Suggest strategies for foreign firms to handle issues in the negotiation process in EMs

Question

What will be an ideal response?

Answer 1

Establishing relationships – building trust
Business among companies increasingly focuses on establishing long-term arrangements. Parties engaged in the transaction can often increase their benefits by building a long-term relationship. First, trust enables companies to lower monitoring costs. Secondly, by viewing the party as a long-term partner, each side increases their commitment. Moreover, companies are less willing to engage in risky or greedy behaviour in anticipation of future benefits. A partnership also increases reciprocity through which both sides can benefit. Thus, in building relations as well as through the negotiations, an emphasis on a long-term vision can be advantageous.

In emerging markets building trust and gaining respect is very important at the onset of negotiations. In parallel, throughout the negotiation process, foreign firms may benefit from providing detailed information and from their willingness to provide support throughout the business activities.

Accessing decision makers
In many emerging markets decisions are made at the top level thus foreigners need to focus on meeting the top management. Local agents with connections may be helpful in facilitating such contacts. The autocracy also leads to the negotiation teams consistent need to obtain confirmation from superiors or to multiple negotiations through which foreign firms move through the ranks of the emerging market firm. Foreign firms need to respect the hierarchical nature of the business environment.

In cultures which emphasize hierarchies, using information obtained from experts as well as high level executives can be advantageous during the negotiation process. Such cultures often value status and presence or support of senior executives can also be helpful.

Considering all stakeholders
Foreign firms entering emerging markets need be prepared to defend their position to multiple stakeholders. They need to consider that the business environment is affected by external parties such as authorities and bureaucrats who can influence negotiations.

For instance, most Asian countries can be described as consensus cultures. Negotiations often involve a long process where different stakeholders within the firm as well as external stakeholders need to reach an agreement. As consensus cultures often focus on relationships in business, the negotiation process in Asia is affected by the Asian team’s focus on forming a relationship with the other side as a prerequisite of doing business with them.

Avoiding confrontation
In many emerging markets, direct confrontation is often avoided and saving face is very important. Negotiators from emerging markets can sometimes focus on small details as problems as to prevent offending the counterparts. Saving face is very important thus private discussions in dealing with issues may be helpful. Intermediaries may also be helpful in avoiding direct confrontations and delivering messages without leading to visible conflicts.

Why are relationships emphasized in discussing business in EMs?
In entering an EM and in negotiating with counterparties within the market, foreigners need to build relations with the right actors and cultivate such relations. In this respect, many of the developed nations differ from EMs in their emphasis on relations in doing business. Managers are often aware of the importance of establishing, developing, and nurturing productive business relationships.

The influence of market forces and firm capabilities in business transactions in liberalized economies is more pronounced (Kumaraswamy et al., 2012). In emerging markets, existence of institutional voids coupled with cultural influences, often result in excessive dependence on relationships in business (Constanza, 2009). Networks and social ties can be strategic resources in dealing with the uncertainty of the environment, and in overcoming institutional voids (Sheng et al., 2011). Local firms can utilize their relations throughout the value chain as they already possess connections with the network members. Such relations can enable local firms to access markets more efficiently, obtain information easily, and carry out their operations efficiently (Constanza, 2009). Business relations may enable firms in emerging markets to reach market information which is not freely available (Sheng et al., 2011).

A major factor augmenting to the importance of relations in most emerging markets is culture. In fact, many firms and groups in such markets have built business models based on their own cultures. For instance, Guanxi is an effective force influencing negotiations in China and social capital becomes important within the process. Guanxi is also strengthened by the system of reciprocity and a favour is never forgotten and is returned in the long run (Graham and Lam, 2003). Building trust is essential in business relations and a way to accomplish that is using an intermediary and thereby using Guanxi. In order to build trust and loyalty, informing the counterpart of the firm’s intentions beforehand can be a helpful strategy signalling openness and good will. Firms may also focus on providing detailed material and presentations to reduce the trust issues (Ghauri and Usunier, 2003).

Discuss the criteria involved in selecting partners in EMs.
The partner chosen for the venture can influence the overall mix of available skills and resources, the operating policies and procedures, and the viability of the venture. Hence, even if one or a few viable partner prospects exist, screening these firms for suitability as collaborative venture partners is still a critical task (Duisters et al., 2011). At a minimum, the partners should be able to provide complementary capabilities that in both the short and the long term are necessary to enable the venture to be competitive (Langfield-Smith, 2008, Culpan, 2009).

In selecting a partner firms need to consider partner-related criteria as well as task-related criteria.

Partner-related criteria
These criteria refer to qualifications of the partner, both tangible and intangible, that are not specific to the type of operation but affect the risk(s) faced. More specifically, they include what we might call the ‘personality traits’ of the partner, such as business philosophy, reliability, motivation, commitment, intellectual property protection approach, and some general characteristics, such as experience, reputation, and political connections.

Task-related criteria
Task-related selection criteria refer to those variables, both tangible and intangible, human and non-human, that are relevant for the venture’s viability in terms of its operational requirements. Hence, these variables are specific to operational resources and skills related to the venture (i.e., financial, marketing, organizational, production and R&D resources, and customer service). In looking at such variables, assessing the complementarities of the resources among the partnering firms becomes critical.