Globes publishes guide to post-flotilla international business for Israelis
Didi Remez reports, 27 June 2010
Here’s a simpler, three-step, guide: Accept the existence of a connection between your government’s policies and the trouble you’re having; recognize that alternatives exist (hey, your PM just said that the blockade was a mistake); use your clout to force the government to adopt them.
Until they sober-up, however, Israeli businessmen will continue throwing money at consultants peddling the satirist’s treasure trove below.
Business in the flotilla’s shadow
Demonstrations were staged in the United States against unloading the cargo off a ZIM ship; Sweden declared nine days of Israel’s boycott; and the UK boycotted of Israeli companies — which proves that business and politics do mix. How can we keep doing business in the atmosphere of incessant media onslaught against Israel? Four international management experts explain
Anat Cohen, Globes, June 22 2010 [Hebrew original here and at bottom of post]
1. Beware of local partners
Also: Consider working independently and stay away from France and Scandinavia
Attorney Amos Conforti, of the Shenhav, Conforti, Shavit & Co. Firm:
“In ordinary times, it is recommended that businessmen who work abroad cooperate with local partners who are familiar with the business and legal environment there. Regardless of whether you intend to move a marketing center or establish a branch abroad, working with a local partner is convenient because he provides a kind of foothold and base of activity. This is particularly advisable in countries where the legal system is not transparent (such as in East Europe), or where you are not certain that the legal system is not given to external and political pressures.
“Yet, in view of the flotilla affair and the anti-Israeli sentiment that followed it, I would recommend considering solo activity over joining a local partner in the country of destination. In fact, Israeli businessmen can no longer trust local partners because they might be affected by the local politics and public opinion.
“Potentially, such a partner might steal ideas, goods, or even funds. I therefore recommend that Israeli businessmen exercise caution when seeking foreign partners and consider going solo in their ventures in the country of destination. This, however, may be risky because, being an Israeli, you typically lack a deep understanding of the local culture and market. That could be compensated for by wisely choosing a venue for international arbitration. With this in mind, I would suggest that for now, the Israelis stay away from France and Scandinavia.”
2. Bring up the murky atmosphere
So that the other side could not manipulate the public opinion
Moti Crystal, Nest-Consulting Co.:
“Many Israeli firms that presently establish business ties with European, Asian, and US partners are praying that the Marmara affair would not surface during their negotiations. They fear it might feature in the subtext and work against them while that the other side leverages the political situation in its favor. They fear that the other side might take advantage of our weak standing as Israelis and of our desire to make deals, and seek negotiation benefits or, what is worse, renegotiate contracts.
“I would actually suggest that the Israelis take a preventive move; namely, neither wait for the other side to bring up the issue, nor play it down with a typical Israeli remark such as, ‘Forget politics; let’s talk business.’ My experience shows that this is a wrong strategy to employ in negotiations when you are at a disadvantage. The right way to go about this would be to start by saying something like, ‘I assume that our mutual interests are stronger than political interests,’ as soon as the talks begin.
“This is important for several reasons. First, you sort of disarm the other side and prevent it from making a manipulative use of the situation against you. Also, when you bring up the issue at the beginning of the negotiations, you are actually gathering intelligence. That is, you study the true intentions of the company you are dealing with and discover whether it has a problem with you as an Israeli (for example, it might lose Arab clients, receive conflicting instructions from above, or show some loaded emotions). If this is the case, you should quit the deal at this stage, so as not to be exposed later to cynical leverages that may be used against you when you are in over your head.”
3. Use political noise as a whip
The post-flotilla atmosphere actually helps establishing a tough tactical deadline for closing a deal
Crystal: “Doing a double-negative on the situation, Israel’s current negative stance can help clever businessmen expedite deals. For example, they can tell their foreign counterparts: ‘Let’s establish the terms of the deal now because reality in the Middle East is very volatile.’ The post-flotilla atmosphere can actually help you establish a tough tactical deadline for closing a deal because you will be making the other side believe that the current political noise is actually an opportunity for him to secure the deal with an x benefit (‘Better take advantage of my situation now because things might get worse,’ or ‘Buy now under the terms I am offering you because demand may soar tomorrow, and so will the price’).
“Such an attitude is particularly beneficial for businessmen who deal in products where the political reality may be good for business, such as products from the security industries, Hi-Tech firms that work for them, and so on. This would be a clever way to use the atmosphere as a sword.”
4. Go for economically distressed countries
Greece and Spain can sympathize with us as underdogs
Crystal: “In view of the flotilla affair and the general onslaught against us, we should try doing business with countries whose economies are in distress, and employ a ‘mutual-aid psychology’ with them. The relevant countries are such as Greece, Spain, and Italy, which currently experience economic distress and could sympathize with us as underdogs.
“You can tell your Greek counterpart: ‘Your economic situation sucks and my political situation sucks. This could be the best time for us to join hands.’ I know from my experience that when two parties that are driven by distress join together, they can create tough and durable businesses that would be stronger than when dealing with the wealthy Western countries. Businessmen from two hard-pressed countries can know better how to distinguish between business and political agendas and neutralize irrelevant noise.”
5. Gather intelligence before launching an operation
A red light should start flashing when the parties start haggling over values and morals
Attorney Ana Moshe, of the Moshe Bloomfield & Co. Firm:
“Today, more than ever, an Israeli firm that is about to strike a deal with a foreign businessman must gather intelligence on him before launching an operation. They need to find out if that foreign CEO or businessman is or was associated with political organizations, whether he is ex-military, or if he was a political activist particularly in anti-Israeli movements. If this is the case, even if he is all business today, he may still be under pressure from past associates who might confront him and ask, ‘Why do you do business with Israelis?’
“Intelligence gathering must include close attention to the words a potential partner uses when speaking about Israeli issues, and a red light should start flashing when he starts haggling about values and morals. If he says something like, ‘I am very angry with Israel,’ than he is being emotional and dealing with him could be a problem. If, however, he says something like, ‘I believe your move on the flotilla was erroneous,’ that means he works with his head and can distinguish between business and politics, so you can go ahead and do business with him.”
6. Squeeze out securities
Such as bank guarantees or compensation mechanisms in case a contract is breached
Moshe: “In regular times, a foreign distributor may tell his Israeli counterpart that he pledges to distribute at least $2b worth of goods next year, while the Israeli partner trusts the contract between them. Today, because the situation is volatile, Israeli businessmen really do not want to find themselves in foreign courts, so they have to squeeze out securities from their would-be partners. I am referring to ‘seriousness fees’ that will reflect the sincerity of his intentions and show that your foreign partner would not change his mind due to such or other political issue. I recommend that you choose an apparatus of performance guarantees: bank guarantees or an agreed-upon compensation mechanism (that does not require proof of damages) so that if he breaches a contract, your suit is shorter and simpler.
“Clearly, such demands for securities on top of the contract might make the other side feel uneasy, but such apparatuses can be designed to make the foreign client feel supervised, but not threatened. Israeli businessmen can even offer to share the commission for the bank guarantee. Of course, there are no dogmatic rules here. If you are familiar with your partner and know he is reliable and consistent, and had proven himself stable during previous storms, the guarantee demand may be redundant.”
7. Set a conflict-solving path in advance
And insist that disputes be settled in London or New York courts
Moshe: “Contracts must always include reference to a conflict-solving mechanism, whether through arbitration or by courts. In view of the anti-Israeli hostility, I suggest that Israeli businessmen insist, before they sign a contract, that the legal venues the parties use are not in France, Germany, Italy, Russia, or Switzerland; but only in London or New York.
“The latter may not be ‘crazy about the Israelis’ too, but at least there is a chance they would be more neutral and matter-of-factual. Incidentally, London is a better choice for Israeli firms because the precedential legal system there is similar to the Israeli one, which will help the litigators if things go to court.”
8. Clearly define ‘force majeure’
Explaining, already during the negotiations, that the Middle East is routinely unstable
Attorney Mimi Tzemah of the Tzemah-Schneider Firm:
“The anti-Israeli buzz in the world public opinion and the political boycotts might create a problematic situation for the Israeli businessman because a foreign company may breach the contract, citing force majeure as pretext.
“For example, a foreign client might not pay for goods he received from an Israeli and argue that ‘The diplomatic ties between the two countries today are very charged.’ I suggest that the definition of force majeure not remain contractually obscure. You must make sure that political events are not turned into excuses for the other party to escape meeting contractual commitments. While you are negotiating, explain that political instability in the Middle East is a matter of routine, and not something unexpected, and thus cannot be cited as force majeure.”
9. Get yourself a ‘Shabes Goy’
Because even US companies refrain from signing deals with Israeli firms
Tzemah: “I can testify first hand that today, more than ever before, Israeli firms have problems with foreign clients who do not wish to be identified with Israel because this might upset some of their other clients. You do not see that across the board, but this situation gained momentum after the last crisis and is particularly common when Israeli security industries try to make deals abroad. This has turned into a very sensitive issue today. Even firms from friendly countries such as the United States do not want to tie themselves down and risk losing other deals because they have contracts with Israeli firms.
“Instead of losing the deal, the Israelis can use a local distributor or middleman, who would serve as a Shabes Goy – a buffer between us and them. The problem is that no one works for free and that middleman will cut a slice of the deal, which will make it more expensive. In most cases, the foreign client asks for a local middleman, so you could try making him pay his fees, though it is not always possible, especially when your bargaining power is low. Middlemen used to be redundant in the past, but in view of the growing hatred for Israel, such demands by foreign clients are much more frequent today.”
