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  • Writer's pictureChuck Kanafi

Why Indian-Israeli Business disappoints, and what to do about it

Indian-Israeli Negotiations - a case study

I once sat in a high-value negotiation for a long term service contract, with services to be provided by a family-run Indian firm over the course of five years with a five year extension clause. The terms of the contract had been hammered out over the course of many long months and I had been empowered to sign the deal, but at the last moment, headquarters in Tel Aviv informed me that they would be sending a team of two people to “finalise” the details with the CEO and Chairman of the Indian side. It also turned out that one of the team being sent over had had extensive experience doing business in India in a previous position he had held.

The day of the negotiation came, and the meeting was primarily a formality of going over the provisions of the already drafted contract. The Indian side had difficulty in understanding why the team had arrived, for a number of reasons: first, they were under the impression that the details had been finalised, and second, knowing that I had been authorised to sign the contract, they were confused as to the relationship between myself (head of the firm’s Indian operations) and the team (who were not my superiors as I was directly responsible to the CEO).

In any case, as the discussions neared their end without any new information being exchanged or alterations being made, the final matter was broached - the value of the contract. As there had been no formal agenda to the meeting, this came as a surprise to the Indian partners but even more so - to myself. I had not been informed that their intention was to renegotiate the price and had I been, I would have raised the matter with the CEO - to this day I do not know if she was aware of the intention of the “team”, and I doubt that their mandate was specifically to lower the cost of the contract.

In any case, a member of the team began to negotiate the price, using many well-known power play negotiation tactics. It was as though I had not been negotiating with the Indian side for the past 18 months at all, indeed, some of the issues raised by the team member contradicted representations I had made earlier.

In the end, the team succeeded in reducing the monthly payment to be made by approximately USD 10 - a savings of approximately USD 1200 on a million-dollar plus contract. The Indian CEO indicated that he would take the matter to his financial people to “run the numbers” and the meeting ended with a smile and a handshake.

As we left the meeting, I turned to the team member with Indian experience and said, “You realise what the negotiator just did in there?” meaning that he had to be aware that the deal had just been torpedoed by our side. He nodded in silence.

Over the course of the next few weeks, I sent a number of emails (none received a reply) and tried to phone the CEO or even his assistant - and none were ever available. Needless to say, renegotiating a new service contract with another provider took months - including many meals and even a home visit - with considerable losses to my firm, far more than the $1200 that we would have saved on the original contract.

Why do deals fail?

It is immediately obvious that there was no good economic reason for the deal to have gone sour, as satisfactory terms had been agreed in advance and the “gain” made by the Israeli side was no more than symbolic; indeed, both sides suffered losses as a result of the incident.

An analysis of this scenario by an expert in intercultural negotiations, however, could have found at least 5 points where the Israeli side sabotaged its own interests, and even one of them might have been enough to prevent the deal from going through. The renegotiaton of the price for a symbolic gain was merely the icing on the cake.

However, a true expert in negotiation in India would be quick to point out that indeed, in India a contract signals the beginning of a relationship and not its final form, such that Westerners are often confused by changes in terms, additions and derogations which were not part of the original negotiations but which the Indian side does not see as problematic. How can these two contradictory positions be reconciled?

The truth is, they most likely cannot. Intercultural sensitivity is not a matter for black and white rules. Intercultural experts and guides abound, providing quaint advice such as “always hold a business card with both hands, and make a comment about it or its contents”, however, such negotiation hacks do not go to the root of the differences. They may show that the Western side has done a bit of homework, but nothing more.

Unfortunately, scenes like this are played out on a fairy regular basis between Israeli and Indian companies. It is not always the Indian side which is surprised (or worse) by the conduct of the Israelis. In fact, often the reverse is true. Deadlines may not be met, there may be long periods of non-contact with the Indian side and actions may be suggested (such as mutual visits, site examinations etc.) which appear to be immaterial and a delaying tactic. Despite their best intentions, there is clearly a vast gap in the cultural expectations of the parties.

Alternatives to litigation

In the absence of effective negotiation, the BATNA (best alternative to a negotiated agreement) is often to let the deal go, and to absorb the inherent losses, as we were required to do in the case study above. But if the stakes are high enough, and substantial resources have already been committed (such as payment, title transfer etc.) there is no alternative but to litigate. In light of the clear differences between the Israeli and Indian legal systems, including time, questions of impartiality and transparency (neither side necessarily trusts the others’ court system), clever negotiators will opt for ADR - appropriate dispute resolution - in their contracts and not to rely on choice of laws clauses. Oftentimes, this takes the form of arbitration provisions.

However, while from a legal standpoint arbitration may seem attractive, especially as the parties have a say in the identity of the arbitrator (and in panel arbitrations - even appoint one of the arbitrators themselves), proceedings of a legal nature fall short as they can only take legal elements into consideration without regard to cultural differences. In effect, in many instances the arbitrator(s) will be concerned with apportioning blame, as the legal obligations weigh equally on both parties and the tribunal will mostly be concerned with whose action was the “straw that broke the camel’s back” in a long chain of transgressions.

ADR does, however, provide an elegant solution - mediation. In a process whereby the sides are assisted by a neutral third-party to negotiate on the basis of their interests, it is possible to bring a host of aspects into play - including explicit expression of cultural expectations (“I wanted him to return my phone calls within 24 hours,” or, “I expected her to take a genuine interest in, adn react to, my child’s desire to study in the UK”), recognition of the importance of those expectations to the business relationship, and addressing how those needs might best be met alongside the purely economic aspects of the negotiation.

However, aside from the flexibility of mediation’s facilitation of understanding and communication - how can this be possible where the mediator themself is from one or the other culture or perhaps - in the name of neutrality - not from either milieu?

Intercultural Co-mediation - the right solution

The answer lies in the growing use of co-mediation. Once, co-mediation was considered by mediators to be inferior to solo mediation, for two primary reasons: first, the mediators need to implicitly and explicitly trust each other and have had experience working together and communicating with each other; and second - perhaps more crucially - mediators were not enthusiastic to split their fees.

The results, however, tell a different tale. When there are two mediators, each with a background in the business and cultural environments of one of the parties - outcomes are better, with a higher success rate and even more importantly - with a higher level of client satisfaction and preservation of the relationship.

As the world business community becomes more and more comfortable with mediation as a primary dispute resolution tool, Israeli and Indian are well positioned to take full advantage of the trend, as they both are signatories to the United Nations Convention on International Settlement Agreements resulting from Mediation (the “Singapore Convention”) which provides for enforcement of mediation settlements in either state without need for further legal proceedings. Ratification of the Convention by Israel and India will happen in due course.

KanafiADR leverages Ambassador Kanafi’s extensive network in India in order to insure the optimal pairing of a qualified Indian and Israeli mediator to resolve commercial disputes of this nature. Please call for an obligation-free consultation.

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