The purchasing agent of a North American store chain (the importer) based in Hong Kong successfully negotiated an import-export agreement with the sales representative of a South East Asian manufacturer (the exporter).
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.
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