's political volatility and bureaucracy. Enron has decided not to build more plants in India, and instead, as part of its worldwide strategy, move out of the ownership of assets into the trading of power as a commodity.

Global managers negotiate with parties in other countries to make specific plans for strategies (exporting, joint ventures, and so forth), and for continuing operations. While the complexities of cross-cultural negotiations among firms around the world is challenge enough, managers also sometimes are faced with negotiating with various governmental agencies; this kind of situation is illustrated in the opening profile of Enron's Dabhol plant, where negotiators were faced with shifting political agendas over time, internal political conflicts between state and national governments, and multiple layers of bureaucratic hurdles. The high-level political negotiations between the United States and China to gain the return of the U.S. military crew from the plane that was forced to land there in April 2001 is another example of complex situations fraught with both political agenda and cultural nuances, such as the need for the Chinese to save face by demanding an apology.

Managers must prepare for strategic negotiations; next the operational details must be negotiated-the staffing of key positions, the sourcing of raw materials or component parts, the repatriating of profits, to name a few. As globalism burgeons, the ability to conduct successful cross-cultural negotiations cannot be overemphasized. Failure to negotiate productively will result in lost potential alliances and lost business at worst; confusion and delays at best.

During the process of negotiation-whether before, during, or after negotiating sessions-all kinds of decisions are made, both explicitly or implicitly. A consideration of cross-cultural negotiations must therefore include the various decision-making processes that occur around the world. Negotiations cannot be conducted without decisions being made.

This chapter will examine the processes of negotiation and decision making as they apply to international and domestic cross-cultural contexts. Our objective is a better understanding of successful management.