Negotiation is the linchpin of international trade transactions. It is during negotiations that the exporter and buyer start to solidify their business relationship. The importance many cultures place on relationships means a considerable amount of time is often invested in forging a business relationship before formalized negotiations can actually begin.

When the time comes, negotiations allow the two parties to exchange demands, offers and concessions, and allocate responsibilities in the hope of arriving at an agreement that is beneficial to both parties. Following these helpful negotiating tips will ensure your business is prepared to close the deal.

1) Conduct due diligence

Due diligence involves investigating the capabilities, legitimacy, and financial strength of a potential international buyer. Information is gathered from government, industry, and financial sources, as well as from the media. The investigation provides information about whether to proceed with negotiations and, if applicable, the issues and terms to pursue. Some of the required information about potential buyers may have been revealed as part of the organization’s research into the feasibility of, and risk involved in, a specific trade initiative.

Organizations must have a good understanding of the current state of the potential buyer’s operations.

To reduce risk, more due diligence may need to be conducted about a potential buyer’s reputation and creditworthiness by asking questions about the potential buyer’s affairs.

 2) Define the relationship

The power of a negotiating party is influenced by how much it stands to gain or lose. There are certain questions the exporter can consider to better understand the value of the sale and business impact to gauge the dynamics of the relationship between them and the buyer. For example, the exporter should consider whether its product or service is rare or difficult to deliver. If so, this would define the exporter-buyer relationship as strategic and might give the exporter an advantage.

Cultivating the relationship with the potential buyer is critical to making a sale and to maintain a high volume of sales. However, the nature of that relationship is in part defined by the value of the sale and the business impact of the exporter’s product or service on the buyer’s operations. This can determine the resources spent on the negotiation process and the fostering of that relationship.

 3) Define the zone of potential agreement

It is important to define the zone of potential agreement. It sits between the maximum price the buyer is willing to pay and the minimum price that the exporter is prepared to accept.

If the buyer’s highest price is lower than the exporter’s lowest acceptable price then there is no zone of potential agreement.

In such cases, negotiations reach an impasse and risk being interrupted, as they will evidently not meet the exporter’s needs. Agreeing to negotiations outside of acceptable limits can place the organization at risk.

 4) Anticipate the expectations of the other party

Understanding and estimating the buyer’s demands and objectives allows preparing possible responses to objections, finding potential agreements that are mutually beneficial (win-win), and maintaining a serene climate of negotiation. Thus, the sales team must also anticipate what is important for the buyer:

• Is it price?
• Is it volume?
• Is it exclusivity?
• Is it quality?
• Is it dependable deliveries?
• Are there concerns about other elements of risk?
• Is the duration of the contract important?

 5) Find innovations to improve position

The ability of the exporter to introduce innovation in the production or delivery of the product or service can impact the negotiation process. For example, in India, there is a need for trained individuals who can provide clients with customized advice about life insurance. An insurance company looking to launch operations in India could differentiate itself from the competition and gain trust by promoting an approach of listening to customers to understand their unique needs, and then providing tailor-made advice based on those needs. To stimulate exchanges and constructive discussions, the following approaches could be used:

• Search for information on how to increase value for buyers.
• Ask the buyer the key question— “Why?”—and thus generate creative information.
• Develop ways to reduce costs “inside the system” together, e.g. transportation.
• Make use of the advantages that each party has, such as the capacity to absorb exchange-rate fluctuations.
• Make proposals without commitment and invite the other party to do the same. For example, “Would you be interested if we did this? What advantages can we offer to distinguish ourselves from other exporters?”
• Explore constraints, limits, and obstacles.

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Culture is complicated. Developing relationships and business across borders may be challenging, but developing relationships and business across cultures is where the real art lies.

Years ago, the Ambassador to Canada of an EU Member State addressed a luncheon crowd at one of the major chambers of commerce, and politely but rather directly, told a group of senior executives that Canada talks a good game about being a “trading nation”, but that in fact, we are not really exporters.

His argument was that most of Canada’s business is done with the U.S: a nation with which we share a common language and a significant list of other similar characteristics and reference points, including, the implication was, similar elements of culture and mindset.

This is not a piece about debating the differences between being Canadian and being American. I leave that for another contributor, and anyway, there are several very humorous lists floating around out there already.

I take this ambassador’s point. You are missing out on a great deal, and in some ways, not really doing “international” business, if your travels do not include a crossing of cultures as well as borders. And yet, books have been written about cultural gaffes that have cost individuals promising opportunities, and cost major corporations millions or more, to say nothing of the years of lost goodwill.

There is very little ‘science’ to cultural awareness

Navigating cultural nuances can be a virtual minefield, and the complexity of the subject matter is reflected in the way it is handled, even in the most robust academic treatment of the topic. There are no hard and fast answers, and there is no hard science, because culture is a profoundly human expression of identity. In my view, it is a very personal experience that can be aggregated only up to a point.

It’s also the case that crossing cultures while crossing borders makes the whole process a lot more interesting, and let me just say it, much more FUN!

(You wouldn’t know it by my FITT photo or my professional profile, but I can be a fun guy, really!!)

The Canadian Foreign Service Institute published a short booklet fifteen years ago titled “A Profile of the Interculturally Effective Person”, then seen as a world-class guide on the topic, and probably still at the leading edge of practical thought on the subject.

The authors of this guide define an interculturally effective person as someone who is able to “live contentedly and work successfully in another culture.”  That definition might arguably apply to individuals who undertake medium-to-longer term assignments in foreign markets.

I would suggest that some variation of this applies equally to a ‘road warrior’ whose travel is shorter term, but may be quickly immersive, where ineffectiveness can have immediate and drastic consequences from which recovery is difficult (impossible?) due to the timeframes involved.

Adaptability is really the cost of entry

Being effective across cultures is important, whether you are relocating, or hopping to Manila for a two-day meeting after spending a week in Dubai, before heading to Geneva for meetings at the WTO. Whirlwind trips across oceans can sometimes involve equally ‘distant’ trips across cultures, and adaptability is nothing less than the price of entry.

If your instinct is to hit up the first hamburger joint after you get off the plane in a country you’ve never visited, I’m suggesting respectfully, please do better for yourself, and for the potentially enriching personal and professional experience you could otherwise have!

Put another way:

 If you’ve travelled a few thousand kilometres and the first thing you want to get your hands on is a French fry that tastes the same almost anywhere in the world…are you freakin’ serious??!!

OK, the French fry can be really good, but here’s one concept from economics that has proven useful: Opportunity Cost (slightly adjusted for this purpose): what else could you be doing in that moment, and what value is being lost as a result?

Of course, the poor French fry is just a proxy for any number of other aspects of an international experience, from reverting to familiar modes of negotiation, to seeking the “comfort” of familiar contractual terms or legal commercial/legal practice, even familiar modes of social interaction and relationship development. The list can be extensive.

Culture is like oxygen in some ways: we are surrounded by it, at the same time as it is in us: it is possible to make a conscious effort to be aware of one’s own culturally-based preferences, references, mindset and biases. But it is impossible to completely ‘step out’ of our own cultural reference points, and thus, equally impossible to completely adopt an unfamiliar culture, even if there is a sincere desire to do so, and even for a limited time or a particular purpose.

Hofstede and Hall are often quoted in reference to cultural considerations, and the Hofstede model of Cultural Dimensions offers six interesting ‘dimensions’ on which to understand and compare countries and their cultures.

Give the Zorkians a chance

OK, let’s get practical for a minute.

You arrive in an unfamiliar country and are immediately told (or maybe you were told this by a well-meaning colleague before you ever left home) that the local population, largely of Zorkian descent, are formal and distant, and very difficult to “connect” with.

You are invited some time later to conduct a two-day training session for a group of about fifty senior executives in Varnesia, where you are warmly greeted by the organizers, but gently warned not to take offense, because Varnesians NEVER interact or engage in public, and certainly will not do so when the session is facilitated in a second language by (GASP!) a foreigner.

Perhaps you have the unique pleasure (which can sometimes become a uniquely memorable type of headache, if only briefly until you get on top of things) of managing a team of professionals from multiple countries and cultural backgrounds.

The challenges and joys of engaging across cultures are numerous and endlessly interesting.

None are insurmountable, and despite the fact that this element of international activity can be a source of extreme tension, even near-paralyzing fear in some unfortunate cases, the reality on the ground is that it’s about basic respect, a bit of common sense, some homework, and a genuine desire to connect with people.

As it turns out, the group of Varnesians were reticent for about two hours, then it was possible to motivate their engagement by stepping behind a three-metre high projection screen, literally turning one’s back to the room to ensure that any brave speaker would not be seen, and asking a question from that ‘hidden’ position, providing a bit of initial comfort and a minor injection of humour into the process.

Be careful though, once they get comfortable and get started, Varnesians seem to actually enjoy engaging, and it will be impossible to have a ten minute break without someone wanting to come over for a chat!

Zorkians, on the other hand, are quite accustomed to asking how you are doing (and hearing the same question back), but not really prepared for you to actually pause for an answer from them. A couple of interactions of that nature might get you invited to a local steakhouse where a special “not for tourists” steak is served that can only be found in one particular neighbourhood. Strangely, several of those Zorkians, so difficult to connect with, may become excellent professional collaborators, and even – believe it or not – friends!

Focus on building genuine relationships

Managing teams that combine local and remote resources, and include members from multiple countries – or even different cultural groups in the same country – is a subject for another post, or a book.

Suffice it to say, one piece of advice offered years back to a colleague, may be worth repeating here: genuinely take care of the relationships and they will help you take care of the rest (mitigate and reduce challenges and amplify successes). This applies cross-culturally just as it applies in the comfort of your home markets.

Paralysis by analysis is a real risk in the context of intercultural effectiveness. Perhaps the best insight and advice I ever received on this subject, is to remain “yourself” at the core, irrespective of the context in which you are pursuing business.

That is to say:

Genuineness is important, and a contrived (or poorly executed) attempt to “go native”, no matter how well-intentioned, can seriously backfire.

Being yourself does not imply a negligent disregard for the context in which you are engaging: if the society is a conservative one, it is simply discourteous, possibly offensive, and potentially a personal danger to act in ways that would offend such sensibilities.

The subject of intercultural effectiveness can be studied and analyzed, and you can prepare diligently for international engagement, but it is much like tasting a new wine. The description on the bottle rarely does justice to the contents, and the best way to do well in terms of intercultural effectiveness is to engage, dive in, and actively seek opportunities to extend your own experience in this area.

One powerful gateway to effective cultural engagement is language: every language, it was once noted, brings with it a unique way of looking at life and at the world – much like every culture.

Like many other aspects of international business and trade, the ‘art’ of intercultural effectiveness, where personal approach and differentiation can be exercised to good effect, is perhaps the more interesting dimension than the ‘science’.

The navigation of intercultural effectiveness may be complex, but it is very much achievable, and it is personally and professionally enriching. The more you engage, the better you will get, and the more fun you will have.

Are there cultural “French fries” you need to cut down on to enjoy international experiences and become more interculturally effective?

The post How to befriend the Zorkians and other lessons in navigating cultural complexities in global business appeared first on Trade Ready.

Importing: second-string no more?

Under the integrative trade model, imports and global sourcing are critical to the success in exports and export development, and therefore are afforded greater focus and resources. Successful importing is now a matter of competitive advantage.

Foreign trade is an essential ingredient in the economic development and prosperity of most nations.

Many countries have entered into trade pacts or agreements and, through negotiation, have established rules and regulations to govern orderly trade. These trade agreements, along with the relative reduction in trade barriers that ensue, make it simpler to import from abroad.

Importers of materials, finished goods or products for resale either identify unfilled niches in the domestic market and seek to fill them from foreign sources, or identify promising foreign products for which they try to develop domestic demand.

In either case, importers run the risk of importing products for which there is no viable resale market. Effective market research is the key to minimizing that risk.

1. Take time to carefully evaluate your in-market supplier

Similarly, once a promising market opportunity has been identified, a rigorous approach to product sourcing and supplier evaluation can reduce the risk of entering into arrangements with unreliable suppliers.

Supplier evaluation may involve a considerable investment of time and effort, but it is well worth it if the result is a smoothly functioning and mutually beneficial long-term business relationship.

It is usually best to evaluate different foreign suppliers before settling on one. Even after a deal has been initiated, it may be wise to keep track of several alternative suppliers. This helps to avoid dependence on one source and to minimize risk if the foreign supplier selected turns out to be unsatisfactory.

Once a potential foreign supplier has been identified, the buyer initiates the process with a purchase order or with a request for a quotation to supply the goods required. The initial request may open up a process of offer and counter-offer as the importer and the foreign supplier clarify, negotiate and agree upon trade terms. Once an offer has been accepted, it constitutes a legal contract.

2. Make sure the price is right for your foreign imports

Negotiating price is a critical element of the process, and several key questions ought to be kept in mind:

• What volume is being purchased?
• Are discounts available as volumes increase?
• What logistics costs related to importing the products are covered in the price?
• Does the price include packing, transportation, cargo insurance and customs duties? Each of these items will be borne by either the exporter or the importer and will be included or excluded from the quoted price of the goods.
• When do the seller’s responsibilities end and those of the buyer begin? The importing firm should clearly set out its requirements in writing. The importer should also respond in writing to the exporter’s requests for clarification in a clear, direct style and in as much detail as required. The aim is to avoid misunderstanding and to secure a deal that will benefit both parties.

Additional considerations include agreement on payment methods and terms and clear agreement on the documents (including content and format, specified to the appropriate level of detail to ensure payment as well as transport and clearance of the goods).

The sales contract will typically be complemented with a purchase order, which may serve as the basis for issuance of a documentary letter of credit—a payment and financing mechanism provided by banks in support of trade transactions.

3. How are the items you’d like to import classified?

Another important consideration includes the classification of an imported item, which determines any associated tariff due, as well as import-valuation procedures.

It should be noted that, in the same way the importer verifies the reliability of the potential foreign supplier, that supplier also investigates the reliability and creditworthiness of the importer.

Recognizing this fact, the partners can go a long way toward instilling mutual confidence while accelerating the validation process by providing each other with appropriate information and references.

What else is important for companies to consider before importing products or raw materials from abroad?

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For entry strategies such as indirect exporting, in which entry costs are low, the level of competition is less important than when substantial financial investment is required. Companies should therefore research the competitive environment as carefully as possible when deciding on which strategy will best suit them and use this to develop a series of competitive landscape maps (CLMs).

They should also analyze the market entry strategies being used by others to determine hidden pitfalls and the methods most likely to succeed.

Create competitive landscape maps (CLM)

A CLM is a simple chart that indicates what is important to consumers in the chosen market. Companies should develop several CLMs: one that compares price and quality, one for other important product or service qualities, one for sales strategy and one for key product differences. On each chart, the company should indicate the position of each main competitor in the market. On analysis, this will indicate competitive gaps—these are the areas that a company can target to gain a competitive advantage.

For example, if a chart shows that most companies in the market provide basic bread products at low prices, a company entering the market with the same types of products will find the competition hard to compete with. The CLM will illustrate areas in which it can find a niche in the market, such as by offering specialist types of bread or by developing baked products with health benefits.

To develop competitive maps, companies need to use competitive intelligence. Competitive intelligence is developed by using publicly available sources to gain information about competitors and competition. It does not involve any underhand gathering of information. Companies will find that they can gather all the information they require from available sources if they conduct some intensive research.

Research for competitive intelligence

Companies can obtain information about a company’s strategic goals, its marketing strategies and its product and pricing strategies by commissioning a competitor analysis company to investigate the market. If a company is unwilling or unable to pay for this service, there are numerous resources a company can use to undertake its own research.

Explore company profiles

Companies can try finding information about companies in the market using directories such as Yahoo’s Business and Economy directory (dir.yahoo.com/business_and_economy). Hoover’s online is another exhaustive source of company information (www.hoovers.com). The information provided includes industry analysis and company information organized by country. Not all companies in specified regions are included, but major ones are. Company websites will often contain valuable information that can help researchers clarify product positioning and deduce strategic aims and objectives.

Browse news stories for competitive intelligence

Companies should read the news from their target market to gain an understanding of major industry initiatives. Online versions of newspapers and business journals are available for free from most countries in the world, and most of them written in English. A basic search using Google News will provide archived articles about industry and company news in a target market. Other useful sources are Business Wire (www.businesswire.com) and Reuters (www.reuters.com).

Employment advertisements are another useful source of information. The numbers of people being hired by a company and the job roles they are looking to fill will give researchers clues to future competitor activities.

Take advantage of industry activities and resources

To obtain a real understanding of the competitive environment in a foreign market, companies can attend trade shows, conferences and seminars. They can also contact their country’s embassy in the target markets and obtain information about their industry sector from the Trade Commissioners there.

The post Gathering competitive intelligence before you enter foreign markets appeared first on Trade Ready.

But how do you find the right customs broker for your company? The following is a list of questions you should consider when selecting a customs broker or a consultant:

• Does the broker have an ISO certification?
• Does the broker specialize in certain commodities or shipping methods?
• How long has the broker been in business?
• What is the broker’s level of financial stability?
• Does the broker offer sole point of contact (SPOC) to reduce customs entry errors?
• What resources does the broker have to ensure speedy clearance and delivery of goods?
• How does the broker advise clients of delays in handling or clearance, and will the broker off suggestions on how to avoid such delays?
• What kind of physical facilities does the broker have?
• What kind of security systems and procedures does the broker have?
• What is the insurance coverage carried by the broker for facilities and operations?
• What assistance does the broker offer in terms of records maintenance?
• Does the broker have computerized or EDI systems that expedite document preparation and transmittal, and/or that expedite customs clearance?
• Can the broker’s performance bond be used to provide the necessary surety coverage?
• What are the terms of payment and financial arrangements?
• Where are the offices of the broker located?
• With what degree of interest and attention does the broker service small accounts?

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