INTERNATIONAL HUMAN

RESOURSE MANAGEMENT

CONFLICT IN INTERNATIONAL
BUSINESS AND
NEGOTIATIONS
 MEANING AND DEFINATION

• Conflict is ‘Disagreement through which the parties

involved perceive a threat to their needs, interests
or concerns’.

• Conflict is a state of discord caused by the actual or

perceived opposition of needs, values and interests.

• It is a situation in which people perceive a threat

(physical, emotional, power, status, etc.) to their
well-being.
 Types of Conflict

• In the personal sphere, a conflict can be internal (within

oneself) or external (between two or more individuals).

• In the organizational sphere, a conflict can be internal

(within the organization) or external (between two or
more organizations).

• In the national sphere, a conflict can be internal (within

one nation) or external (between two or more nations).
 Types of Conflict (Cont…)

• Conflicts ‘nested’
In conflicts, it is said. For example, conflict
within a work team may be the reflection of a
broader conflict in the organization as a whole.
A conflict is more than a mere disagreement.
 Types of Conflict (Cont…)
Professional Conflict:
 Governmental and MNEs’ business negotiators may start with
mutual mistrust(distress) due to historic animosity or to
differences in their professional status.

 The MNE people may come armed with business and economic
data that governmental officials don’t fully understand, and the
officials may counter with sovereignty considerations that are
nearly incomprehensible to the businesspeople.
 Types of Professional Conflict
(Cont…)
 Interpersonal conflict, (though this usually just
gets delegated out to psychology)
 Emotional conflict,
 Group conflict,
 Organizational conflict,
 Community conflict,
 Intra-state conflict (for example: civil wars, election
campaigns),
 International conflict,
 Types of Professional Conflict
(Cont…)
• Environmental resources conflict,

• Ideological conflict,

• Diplomatic conflict,

• Economic conflict,

• Military conflict,

• Religious conflict,

• Workplace conflict, etc.

 Nature of conflict
• Functional vs dysfunctional conflicts
• Competition, co-operation and conflicts
• Social, ethnic and racial differences and
conflicts
• Transforming conflict into a productive
learning experience
• West and east never thou meet
 Nature of conflict
• Functional Vs Dysfunctional Conflicts:
 Functional Conflict could be functional when conflict
exposes the system deficiency and the same is rectified
before any cascading catastrophes result.

 Dysfunctional conflicts are disruptive, damaging and

destructive. The more difficult type of conflict is when
values are the root cause. It is more likely that a conflict
over facts, or assumptions, will be resolved than one
over values.
 Nature of conflict (Cont..)
 Competition, Co-operation and Conflicts:
 One should not confuse the distinction between the
presence and absence of conflict with the difference
between competition and co-operation. Even when
conflict exists, parties agree to cooperate to resolve the
same.
 Even when cooperative culture exists, there may be
conflict between parties on certain aspects of
relationship that may reach a flash point. A clash of
interests, values, actions or directions often sparks a
conflict.
 Nature of conflict (Cont..)
 Social, Ethnic and Racial differences and
conflicts:
 Social, Ethnic and Racial differences are the cause
and effect of conflicts along such lines leading to
virtual non-cooperation, and sometimes illegal
armed extravaganzas.
 Nature of conflict (Cont..)
 Transforming conflict into a productive
learning experience:

 If procedures for identifying conflicts likely to arise,

as well as systems that can constructively manage
conflicts are available, it may be able to discover
new opportunities to transform conflict into a
productive learning experience.
 Nature of conflict (Cont..)
 West and East never thou meet:

 In Western society, practitioners usually suggest

that attempts to find mutually beneficial solutions
lead to the most satisfactory outcomes, but this may
not hold true for many Asian societies.
 Modes of Conflict
• Organizational conflict within the MNE like workplace
conflict,

• Conflict between the MNE and state/government of the host

nation, non-targeted conflict like civil wars, class wars,
political upheavals that affect businesses particularly
foreign, diplomatic problems between countries that spill
over to businesses, external aggression or internal
disturbances or terrorist actions that affect foreign
businesses, etc are important types of conflicts.
 Modes of Conflict (Cont…)
• Business conflicts like
 unfavour in global contracts award or order placement,
 insufficient protection to property / parent / people /
copy-rights etc also are conflicts or potential conflicts.
 Overprotective home labour laws,
 under-protective business interests due to weak laws
governing financial impropriety, etc are conflict potent
candidates.
 Religious-based conflicts depicting one or other
business group, domestic or foreign, anti-religious have
serious repercussions
 MNEs and Conflict
• MNEs live with global conflict. Violent conflict is a
persistent feature of the international landscape and
presents a serious challenge for foreign businesses
investing in unstable societies throughout the world,
especially parts of Africa, Asia and Latin America.
• There is a large body of evidence that shows that
investments in unstable areas interact with the
dynamics of violent conflict at both local and national
levels. Some companies have responded with active
engagement in the debate on business and conflict.
 Conflict risk
• Conflict risk is the risk that a project’s development,
construction or operations may be adversely affected by
the outbreak of violent conflict.
• It can be a major threat to a project’s creditworthiness.
Demonstrations and blockades(Barriers) by local
communities, sabotage (Damage) of project installations
or facilities, kidnapping or assault to staff, outbreak of
violent clashes between armed groups, demanding of
payments by armed groups to project sponsors, etc. are
all of the expressions of violence.
FACTORS CAUSING CONFLICT

The factors causing conflict are divergent.

• The factors causing organizational

conflicts,

• The factors causing projects

• Causes for Violent Conflicts

 Causes of Organizational
Conflicts
• Structural factors: Structural factors normally impose
rigidity while businesses need dynamic adjustment. (conflict
between responsibility and authority)

• Specialization: organizations leads to conflict because

generally the experts in fields fail to agree. It is usual for ‘n’
experts to come with ‘n+1’ views. Hence the conflict that blows.

• Interdependence: conflicts develop between departments

because one department is either lethargic in its commitment or
it is over-smart and others could not find home.
 Causes of Organizational
Conflicts (Cont..)
• Sharing Common Resources: one person/ division over
draws and the deprived others disagree to pull together. (water
disputes and conflicts are common in South India. In some
villages stakes to access temples pose conflicts.)

• Goal Differences such as one person wants to push

production and others want R&D to rise, leading to conflict.

• Authority relationships
• Status Inconsistencies such as excessive/scanty power,
power without sincerity, and too much politically charged
atmosphere cause conflict.
 Causes of Organizational
Conflicts (Cont..)
• Inconsistencies in asset endowments cause conflict. May
be it is class conflict the communists leaders project.

• Jurisdictional Ambiguities who will report/discipline who

lead to conflict in issuing and receiving communications. This is a
kind of intra-organization conflict.

• Personal Factors like perversion, misunderstanding,

selfishness, etc of people lead to conflict of opinions and hence
actions. This happens at home / office / private or social or
official gatherings.
 Causes of Organizational
Conflicts (Cont..)
• Personality clash where two equally placed persons or
heads do not simply accept one another, leads to conflict.
• Perception differences where the sensitivity or
understanding of people on certain phenomena differs, lead to
conflict.
• Values and Ethics can cause conflicts. Differing commitment
levels to, or interpretation of Values and Ethics of people may
lead to conflict. Eventually ‘means-ends’ tussle erupt.
• Communication barriers result in no communication,
missile-like communication or misleading communication.
Eventually somewhat long-term conflicts form.
 Causes of Organizational
Conflicts (Cont..)
 Cultural Differences: Culture tells people what emotions
ought to be expressed in particular situations and what
emotions are to be felt.
 Emotion causes
 Behavioral:
 Physiological:
 Cognitive:
 Scarcity
• Identity or individuality issues may lead to conflict.
Emotions and Identity are a part of conflict.
• Conflict is relational (emotional communication conveys
relational definitions that impact conflict)
 Causes of Project Related
Conflicts
• Large infrastructure projects and conflicts: large
infrastructure projects and conflicts go together. Financing
large infrastructure projects and certain types of natural
resource extraction activities like power plants, oil and gas
pipelines and hydroelectric dams, for example. These activities
are often linked to conflicts at local and national levels due to
their strategic significance,
• Project loans/advising/promotion for controversial
projects and conflicts:
• Capital flight and money laundering and conflicts:
Every corrupt dictator that has transferred money offshore for
personal enrichment has done so with the aid of correspondent
and/or private banking services.
 Causes of Project Related
Conflicts (Cont…)
• Financial advising and conflicts: Financial advising is an
important service offered to sovereign governments, but
sometimes this advice is employed for dubious ends.

• Sovereign loans/bonds/book-runners and conflicts:

Financiers provide loans to sovereign governments that may
engage in human rights abuses or war-mongering activities.

• Financing state-owned enterprises and conflicts:

According to the NGO Global Witness, ‘much of the money
from loans from global bankers
 Causes of Project Related
Conflicts (Cont…)
• Trade facilities indirectly used to war-purposes and
conflicts: Merchant banks provided trade facilities that
enabled governments to import weapons, communications
equipment, and other articles of wars.
• Export credits and support of arms sales and
conflicts: A significant proportion of export credit guarantees
awarded by banks in support of the defence industry to
recognized sovereign governments and in line with
international regulation has slipped into faulty hands.
• Conflict commodities and conflicts: diamonds, gold and
oil may generate hard currency for tyrannical regimes, civil war
or violent conflict, as has been the case in some African
countries such as Liberia and Angola.
 Causes for Violent Conflicts
• Violent conflicts occur when two or more parties
believe their interests to be incompatible, express
hostile attitudes, or take actions that damage the
other’s ability to pursue its interest.
• Conflict is a dynamic process with complex causes,
and may take differing forms and runs through
various stages of escalation and de-escalation.
• It can turn into violence. ‘Violence’ is often used
interchangeably with ‘conflict,’ but violence is only
one means among many that parties choose to
address a given conflict.
 Causes for Violent Conflicts

Poor Governance,

Weakest Economies,

Poverty and

Highest Corruption are major causes of

violent conflicts.

Some of the African countries suffer this risk.

 CONFLICT RESOLUTION
ACTIONS
• Conflicts must be resolved at the earliest before they
assume proportions.

• There are behavioural and administrative measures.

The behavioural measures deal with organizational
conflicts, while administrative measures address
project related conflicts.
 Thomas-Kilmann Conflict Mode for
dealing with Organizational Conflicts

• Organizational Conflicts are resolved mostly through

behavioral measures. Thomas-Kilmann Conflict Mode
Instrument is one of the tools used to assess an
individual’s behavior in conflict situations.

• Five basic ways of addressing conflict, namely Avoidance,

Collaboration, Compromise, Competition and
Accommodation were identified by Thomas and Kilman.
This is suited for organizational conflicts.
Conflict Resolution Measures
Mapped
 Project Related Conflict
Resolution
• Project Related Conflict Resolution measures are
administrative in nature. In order to mitigate the range
of conflicts facing projects in risky emerging markets,
financial institutions have access to a variety of
mitigation strategies, including insisting on substantial
commitments from sponsors in the form of equity to
ensure the project is adequately covered.
 Project Related Conflict
Resolution
• Political Risk Insurance (PRI)

• Covenants and Warranties

• Political Umbrellas

• Enhanced Due Diligence

• Encouraging better conflict risk management

by project sponsors
 Political Risk Insurance (PRI)
• Political risk insurance (PRI) traditionally provides
investments with cover for expropriation, currency
inconvertibility or non-transfer and political violence
covering physical damage to an asset as a result of
politically motivated strikes, riots, civil commotion,
terrorism, sabotage, war, and/or civil war.
• Coverage for business interruption and consequent loss of
profit and compensation for defaults caused by political
violence is also provided by PRI. Sponsors and lenders will
often transfer political risk to insurers.
• Actually, political risk insurance is a pre-requisite for
lending set down by banks.
 Covenants and Warranties
• Non-commercial risks (including environmental and social
risks) may be mitigated through the inclusion of restrictive
covenants and warranties into credit and insurance
agreements requiring the project company to ensure risks
are managed appropriately at the project level.

• These include requirements that environmental

management plans and community support mechanisms
be implemented.
 Political Umbrellas
• The ‘political umbrella’ concept ensures that host
governments will be far less likely to take certain actions
such as expropriation of foreign investor assets,
exacerbate violent conflicts and riots that would disrupt
foreign business.
• The involvement of IFC or any other institutions in a
project enhances the ‘stamp of approval’ of projects. For
instance, the project sponsors of the Chad-Cameroon
pipeline actively sought the involvement of IFC and
others to mitigate the high political risks of developing
the project through two underdeveloped, conflict-prone
countries.
 Enhanced Due Diligence
• Conflict risk and impact assessment must be made a part of
standard due diligence procedures.

• By assessing the two-way relationship between a project

and the context in which it is developed, project financiers
will be in a better position to understand the nature of
conflict risk that may affect.

• Due diligence may be enhanced in several ways. These are

placed under 3 heads, namely, Country Assessment ,
Human Rights and ‘No-go’ Criteria.
 Enhanced Due Diligence
Comprehensive Country Assessment: A comprehensive
Country Assessment will solve most of the conflicts related
to project implementation by MNEs.

 Governance issues:

 Economic issues:

 Socio-cultural issues:

 Security issues:
 Enhanced Due Diligence
Human Rights Compliance Assessment (HRCA):

• Effective Human Rights Compliance Assessment is most

needed to address the issue of conflicts in the
implementation of overseas projects.

• HRCA on-line diagnostic tool is available which is designed

to promote better corporate performance by companies
by helping them to detect potential human rights
violations caused by the effect of their operations on
employees, local residents and all other stakeholders.
 Enhanced Due Diligence
‘No-go’ Criteria:
• In some countries, the probability of conflict risk
affecting a particular project may be so high that from
the conflict-sensitive perspective it would be unwise for
an investment to proceed.
• Due diligence screening should alert project financiers
and insurers to this possibility. Wherever a project is
located in an area where human rights abuses are
currently, or have been, committed in the recent past,
financiers should consider avoiding the project.
 ROLE OF NEGOTIATIONS IN
INTERNATIONAL BUSINESS
• Negotiation is an interaction of influences which
include the process of resolving disputes, agreeing
upon courses of action, bargaining for individual or
collective advantage, or crafting outcomes to satisfy
various interests.

• Negotiation is thus a form of alternative dispute

resolution. In a successful negotiation, everyone
wins
 Basic elements of Negotiation

• Negotiation involves three basic elements: process,

behavior and substance.
 The process refers to how the parties negotiate
 The behavior refers to the relationships among
these parties, the cordiality of communication
between them and the styles they adopt.
 The substance refers to what the parties
negotiate over: the agenda, the issues
 Basic elements of Negotiation

• Skilled negotiators may use a variety of tactics ranging

from negotiation hypnosis, to a straight forward
presentation of demands or setting of preconditions
to more deceptive approaches such as cherry picking
(cases or data to prove one’s line of argument as
correct).
• Intimidation and salami tactics (divide and rule) may
also play a part in swaying the outcome of
negotiations.
 Conflict Resolution and Negotiations

• Negotiation Strengths

• Bargaining/Negotiation Process

• Behavioral aspects in negotiations

• Bilateral and multilateral agreements

• Corporate citizenship
 Negotiation Strengths
• Their stature in terms of global presence, competitiveness,
brand equity and financial strength outsmart the rest. Such
MNEs can dictate terms to countries. Usually uniqueness has
great bargaining power. These assets include:
 Technology:
 Marketing excellence:
 Process Expertise:
 Export ability:
 Brand Equity:
 Product diversity:
 Large capital:
 Bargaining/Negotiation Process
• Negotiations are a means by which an MNE may
initiate, carry on, or terminate operations in a
foreign country.

• The negotiation process often leads to multi-tiered

bargaining with a local company for tie-up to provide
technology in exchange of part ownership stake. The
situations in countries differ.
 Behavioral aspects in negotiations
• Various cultural factors affect the negotiation process,
misunderstanding may result due to differences in culture,
nationalities, languages, customs and professions. Cultural
diff among negotiators arise as follows:

• Some negotiators point blankly like Americans, speak

indirectly, Japanese

• Some negotiators make fast decisions accurately

• Some negotiators take pragmatic view

 Bilateral and multilateral agreements
• Many countries establish bilateral agreements with MNCs in order to
improve investment climate in their countries.

• These agreements provide insurance and guarantee of the foreign

investment in host countries.

• In fact the world bank provides guarantee for the private investments.
Similarly EXIM banks of various countries also provide guarantees for
foreign countries.

• MNCs prefer to have third country in dispute settlement, if the

government and other agencies of host country fail to resolve the conflicts.
The third party role generally played by the International Champer of
Commerce in a country.
 Bilateral and multilateral agreements
(Cont…)
• Govt to govt trade disputes are now resolved by Dispute
Settlement Body of the WTO.

• The world bank provides for settlement of disputes through

the International Centre for Settlement Disputes. In addition
the world bank established Multilateral Investment Guarantee
Agency (MIGA).

• MIGA provides insurance against losses from expropriations,

war, civil disturbances, currency convertibility and breach of
contract.
 Corporate citizenship
• Foreign companies recently realized that by being a good
and responsible corporate citizen, they can minimise the
conflicts and disputes with the host country and with all
stakeholders of the host country.

• MNCs have to satisfy a no.of stakeholders viz, higher

salaries for employees, low price products for the
customers, high rate of dividends, prompt payment of
taxes to the govt etc,.
 Negotiation Process/Stages in
International Business
• Preparation -Know what you want. Understand them.
• Open the Discussions- Put your case. Hear theirs.
• Argument -Support your case. Expose theirs.
• Exploration -Seek understanding and possibility.
• Signal -Indicate your readiness to work together.
• Package/Assemble -Assemble potential trades.
• Close -Reach final agreement.
• Sustain -Make sure what is agreed happens.
• Renegotiate- When sustenance gets struck, renegotiate
• Termination of Negotiation -Stop negotiation, once and
for all.
 Factors Affecting Negotiations

• Cultural Factors and Negotiation

 Low-context Vs. High-context cultures

 Pragmatist cultures Vs. Idealistic cultures

 High trust Vs Low trust cultures

 Mono-chronic cultures Vs. Poly-chronic cultures

 Punctuality stressing culture Vs. Easy going culture

 Factors Affecting Negotiations
(Cont..)
• Language Factors and Negotiation
 English – the Universal language is better

 To have or not language interpreters

 Interpreters are textual and not contextual

 Factors Affecting Negotiations
(Cont..)
• Other Intangible factors:
 Communications
 Personalities
 Your own personality and style
 Physical space
 Past interaction
 Time pressure
 Subjective utilities
 ROLE OF INTERNATIONAL AGENCIES IN
CONFLICT RESOLUTION
• Role of International Finance Corporation (IFC) in
Conflict Resolution
• Role of Multilateral Investment Guarantee Agency
(MIGA) in Conflict Resolution
• Role of International Chamber of Commerce in
Conflict Resolution
• Role of International Centre for Settlement of
Investment Disputes (ICSID) in Conflict Resolution
• Role of World Trade Organization in Conflict
Resolution
 Role of International Finance
Corporation (IFC) in Conflict Resolution
• International Finance Corporation is a World bank group
institution committed to private sector development.

• To ensure that its financing actions do not lead to conflicts

proper due diligence is followed.
 IFC Performance Standards, Common Approaches,
Equator Principles – opportunity to raise standards
 Importance of conflict risk
 Social and Environmental risks
 Role of Multilateral Investment Guarantee
Agency (MIGA) in Conflict Resolution
• MIGA is a member of the World Bank group. It was
established to promote foreign direct investment into
developing countries.
• MIGA was founded in 1988 with a capital base of $1 billion
and is headquartered in Washington, D.C. MIGA promotes
foreign direct investment into developing countries by
insuring investors against political risk, advising governments
on attracting investment, sharing information through on-
line investment information services, and mediating disputes
between investors and governments. MIGA also requires
host country government approval for every project.
• MIGA tries to work with host governments - resolving claims
before they are filed.
 Role of Multilateral Investment Guarantee
Agency (MIGA) in Conflict Resolution (Cont..)

• MIGA can cover only new investments. These include: New,

green-field investments;

• New investment contributions associated with the

expansion, modernization, or financial restructuring of
existing projects; and Acquisitions involving privatization of
state enterprises.

• Unlike other insurers, MIGA is backed by the World Bank

Group and its member countries.
 Role of International Chamber of
Commerce in Conflict Resolution (ICC)
• ICC is an international organization that works to promote
and support global trade and globalization.
• It serves as an advocate of world business in the global
economy, in the interests of economic growth, job creation,
and prosperity.
• As a global business organization, made up of member
states, it helps the development of global outlooks on
business matters.
• The ICC was founded in 1919 to serve world business by
promoting trade and investment, open markets for goods
and services, and the free flow of capital. The
organization’s international secretariat was established in
Paris in 1923.
 Role of International Centre for Settlement
of Investment Disputes (ICSID)
in Conflict Resolution
• ICSID, was founded in 1966 pursuant to the Convention on
the Settlement of Investment Disputes between States
and Nationals of Other States.
• It is an institution of the World Bank group based in
Washington, D.C. As of May 2005, 155 countries had signed
the ICSID Convention.
• ICSID has an Administrative Council, chaired by the World
Bank’s President, and a Secretariat.
• It provides facilities for the conciliation and arbitration of
investment disputes between member countries and
individual investors.
• Annual meetings of the Council are held in conjunction
with the joint Bank/Fund annual meetings.
 Role of World Trade Organization in
Conflict Resolution
• Settling disputes is the responsibility of the Dispute
Settlement Body (DSB) of WTO.
• DSB consists of all WTO members. The Dispute Settlement
Body has the sole authority to establish ‘panels’ of experts to
consider the case, and to accept or reject the findings of the
panels or the results of an appeal.
• It monitors the implementation of the rulings and
recommendations, and has the power to authorize retaliation
when a country does not comply with a ruling.
 First stage - Consultation - up to 60 days
 Second stage - The panel - up to 45 days for a panel to be
appointed, plus 6 months for the panel to conclude
 The Main Stages of Dispute
Settlement of WTO
• Before the first hearing: Each side in the dispute presents its
case in writing to the panel

• First hearing: The case for the complaining country and

defence: the complaining country (or countries), the
responding country, and those that have announced they
have an interest in the dispute, make their case at the panel’s
first hearing.

• Rebuttals: The countries involved submit written rebuttals

and present oral arguments at the panel’s second meeting.
 The Main Stages of Dispute
Settlement of WTO (Cont…)
• Experts: If one side raises scientific or other technical
matters, the panel may consult experts or appoint an expert
review group to prepare an advisory report.
• First draft: The panel submits the descriptive (factual and
argument) sections of its report to the two sides, giving them
two weeks to comment. This report does not include findings
and conclusions.
• Interim report: The panel then submits an interim report,
including its findings and conclusions, to the two sides, giving
them one week to ask for a review.
• Review: The period of review must not exceed two weeks.
During that time, the panel may hold additional meetings
with the two sides.
 The Main Stages of Dispute
Settlement of WTO (Cont…)
• Final report: A final report is submitted to the two sides and
three weeks later, it is circulated to all WTO members.

• The report becomes a ruling: The report becomes the Dispute

Settlement Body’s ruling or recommendation within 60 days
unless a consensus rejects it.

• Appeals: Both sides can appeal the report. Either side can appeal
a panel’s ruling. Sometimes both sides do so. Appeals have to be
based on points of law such as legal interpretation — they
cannot reexamine existing evidence or examine new issues.
 The Main Stages of Dispute
Settlement of WTO (Cont…)
• Hearing by 3 members of a permanent 7-member Appellate Body:
Each appeal is heard by three members of a permanent seven-
member Appellate Body set up by the Dispute Settlement Body and
broadly representing the range of WTO membership. Members of
the Appellate Body have four-year terms. They have to be
individuals with recognized standing in the field of law and
international trade, not affiliated with any government.
• Uphold, Modify or Reverse: The appeal can uphold, modify or
reverse the panel’s legal findings and conclusions. Normally appeals
should not last more than 60 days, with an absolute maximum of 90
days.
• Acceptance or rejection by DSB: The Dispute Settlement Body has
to accept or reject the appeals report within 30 days — and
rejection is only possible by consensus.