All business is local. However, all markets are global. Global trade and technology has created opportunities for business to serve an existing market segment over a wider geographical area. …

– page 67, Sustaining High Growth for Long Term Success

The rapidly growing global middle class are experiencing a convergence of lifestyles. This has created a huge demand for similar consumer goods around the world. The implication is that the niche markets that many businesses serve in established locations now also exist in other parts of the world, and present exciting opportunities for companies willing to enter those markets.

The Asian block, consisting of West Asia, Central Asia, South Asia, Southeast Asia (ASEAN) and East Asia, contributes the largest share of the global GDP. Following is the GDP share of the three largest blocks:

Global GDP

1. The Asian Bloc – 33.84% of global GDP
2. The North American Block – 27.95% of global GDP
3. The European Bloc – 21.37% of global GDP

Combined, these 3 blocs generate 83.16% of global GDP.

Asian countries have diverse political and economic systems with varied business cultures, and a “one size fits all” approach to marketing and negotiating business partnerships may not be the best approach when we plan to export from North America to Asia. With that in mind, what steps should you take to negotiate effective partnerships and expand your presence in Asian markets?

Never be afraid to keep your options open in negotiations

The following case illustrates the different factors a North American cereal company identified when negotiating with two Asian businesses in two different countries.

A prospective supermarket chain was willing to purchase cereal products from the cereal company at the agreed price. An issue arose, however, when the supermarket chain asked for credit terms of payment in 90 days instead of 60 days as stated in the cereal company’s “Standard Terms of Contract”.

The supermarket chain had a reputation of making prompt payment on terms it agrees to. Furthermore, they had the ability to purchase an estimated 65% of the cereal company’s production capacity for the Asian market, so they felt their position gave them the necessary leverage to make this request.

The cereal company then had to weigh its negotiating options. Even though the supermarket chain insisted on a 90 day credit period, the local political, economic and social conditions would enable the supermarket chain to get a bank guarantee for payments.

An option for the cereal company was to sell at a higher price to accommodate for the expected delay in payment or to bare the loss from delay in payment as a result of agreeing to extend the payment period to 90 days.

Their alternative was to sell to a distributor in a neighbouring country that agreed to the price and 60 days payment term. However, there were greater political, economic and social uncertainties in this neighbouring country, which resulted in market and currency fluctuations.

Additionally, the distributor was not able to provide a bank guarantee for payments, but the owner of the distributor had a reputation with other North American companies of being true to his word with payments made as agreed.

By simultaneously negotiating with the supermarket chain and the distributor, the cereal company was able to assess the walk-away position with both parties. Having an alternative enabled the negotiator to achieve the best terms possible in negotiations with both parties.

What factors were most important to weigh in getting the best possible agreement?

To get the best agreement possible in Asia, the cereal company’s negotiator evaluated the two alternative businesses (the supermarket chain and the distributor) as well as the countries within which they did business.

As part of that evaluation, the negotiator went through the following steps:

1. Analyze the desired agreement objectively
2. Understand the people in the prospect business
3. Identify the other parties’ true interests in the agreement
4. Explore best alternatives and options before making a decision

To achieve a meeting of minds and agreement, it’s crucial to understand the thinking and values of the owners and operators of the business involved in the negotiations. This includes understanding them in both a social and business environment. Cultural understanding plays a significant part in assessing the prospect of a productive long-term relationship being established.

To decide which of the two alternatives would be best for their needs, the cereal company had to address the questions:

1. How should they value qualitative versus quantitative factors?
2. What if the supermarket chain delayed payment beyond the 90 days payment period?
3. What if the alternative deal with the distributor is then no longer available?

A PEST analysis is your key to understanding important market factors

Additionally, the cereal company had to do a PEST Analysis to assess the political, economic, social and technological factors that would impact its business in the respective countries. This required an assessment of the supermarket chain and the distributor, as well as their competitors within the local business environment in relation to the following factors:

Political analysis: This includes environmental policy, domestic law, international regulations, government policies, funding and grants, local market, pressure groups, conflicts, human rights, etc.

Economic analysis: With this aspect of analysis, the local economy, market trends, global economics, competitors, taxes and tariffs, seasonal market trends, unique industry practices, distribution trends, currency interest and financial exchange rates are all evaluated.

Social analysis: Through this analysis, you’ll understand the lifestyle, demographics, consumer taste, brand perception, fashion trends, retail outlets, and cultural norms in the assessed markets.

Technological analysis: Complete this analysis to understand the impact of competing technology, research and development funding, supporting technology, maturity of technology innovation, production capacity, communications platforms, legal frameworks and intellectual property protection.

Bringing everything together to make your best final decision

The cereal company evaluated all available evidence pertaining to:

1. The values of the owner and operator,
2. The business capacity of the prospects
3. The risk involved from the PEST Analysis.

In the end, they negotiated and concluded an agreement with the supermarket chain based on an analysis and assessment of risk and opportunities arising from establishing this business relationship. While the 90 day period was outside of their usual contract, the risks in the distributor’s market and their inability to secure a bank guarantee meant the supermarket chain provided a safer, more stable partnership with opportunities for growth.

With these steps in mind, you’ll be ready to step into your next negotiation in Asian markets and come out with the deal that will best serve your business needs and goals.

The materials and paints for the walls and ceilings of each room, as well as the lighting and sound system, all utilised the latest in technology. The local engineers overseeing the restoration project confirmed that the technology and craftsmanship used was not available locally. The European craftsmen worked diligently on weekdays to complete their tasks on schedule, and then spent the weekends swimming and rejuvenating at an island beach resort.

Demand is skyrocketing for luxury goods in ASEAN markets

There is an abundance of business opportunities in the rapidly growing ASEAN consumer market which desires the same high quality luxury goods as North Americans.

ASEAN, which stands for the Association of South East Asian Nations, consists of 10 tropical Asia Pacific countries. ASEAN is focused on rapid economic modernisation with brand new highways, rapid rail, seaports, airports and information technologies connecting the region. Investment in infrastructure expansion continues to create opportunities for businesses in the sector. Competitive pricing and budget airlines also make air travel within the ASEAN region more affordable.

The region is on a major international sea route that connects Japan, China and the rest of East Asia with India, the Middle East, Africa and Europe. North America is also a major export destination for many ASEAN manufactured goods.

The middle class in major metropolises such as Singapore, Kuala Lumpur, Bangkok, Jakarta and Manila have firmly embraced the “West coast lifestyle” of North America, while also giving it an added Asian flavour. This affluent ASEAN middle class is willing to pay premium pricing for artisan, organic and all natural products.

For example, you can enjoy Alaskan crab at a Chinese seafood restaurant in Kuala Lumpur, or grilled Pacific salmon with maple syrup at a Singapore fine dining establishment. All of this is complemented with fine wines from Europe, Australia and North America. ASEAN residents also tend to rapidly embrace the latest in technology.

The ASEAN region is a winter getaway destination that draws tourists from well beyond Asia, with people travelling from the Northern and Southern hemispheres all year round. The region also offers retirement schemes for pensioners that attract participants from developed economies.

You need to research the ASEAN consumer market to tap into its opportunities

This is an excellent time to do market research for export opportunities.

Study market opportunities by analysing data from:

1. Research on the ASEAN Region
2. Research on individual ASEAN member countries
3. Research identified business prospects in target countries

Research should utilise evidence based data from primary sources.

From these sources, we learn that ASEAN is made up of Singapore, Malaysia, Thailand, Indonesia, Philippines, Brunei, Vietnam, Cambodia, Laos and Myanmar. Taken together, the ASEAN region is the 3rd largest economy in Asia, with a combined GDP of US$2.6 trillion (2014).

We also learn that the ASEAN Economic Community was established in 2015 with a combined population of over 622 million people, making this a major world market. Foreign Direct Investment (FDI) into the ASEAN region increased to US$136 billion in 2014.

What do I need to know about the individual ASEAN countries?

The ASEAN region is not a homogenous market. Identify the country that offers the best opportunities for initial business. This could then serve as the base for subsequent launches into the other ASEAN countries. Define your export goals and obtain factual information that supports your goals.

Do a comprehensive political, economic, social and technological (PEST) analysis of the ASEAN countries, and determine the market size. Assess the economic and market conditions such as seasonal changes, short as well as long-term trends and growth potential.

Once you have completed those steps, identify actual and potential, local as well as international competitors. Finally, evaluate the possible impact competitors will have on your market share, pricing strategy and profitability.

Discover your best options by researching identified prospects

When it comes to identified prospects, you must evaluate the strengths, weaknesses, opportunities and threats (SWOT) of doing business with them. What are the benefits of doing business with the identified prospects? Assess the ability of any prospects to deliver on promises.

Next, analyse the information and market data to evaluate the business risk. Decide if this justifies doing business in the target country and with the identified prospect. If it does, you’ll need to develop an export plan and market strategy.

Once you do, commence negotiation of an international trade agreement with the identified local prospect, and utilise evidence based data.

You must also include clearly defined goals that are specific, measureable, achievable, realistic and timely with an evaluation and review (SMARTER) process in place.

With these steps completed, you’ll be well on your way to a successful entry into the lucrative ASEAN market of your choosing!

The two individuals believed they had clearly communicated the expectations of their respective companies.

The exporter’s sales representative informed management that the importers were looking for pricing that would enable them to give huge discounts during the Christmas sales period.

For two years, the relationship worked well, with prompt delivery and payments between the parties. On the third year, disputes arose around alleged product defects found in a shipment of two containers of products.

Communication breakdown

The manager of the exporting company insisted through an email that payment had to be made under the terms stated in the agreement, as they had delivered acceptable quality for the price charged.

If there were any defects, they would be repaired at the exporter’s expense.

The importing company’s purchasing officer responded that their company refused to accept delivery of the two containers of products, which he insisted the exporter take back.

A series of emails over a couple of months were exchanged between these two individuals that showed a hardening of positions and threatened litigation.

At that point, the correspondence stopped between the parties and the dispute remained in limbo for several months.

Looking at facts instead of feelings

Then, a consultant was called in to suggest a way forward to resolve the dispute.

The consultant examined the documents and email correspondences. He noted the differences in expectations and perspectives of the exporter’s manager and the importer’s purchasing officer.

The consultant guided the two parties away from the emotions of the two individuals who had exchanged emails, towards an objective assessment of the facts based on reasonable expectations under the import-export agreement.

To accomplish this, the consultant restarted communication between the parties by encouraging the exporter’s Chief Executive Officer (CEO) to communicate directly with the importer’s Purchasing Manager.

A settlement proposal, which had been emailed at the early stage of the disagreement, was used as the basis for settling the dispute. This removed the negative human emotions from the negotiations.

A simple solution was there the whole time

The CEO and Purchasing Manager reached a settlement whereby the importer, at its own expense, shipped the two containers of products back to the exporter. This ended the monthly warehousing expenses incurred by the importer.

Upon receiving the two containers, the exporter found that, except for a few items of defective products in one container which were repaired, they were able to resell the two containers of products through an agent of an importer in Europe.

The parties should have established transparent communication channels to address issues and resolve disputes in a timely manner when initially negotiating the import-export agreement in Hong Kong. This could have sustained the business relationship.

4 international business negotiations lessons we can take from this case:

1. Transparent communication channels

Negotiations are not just about getting to an agreement, but also a process that establishes a working relationship reflected in an agreement.

Establish communication channels for conducting the relationship in a way that enables individuals working for both the importer and exporter to find amicable solutions to disputes that arise.

2. Dispute resolution mechanism

Designate an independent negotiator or mediator that the parties can turn to for trusted guidance on how to move forward once a relationship becomes strained.

The emphasis should be on avoiding litigation by either helping to re-establish sufficient trust and re-build a working business relationship, or arriving at a dispute resolution with an amicable settlement.

3. Focus on business relations

Focus on the business relations and not on the personalities involved in the relationship. Business interest dictates acting on facts and not mere opinions.

It is important to monitor communications.

A well-managed dispute resolution mechanism should guide parties away from the personal interest and ego of individuals.

Open communication channels should be monitored by senior managers who can intervene early enough to prevent toxic relationships from developing between individuals in direct communication at the operational level.

4. A positive exit strategy

Not all business relationships can be salvaged. In such an event, there should be mechanisms built into the agreement on how to calculate and allocate cost; as well as on how both parties can terminate the agreement and exit the relationship in an expedient manner.

In our case of the North American importer and South East Asian exporter, there was a lack of the above mechanisms for dispute resolution, amicable settlement and exit that could have saved them time and money.

Both the importer and exporter have moved on to doing business with other parties.

Hopefully their experience becomes a lesson on the importance of negotiating international business agreements that establish relationships based on performance, quality standards, open communication and mechanisms for dispute resolution.

My takeaway from this discussion was the need for Canadian importers to focus on maintaining profit margins, as opposed to maintaining market share at the expense of profit margins.

The lower value for the Canadian dollar, in relation to the U.S. dollar, should therefore act as motivation for Canadian businesses to engage and work with consultants to help improve their own productivity.

Working with a consultant or consulting group to improve your company’s communications and increase efficiencies within the business and across the supply chain can reduce operating costs. This is a critical ingredient for sustained business growth.

Investing in knowledge to improve decision-making, for example, can result in greater competitiveness.

This requires a productivity mindset that accepts that currency and commodities price fluctuations are beyond the control of individual businesses.

Another crucial way to increase revenue is to learn how to improve your communication with business partners, both to build successful new agreements and work out any issues, maintaining strong relationships with existing partners.

When negotiating import-export agreements in particular, it’s vital to establish transparent communication channels to convey expectations and resolve disputes.

This will enable the business to remain focused on productivity and competitiveness.

Sharpen and clarify communication channels

Too often, businesses negotiate import-export agreements with other parties without first identifying each other’s business culture and expectations.

The business needs to identify both the formal and informal “human communication channels” that will operate along the supply chain.

To establish a sustainable working business relationship, make sure the agreement establishes clear communication channels that are supported by organizational structure at the operational level of the business.

Without the proper communication channels and understanding of each other’s expectations, misunderstandings can ensue during negotiations, which may delay or ultimately break down talks between companies before an agreement can be reached.

When disputes and inefficiencies happen, in hindsight, business leaders often find that, “if only they knew then what they know now, they could have been more productive”.

The degree of alignment of communication activity across the supply chain with the expectations of the business can impact both qualitative and quantitative outcomes.

For example, a multinational corporation that manufactures worldwide with exports globally ensures that communication documents, from brochures to contracts, purchase order forms, invoices, letters of communication with customers and sales presentations, are all vetted for consistency by a team that has input from the corporate, operations, finance, and marketing departments.

This is done to ensure that at each stage, from initial contact with a prospect to placing of an order, delivery and request for payment, there is minimal possibility for dispute arising due to a miscommunication.

The result is a smooth flow of delivery from factory to the ultimate consumer.

An efficient supply chain delivers to the satisfaction of consumers thereby encouraging more business and prompt payment.

You will need to identify:

1. The degree of alignment of process implementation with the agreed terms of the import-export agreement

2. The steps that need to be taken to encourage alignment of collaborative processes with the agreed terms of the import-export agreement.

To improve productivity and prevent disputes arising the business should:

1. Assess the patterns of formal and informal communication channels among individuals, teams, and functions; internally within the business, and across the supply chain with partners, customers and competitors.

2. Take targeted steps to align communications and business processes with the aims and objectives of the import-export agreement.

3. Reduce inefficiencies by eliminating communication channels that do not produce significant value.

Negotiating international business agreements require an understanding by both parties of what it will take to implement the agreement in order to achieve desired business outcomes.