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CONFLICT IN INTERNATIONAL BUSINESS AND NEGOTIATIONS

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.

Conflict Types
Internal and external conflicts: 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).
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.

Professional Conflict: Governmental and MNEs business negotiators may


start with mutual mistrust 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 dont fully understand, and the officials may counter with sovereignty considerations that are nearly incomprehensible to the businesspeople. It may take considerable time before each side understands and appreciates the others point of view. Until then the created conflicts can damage goodwill. Conflict exists in different shades, segments and sizes. Intrapersonal conflict (though this usually just gets delegated out to psychology), Interpersonal conflict, Emotional conflict, Group conflict, Organizational conflict, Community conflict, Intrastate conflict (for example: civil wars, election campaigns), International conflict, Environmental resources conflict, Ideological conflict, Diplomatic conflict, Economic conflict, Military conflict, Religious conflict, Workplace conflict, etc are different types.

Nature of conflict
Functional Vs Dysfunctional Conflicts: Conflict could be functional when

conflict exposes the system deficiency and the same is rectified before any cascading catastrophes result. Absence of conflict does not mean everything is fine. This may conceal more rather than reveal the reality. 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.
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.

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. Many conflicts have a supposedly racial or ethnic basis. These would include such conflicts as the Bosnian-Croatian conflict, the conflicts in Rwanda, in the Sri Lank etc. In the end the national fabric is torn and all interests are affected. Businesses are much affected.

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. Creative problem-solving strategies are essential to positive approaches to conflict management. Conflict is necessary in life. Conflict adds excitement and suspense that kindle creativity to evolve workable solutions.

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 outer societies, 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. Concerted action against a firm such as economic embargo, trade blockade or communicative tirade by groups of nations or by bilateral or multilateral bodies also are forms of conflict. Business conflicts like unjust 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, antireligious have serious repercussions.

FACTORS CONFLICT

CAUSING

Causes of Organizational Conflicts Structural factors cause organizational conflict.Structural factors normally

impose rigidity while businesses need dynamic adjustment. Personnel who could not tend or mend the organization, but required to show targeted results see conflict between responsibility and authority. This is an organizational conflict.
Specialization of functions in 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. Technical organizations have this problem. the day and conflicts develop between departments because one department is either lethargic in its commitment or it is over-smart and others could not find home. As none can operate without the other, conflict arises. This is an organizational conflict.

Interdependence amongst organizational divisions/departments is the order of

Sharing Common Resources such as a facility leads to conflict because one person/ division over draws and the deprived others disagree to pull together. This is an organizational or social conflict. There are societies claiming stake in the same resource land, water, temple, etc. interstate 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. This is an organizational conflict. The parent organization and subsidiary may see different opportunities and conflict mutually.

Authority relationships may lead the boss and employees beneath him/her do not see in the same inclination, especially when the boss claims boss is always right, conflict arises. This is an organizational conflict.

Status Inconsistencies such as excessive/scanty power, power without sincerity, and too much politically charged atmosphere cause conflict. This is an organizational.

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.

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.

Cultural Differences: Culture tells people what emotions ought to be expressed in particular situations and what emotions are to be felt. Cultures differ. These differences like lack of tolerance for diversity result in conflict of cultures. One suggests rituals simply not acceptable to others. Conflicts creep.

Emotion causes result in conflicts. Conflict involves emotion because something triggers it. The events triggering conflict are events that elicit emotion. Some hold the view that Conflict is emotionally defined and driven, and does not exist in the absence of emotion. Conflict is emotionally defined and is emotionally valenced. Emotion levels during conflict can be intense or less intense. The intensity levels may be indicative of the importance and meaning of the conflict issues for each party. Where applicable, there are many components to the emotions that are intertwined with conflict. There are behavioral, physiological and cognitive components.

Behavioral: The way emotional experience gets expressed which can be verbal or nonverbal and intentional or un-intentional. Physiological: The bodily experience of emotion. The way emotions make us feel in comparison to our identity. Cognitive: The mental process of assessing or appraising an event to reveal its relevancy to oneself. These three components collectively constitute emotional experience determined by cultural values, beliefs, and practices. The emotion-conflict relationship is not acceptable to the Economists.

Scarcity leads to conflict, according to Economists. This is not acceptable to Psychologists. It can be said, scarcity of emotional balance is the cause of conflict!

Deprivation, economic or emotional, leads the conflict. In the circumstance of economic deprivation emotional disturbances are rational as well. Thus subject of conflict is purely rational and related to deprivation.

Moral stance leads to conflict. When an event occurs it can be interpreted as moral or immoral. Judging something as immoral may lead to conflict.

Identity or individuality issues may lead to conflict. Emotions and Identity are a part of conflict. When a person knows their values, beliefs, and morals they are able to determine whether the conflict is personal, relevant, and moral. Identity related conflicts are potentially more destructive.

Conflict is relational. Conflict is relational in the sense that emotional communication conveys relational definitions that impact conflict. Key relational elements are power and social status.

Societies with weak institutions witness more conflicts: Violent conflict is more common in societies with weak institutions and chronic poverty. Of the 32 countries in the low human development section of the HDI table, 22 have experienced conflicts at some point since 1990 and five of these experienced human development reversals over the decade (UNDP 2005). Furthermore, conflict gives rise to chain reactions that perpetuate and extend economic losses: a slowing economy, weak rule of law, corruption and an uncertain security setting represent powerful disincentives for investment

Conflicts
Large infrastructure projects and conflicts: Second,

large infrastructure projects and conflicts go together. Multilateral Project finance is a widely used method for 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, their large environmental, social and revenue footprint, and the need to protect such assets with security forces. Large projects may require resettlement, alienate communities from their land, or otherwise affect socio-cultural groups whose needs are not addressed by the government or the project. In addition, natural resource extraction projects

Financing state-owned enterprises and conflicts:

According to the NGO Global Witness, much of the money from loans from global bankers especially from Swiss ostensibly got for funding an Angolan state-owned oil company was used to purchase weapons.

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. Financiers may also support the manufacture of these items.

Causes for Violent or more parties believe Conflicts Violent conflicts occur when two
their interests to be incompatible, express hostile attitudes, or take actions that damage the others 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. Conflict becomes violent when parties no longer seek to attain their goals peacefully, but instead resort to violence in one form or another. When violence erupts, it signifies a profound breakdown in social relationships that is likely to have long-term and far-reaching

Causes and triggers of Conflicts Conflict is sometimes viewed in the corporate world

as a separate issue that can be addressed in isolation from other issues such as human rights, the environment or sustainable development. However, conflict is a cross-cutting theme or context a violent manifestation of tensions that may have arisen for a variety of reasons (e.g. human rights abuses, environmental scarcity or degradation, unjust governance, economic insecurity). Research institutions, international organizations and others have made attempts at

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. Conflict resolution actions for organizational conflicts and project related conflicts are dealt in this section.

Mode for dealing with Organizational Conflicts


Avoidance:

Collaboration
Compromise

Competition
Accommodation

Project Related Resolution


Project

Conflict

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. The very use of project finance itself is a risk mitigation tool as it allows risks to be shared amongst the numerous parties to a transaction. However, in general, softer non-commercial risks such as environmental and social risks are usually considered mitigated through Environmental and Social Impact Assessments (ESIAs) and the inclusion of

Political Risk Insurance (PRI) Political

risk insurance (PRI) traditionally provides investments with cover for expropriation, currency inconvertibility or nontransfer 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

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 MDB in a project enhances the stamp of approval of projects. For instance, the project sponsors of the ChadCameroon pipeline actively sought the involvement of IFC and other MDBs 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.
a.

Comprehensive Country Assessment: A comprehensive Country Assessment will solve most

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. The tool aims to provide companies with useful information about how to deal with human rights issues relevant for their particular operations, and runs on a database containing over 350 questions and 1000

The

HRCAweb-based interface allows each company to select questions in the database to suit their

type of business and area of operations. When a

questionnaire is complete, the computer


program generates a final report identifying areas of

compliance and non-compliance in


the companys operations. Numeric scores are

included in the report to help the company

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.

4.4.3.5 Encouraging better conflict risk management by project sponsors If conflict risks and potential impacts are comprehensively assessed during due diligence, the logical next step is to identify and implement conflict risk mitigation measures. One option is for lenders to work with sponsors to ensure projects are developed and operated in a conflict-sensitive manner. This may lead to the incorporation of warranties and covenants in loan agreements. For instance, an agreement may include a warranty that the project sponsor(s) has conducted a project-level risk assessment, as well as with covenants requiring

that the sponsor comply with conflict-sensitive business practices, for instance, by
demonstrating adherence to the Voluntary Principles on Human Rights and Security.

ROLE OF NEGOTIATIONS IN INTERNATIONAL BUSINESS

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