- Conducting business internationally can result in conflict for a variety of reasons, including contract issues, cultural misunderstandings and governmental influence.
- International business may be more costly as international conflicts arise, so conflict resolution is essential for success and should be addressed quickly.
- Unlike Western cultures, much of the world broaches conflict resolution using an indirect approach.
Small businesses don't always work with international partners, but thanks to the interconnectedness of the modern business environment, more entrepreneurs are finding themselves going global sooner than expected. Growing beyond one's own domestic borders avails a company to valuable partnerships and opportunities that could ultimately help scale up operations, but it also carries the threat of new cultural barriers and unintentional social faux pas.
Reasons for international business conflict
When companies are negotiating international agreements, they are doing so, one assumes, in good faith. Still, things sometimes go awry. According to Nicole Chevrier, international trade expert, there are four primary causes of international finance disputes:
Payment terms. If an importer offers terms that rely upon payment after the delivery and inspection of the goods, disputes may arise over the payment if the customer is unwilling to accept the offered goods or is dissatisfied with the quality.
Letters of guarantee. According to Chevrier, disputes can arise in situations where the seller is performing according to the terms of the contract, but the buyer drew on the letter of guarantee to obtain additional funds for liquidity purposes. This is known as a wrongful call.
Exchange rates. Even a slight shift in the foreign exchange rate can make a tremendous difference in the profit margin for buyer or seller.
- Documentation errors. Errors in letters of credit, letters of guarantee or contracts can easily become the focus of disputes and be exacerbated by language and cultural differences.
Because international business arrangements involve divergent cultures and practices, conflicts may arise over legal and ethical standards. According to Bert Markgraf in the Houston Chronicle, it is important to consider local wages and working conditions before you enter the market. As a business owner, you need to protect your workers, but not disrupt the local economy or market.
In addition, the country you are doing business in may have very different practices with respect to bribery and human rights than those in the United States. It is important to understand both the legal and customary practices of the country and the business you are interacting with.
The influence of government policies
While conflict with your business partners is resolvable (more on this below), conflict with the host government may not be. Some US-based giants have failed to thrive in other nations due to inability to play nicely with the local government. As noted in International Business Guide, Google's conflicts with the repressive Chinese government were exacerbated by the advantages enjoyed by local competitor Baidu, which was not reluctant to offer access to pirated media.
Finally, the United States' trade policies may have implications for companies promoting their interests abroad. As CNN explains, U.S. policies, which change the landscape and environment for our trading partners, may precipitate adverse practices for our goods and services in those countries, leading to increased conflict between U.S.-based companies and the partners they conduct business with. Tariffs and trade turmoil create uncertainty for all partners and may increase the cost of doing business.
Working in the international business world places an imperative upon learning the etiquette, language or everyday social interactions of other cultures. For the international businessperson, understanding those cultural differences and adhering to the social norms of a host country could make the difference between sealing the deal and burning a bridge.
This is especially true in the realm of conflict resolution. Once a conflict arises, you are already on shaky ground, so avoiding offensive behavior or miscommunication is key to finding a successful resolution. Chevrier recommends agreeing on arbitration terms in advance to smooth the path toward resolution of conflict. When dealing with the global East, however, conflict resolution could look vastly different compared to western practices.
Research from the University of Virginia Darden School Foundation shows that is the case, at least. Professors Kristin Behfar and Ming-Jer Chen studied cultural differences in conflict resolution and found that, generally, Western nations tend to respect directness, while Eastern nations favor a more indirect approach. Indirect confrontation is characterized by an attempt to preserve social harmony and subtle signaling to resolve a conflict, the researchers wrote. However, in the U.S., a direct style prevails, as Westerners tend to prioritize business over personal feelings.
Common characteristics of indirect confrontation style
If you grew up in the Western hemisphere, you might be inclined to try to tackle conflicts head-on. Direct, forthcoming explanation of the issues at hand and your expectations might seem like the most respectable course of action, but it is important to first consider your audience.
Many cultures in the Eastern hemisphere prefer an indirect handling of conflict, which includes the following:
- Prioritization of the preservation of interpersonal relationships
- Reliance on subtle signaling, rather than overt actions
- A tendency toward the suppression of outward emotion
- Frequent employment of apologies as expressions of remorse, rather than of guilt
- The involvement of a third party from the start, rather than near the end
Indirect confrontation, the researchers found, tends to win out against a more direct style in business disputes, so it's important for Western businesspeople to be aware of the culture of their potential partners. Understanding what indirect confrontation is – and what it isn't – is essential.
Learning to confront an issue indirectly
So, what can a person immersed in a more directly confrontational culture do to better understand indirect confrontations? It might be difficult at first to play the indirect game, but with a little attentiveness and practice, westerners can successfully engage in indirect confrontation as well. Behfar offered her advice for those curious about indirect confrontation:
- Listen for verbal cues like asking questions, telling a story or sharing an experience.
- Look for nonverbal signals like emotional expressions (e.g., withdrawal) and behavioral cues (crossed arms) that convey disagreement.
- Be aware of other signals, such as putting up posters, postponing meetings and missing deadlines without warning.
- Above all, be patient and make sure the other party can always save face.
By mastering the above skills, as well as those associated with direct confrontation, the international businessperson's toolbox becomes more varied. Competence in indirect confrontation is another step on the road to becoming "culturally ambidextrous," as the authors of the research put it. And cultural ambidexters have a natural advantage stepping into the boardroom, wherever it might be.