How can foreign firms manage relations with foreign partners and governments in EMs?

Question

What will be an ideal response?

Answer 1

A firm may decide to enter an EM in a joint venture with a foreign partner, appoint a foreign distributor, or use a foreign firm for sourcing. In this section, we refer to all the above-mentioned foreign counterparts as partners. Firms need to build relationships at both the formal and informal levels with the foreign partner’s firm. In many cases, it is important for the foreign firm to identify the decision makers in the organization. The best strategy for managing relationships is to have cross-functional teams from various organizational levels building relationships with each other. This assures that if the principal contact of the foreign firm leaves for some reason, the business relationship between the two firms continues to survive. There are various benefits of maintaining and developing good relationships with the foreign partner:

• Working toward common goals in the long term becomes easier if a sound working relationship is built with a foreign partner. Conflict resolution also becomes faster with a good relationship with the foreign partner.
• Managing relations with foreign governments is extremely important for foreign businesses especially in EMs because small changes in a foreign government’s trade policy can create a tremendous impact on the firm’s business (Luo, 2001).

Foreign entrants need to find a fit between what they can offer (capital, infrastructure development, technology, new jobs, etc.) and what the foreign government needs for their economic, political, and development programs (Zou et al., 2011). Priorities of the foreign firm and the EM government may not match, and in such cases foreign firms can use the following strategies to manage relations with the government (Austin, 2002, Ghauri and Holstius, 1996):
• Alter: The firm can bargain to get the government to alter the policy, the instrument, or the action of concern.
• Avoid: The firm can make strategic moves to bypass the risk or impact of the government’s action.
• Accede: The firm can adjust its operations to comply with a government requirement.
• Ally: The firm can insulate itself from risks by creating strategic alliances.

While preparing for negotiations with government officers, foreign managers must remember that all four strategies require some give-and-take. Minimizing conflict and building a common ground for negotiations remain the two most important first steps toward successful business in EMs.