Sovereignty en garde: negotiating with foreign investors

Abstract

Governments must choose between general policies and individual negotiations to reach agreements with foreign investors. General policy leaves nothing to be negotiated. But once negotiation is selected, governments face difficult choices over how to conduct ne otiations. No single choice of organizational structure or administrative process is optimal for all countries or for all industries. Each organizational choice carries a range of economic and political costs and benefits that are valued differently by the domestic and foreign interests affected by the negotiation's outcome. Interviews with government officials in four Asian countries and corporate executives in four industries, all involved in international business negotiations between 1978 and 1982, demonstrate that different governments should and do choose different approaches to negotiating with foreign firms. Even single countries use different approaches at different times and with different industries. Moreover, the managerial choices of structure and process are not random. Rather, they are influenced by a government's general strategy toward foreign investment, the “political salience” of a given investment, and the degree of competition among countries for a specific investment. Ultimately, a government's management of international business negotiations shapes its effectiveness in negotiating with foreign firms and in competing for foreign investment.