It happens more than I would like to admit. A company tells me that they have downsized their international customer base or pulled out of international markets altogether. International markets are just not profitable, they say.
Upon closer investigation, a common issue is the lack of international negotiation skills.
While some of the savviest companies attend extensive training in this area, here are five rules that can help address some of the biggest issues.
My fellow Americans are notorious for shooting from the hip or improvisational negotiations in other parts of the world. It means that we typically do little to no research on our partners or clients, on the local business norms, or on the industry in country before entering into negotiations.
In most parts of the world, your counterparts will have done a great deal of research about you, your company, your culture, and anything else relevant to maximizing negotiation success. Make sure you're doing the same thing.
A client recently told me that their staff normally approach international business negotiations as a series of concessions and price discounting. It is no wonder few international deals were profitable!
Instead, know what options you have to counteroffer. For instance, a suggested lower price could be countered with a reduced scope or work or a less-expensive product. This quickly reveals what the other side values—were they looking to get a better price or do they truly have less money to spend?
Sometimes a marketing testimonial or introductions in your home country can be exchanged in the negotiation instead of merely playing tug-o-war with the final contract price. Be ready with all available options.
International negotiations are not the same as those in the American business culture. Most overseas cultures expect more structure in negotiations—introductions of the negotiation teams, an agenda, a spokesperson for each team, etc. While a team needs to know the cultural rules expected by the other side, there are some general guidelines that apply most places.
First, assign a leader who sits in the middle of your team. Second, never openly contradict something said by another person from your side. Third, if you need time to react to something that has been introduced into the negotiation, call for a break and then discuss it as a team.
Finally, try to match the titles of the other team. If they are bringing a technical resource, then you should as well. If their CEO will be present, then if possible bring your CEO too. All of this will help negotiations go smoother.
Anyone negotiating needs to know two things:
With this in mind, it is important to know the normal range of price movement that the other side will expect. In some countries, price normally is negotiated down more than 50%. That means that the initial price needs to be marked up accordingly so that it can drop down and still stay in the acceptable range.
For any company still pricing products and services based on cost plus mark-up, this is a good time to abandon this outdated pricing strategy that works heavily against international sales.
Americans and their counterparts (such as the Swiss, British, Germans and Canadians) that base business deals on contracts, sign the contract and then promptly file it away as a done deal. This is rarely the case. An international business relationship needs to be evolving to match the changes in external forces.
When your Chinese supplier comes back asking for better terms, it is a chance to negotiate better terms for your side as well. Likewise, when something in the relationship is becoming unfavorable for your company, you can approach the other side to renegotiate in order to turn the situation around.
This article was first published in January 2014 and has been updated to include current information, links and formatting.