IBE – V UNIT – Conflict in International Business.

Conflict in International Business

Introduction

Since the end of the Cold War the incidence of violent civil conflict has been
on the upswing. This is especially the case in poorer countries, with the last decade
seeing widespread civil violence in 15 of the world’s 20 least developed nations
(UNDP). Consideration of such conflict figures prominently in corporate investment
decision-making. A 2001 survey of the mining industry sought to identify the reasons
companies refrained or withdrew from otherwise sound investments in the last 5 years.
78% said political instability – in particular, armed conflict – was a key reason.

Violent conflict disrupts markets and destroys infrastructure. Workers can be displaced or
kidnapped and supply chains broken. Moreover, companies face accusations of
complicity in violence, of fuelling or even causing civil war.
On the strength of such allegations, some firms have been publicly shamed and targeted
with sanctions. They have faced popular protest, legal action, stock divestment
campaigns and consumer boycotts. Prominent examples include Shell in Nigeria, and
Talisman Energy and Lundin Oil in the Sudan.

Business can finance – directly or indirectly – the repressive efforts of one group against
another. It is alleged that that Talisman Energy is directly complicit in conflict in the
Sudan, by letting government forces use the company’s airstrip from which to launch
raids. Talisman is also accused of indirect complicity through oil revenue being used to
finance military operations and purchases.

Companies can benefit from a conflict situation. It was recently reported that Lundin Oil,
a Swedish oil company, was granted a concession in southern Sudan. Allegedly, in order
to guarantee the safety of the oil company’s operations and clear the area for a road to the
concession, the government waged a ‘scorched earth’ campaign against the local
communities.

Companies can be a target of conflict. Combatants may target companies

to gain indirect access to political decision-makers. The continued criticism of Shell’s
operations in Nigeria in spite of apparent efforts at reform may illustrate underlying
social problems in the country more than injustices associated with the company’s
activities.
International conflict is a state of opposition, disagreement or incompatibility between
two or more countries .
IBE – V UNIT – Conflict in International Business.

International conflicts are conflicts that involve two or more nation-states.

International business conflicts are conflicts that involve business enterprises that are
located in two or more different countries.

“The international business community will increasingly need to promote greater

economic inclusion and social justice in its operations, or it will be blamed for
contributing to the conditions that lead to violent conflict.”

Conflict may of two types : Constructive conflict

Destructive conflict

Constructive conflict:

 In can introduce different solution

 Power relationships can be clearly defined
 It m ay encourage creativity and the testing of ideas
 It focuses attention on individual contribution
 It brings emotion out into the open
 It can release hostile feelings

Destructive conflict:

 It may distract attention from the task

 It may result in disintegration
 Looser may go into denial
 Damages co-ordination

Conflict indicators in International business:

 Disagreements
 Strong public statements
 Airing disagreements through media
 Desire for power
 Open disagreement
 Increasing lack of respect
 Lack of clear goals
 No discussion of progress
 Blocking or ignoring communication
IBE – V UNIT – Conflict in International Business.

Factors causing conflicts between nations, there by affecting International Business:

Conflict typically emerges from a complex mix of causal factors, such as

 insecure or inequitable access to resources,

 competition between social groups for political power,

 incompatibilities between groups with distinct value systems.

 Personal differences in global issues

 Role incompatibility

 Power based Domination

 Political Instability

 Threat for Security

 Terrorist activity

 Inter communal violence

 Abundant availability of valuable resource located in particular area – oil, water

 Environmental Stress :

• Climatic change – change in rainfall

• Resource scarcity – decline in water supply,

• agricultural productivity,

• Poverty

• Environmental related -Migration

Factors causing conflict in International business:

 Business can cause conflict over control of the resource or area. In the Alligator
Rivers/ Kakadu region in northern Australia, a national park was proposed, a
substantial body of uranium ore was discovered and the issue of Aboriginal land
claims was raised. Competing uses of the same resource-space have led to over 25
years of unresolved conflict.
IBE – V UNIT – Conflict in International Business.

 Business can cause conflict over the right to participate in decision making
and share in benefits. It was reported that in Ecuador in 1997, several forest
communities sought a meeting with the management of a mining subsidiary of
Mitsubishi. After apparently being rebuffed, the community representatives are
said to have catalogued and removed all goods and equipment from the mine site,
before burning everything still standing to the ground.

 Companies can be a target of conflict. Combatants may target companies to gain

indirect access to political decision-makers. The continued criticism of Shell’s
operations in Nigeria in spite of apparent efforts at reform may illustrate
underlying social problems in the country more than injustices associated with the
company’s activities.

 No clear cut goals

 No clear cut agreements and contracts

 No ethics followed

 Misleading communication

 Improper communication

 CORRUPTION

Corruption stems from the lack of an honest, transparent and accountable governance
system. Corruption may result in government’s loss of control and order, leading to
institutional breakdown and conflict.

 Unethical practice
diminishing the prospect of respect for human rights

 Fact based conflict:

Fact-based disputes are disputes about what has occurred or is occurring. Such disputes
can be generated from misunderstandings or inaccurate rumors (when someone is
accused of doing something they did not actually do). Facts-based disputes can also be
generated by differing perceptions or judgements about what has occurred or is now
occurring. For example, a dispute over the level of threat caused by the ozone hole or the
greenhouse effect is a "facts-based dispute," even though all the scientific facts are not
readily discernable or agreed to.

 Difference on values among the partners

IBE – V UNIT – Conflict in International Business.

Value differences are differences in people's fundamental beliefs about what is good
and bad, right and wrong. When people=s values differ significantly, the resulting
conflict is often very hard to resolve, as people are not willing to change or
compromise their fundamental values and beliefs.

 Dealing with the laws, policies and political authorities of more than one nation.

 Unexpected changes in currency rate affects the international business deal:

factor unique to international business is the presence of different currencies. Different
currencies give rise to two problems. Since the relative value of different currencies
varies over time, the actual value of the prices or payments set by contract may vary, and
result in unexpected losses or gains. Another problem is that each government generally
seeks to control the flow of domestic and foreign currencies across their national
boundaries. And so business deals will often depend upon the willingness of governments
to make currency available. Unexpected changes in such governmental currency policies
can have dramatic effects on international business deals.

 Conflict because of cultural differences:

 Competition

 Share in benefits

 Domestic political pressure.

THE ROLE OF MNCS

According to one observer, the private sector can contribute to pre-conflict or conflict
prevention strategies in stable and peaceful regions in three ways:
 “through its core business activities,
 social investment programs, and
 engagement in policy dialogue and civic institution building.”

Business can play a role in conflict prevention through activities that incorporate social
and environmental policies or guidelines on human rights.

Managing pre-conflict or conflict situations in higher risk regions is more challenging but
can be accomplished through
 “preventive diplomacy,
 fact-finding and mediation missions,

although it is extremely rare for a company to become involved in actual peacekeeping

operations or military deployment unless it provides logistical support services as a core
business activity.

 An MNC can also contribute to crisis management in conflict zones through

commercial or philanthropic support for humanitarian relief and
IBE – V UNIT – Conflict in International Business.

 responsible management of security arrangements for the company’s operations,

thereby minimizing the risks of human rights abuses.

Finally, businesses can support post-conflict reconstruction and reconciliation by

participating commercially in rebuilding infrastructure and
investing in key productive sectors.

They can help create the conditions for resuming trade, improving savings
rates, increasing d omestic and foreign investment, promoting macroeconomic
stabilization, rehabilitating financial institutions and restoring appropriate legal and
regulatory frameworks. Currently, many cross-sector partnerships promote international
security and explore conflict prevention, crisis management and
post-conflict reconstruction strategies that address the three principal causes of conflict:
corruption, poverty and social inequality.

Role of Negotiation in International Business

Salacuse describes six distinctive features of international business negotiations.

The author begins by pointing out two mistaken assumptions about doing business in an
international setting.
 Many economic commentators assume that international business deals will
happen naturally if only the correct governmental policies and structures are in place.
 Corporate leaders assume that they can simply extend their successful domestic
strategies to the international setting.

Both of these assumptions are mistaken.

Policies alone do not create business deals; companies do.

Business executives will need to be much better educated about international negotiating
in order to make successful deals.
International business negotiations are fundamentally different from domestic
negotiations, and require a different set of skills and knowledge.

Salacuse identifies six elements which are common to all international business
negotiations, and which as a set distinguish international business negotiations from
domestic negotiations.

1. The first is that in international negotiations the parties must deals with the laws,
policies and political authorities of more than one nation. These laws and policies may be
inconsistent, or even directly opposed.
For example, in the early 1980s U.S. companies operating in Europe were caught
between the American prohibition on sales to the Soviets for their Trans-Siberian
pipeline, and European nations' demands that these companies abide by their supply
contracts. International business agreements must include measures to address these
IBE – V UNIT – Conflict in International Business.

differences. Such measures typically include arbitration clauses, specification of the

governing laws, and tax havens.

2. A second factor unique to international business is the presence of different currencies.

Different currencies give rise to two problems. Since the relative value of different
currencies varies over time, the actual value of the prices or payments set by contract may
vary, and result in unexpected losses or gains. Another problem is that each government
generally seeks to control the flow of domestic and foreign currencies across their
national boundaries. And so business deals will often depend upon the willingness of
governments to make currency available. Unexpected changes in such governmental
currency policies can have dramatic effects on international business deals.

3. A third element common to international business negotiations is the participation of

governmental authorities. Governments often play a much larger role in foreign business
than Americans are accustomed to. The presence of often extensive government
bureaucracies can make international negotiation processes more rigid that is usual in the
American private sector. Sovereign immunity can introduce legal complications into
contracts. State-controlled businesses may have different goals from private companies.
Whereas private firms are usually primarily concerned with profits, state entities may be
willing to sacrifice some profitability for social or political ends such as greater
employment.

4. Fourth, international ventures are vulnerable to sudden and drastic changes in their
circumstances. Events such as war or revolution, changes in government, or currency
devaluation have an impact on international businesses which is much greater than the
impact that the usual domestic changes have on national businesses. These risks "require
that international business negotiator to have a breadth of knowledge and social insight
that would not ordinarily be necessary in negotiating a U.S. business arrangement.
International businesses try to protect against these risks by employing political risk
analysts, by foreign investment insurance, and by force majeure clauses which allow for
contract cancellation under certain conditions.

5. International business negotiators also encounter very different ideologies. In

particular, different countries may have very different ideas about private investment,
profit and individual rights. Effective negotiators will be aware of ideological differences.
They will present their proposals in ways that are ideologically acceptable to the other
party, or that are at least ideologically neural.

6. Finally, cultural differences are an important factor in international negotiations. In

addition to language differences, different cultures have differing values, perceptions and
philosophies. As a result, certain ideas may have very different connotations in different
cultures.
For instance, Americans and Japanese tend to have a different view of the purpose of
negotiations. Americans see the goal of negotiations as to produce a binding contract
which creates specific rights and obligations. Japanese see the goal of negotiations as to
create a relationship between the two parties; the written contract is simply an expression
IBE – V UNIT – Conflict in International Business.

of that relationship. What the Japanese see as a reasonable willingness to modify a

contract to reflect changes in the parties relationship, Americans see as a tendency to
renege. American insistence on adherence to the original terms of the contract may be
perceived as distrust by the Japanese.

Some cultures prefer to start from agreement on general principles, while other prefer to
address each issue individually. Some cultures prefer to negotiate by "building up" from
an initial minimum proposal; other prefer to "build-down" from a more comprehensive
opening proposal. Cultural differences also show up in the preferred pacing of
negotiations and in decision-making styles. Salacuse cautions, however, that individual
negotiators do not always conform to cultural stereotypes.

Also refer: Conflict handling modes in business

Impact of location in negotiations
Process of negotiation or stages of negotiation process
Factors influencing negotiation
Role of International agencies in conflict resolution.