Conflict Prevention Due Diligence: Negotiation & Consensus Building Strategies for Foreign-Investment Projects Prof. Luis Ore Business School Universidad de Lima, Peru social feasibility

1. Conflict Prevention Due Diligence:
Negotiation & Consensus Building Strategies
for Foreign-Investment Projects
Prof. Luis Ore
Business School
Universidad de Lima, Peru
lore@ulima.edu.pe
May 28th, 2016

2. Introduction
Foreign investors may face diverse challenges in host
countries, from cross-cultural situations to blocking
coalitions that may prevent the successful
implementation of foreign investment projects.
Stakeholder engagement and a consensus-building
process approach can help…

3. Government, development, culture & environment
Governments around the world want to receive as much
fresh capital as possible to improve their economies and
living conditions of their citizens.
Stakeholders deal with the challenge of balancing
environmental protection and economic activity and
development
Companies tend to overlook or generalize cultural factors.
Overlooking cultural factors when managing negotiations
and relationships with local partners and local communities
can risk the successful implementation of a project

4. Foreign investors and Blocking Coalitions
Foreign investors might face difficult situations such as the
one encountered by Stone Container, an American-based
foreign-investment company in Honduras, which reached an
agreement with the Honduran government to develop an
extensive forest-management program and harvest 320,000
hectares of pine forest for forty renewable years.
After the agreement was publicly announced, local
communities around the country, as well as environmental
groups and activists, raised their voices and protested on
the streets. Ultimately, the government cancelled the
negotiations, and Stone Container‘s project was not
implemented.

5. Foreign investors and Blocking Coalitions
Approach “Decide-Announce-Defend”.‖
Parties negotiate and make decisions about an investment
privately, reach an agreement with the actors who grant
authorizations, make a public announcement, and defend it
when they encountered opposition.
Even if a project can benefit a country economy and its
population at large, the approach taken can cause the
formation of a blocking coalition that prevent the successful
implementation of a investment project.

6. The introduction of an Investment Project
The way an investment project is introduced to local
communities and other stakeholders can have an impact in
its future development.
The announcement of an investment project might bring
excitement to local communities because of potential new
jobs and development, but can also result in a degree of
uncertainty. Members of local communities may fear that
their lifestyle will be threatened.
This fear can lead to anger and potential social conflicts.

7. Local communities and cross-cultural challenges
When people feel threaten, they may fight for survival with
an either-or mindset or win-lose mindset and conflict can
escalate.
Cultural dimensions can explain how local communities may
respond when feeling threaten.
Individualistic societies, tend to fit with universalist
approach to the application of norms. Believe that rule of
law is applicable to all as equals, and believe that people
with fear or anger will go to the court system to protect
their rights.

8. Local communities and cross-cultural challenges
Collectivistic societies, tend to fit with particularistic
approach to the application of norms. Believe that rule of
law is applicable to particular individual differently and that
some people have more benefits than others based on
predetermined conditions.
They tend to distrust the courts and legal system, and when
facing uncertainty, fear or anger they tend to apply power-
based approach and participate in rallies and protests to
attract political attention to protect their interests, needs,
concerns and aspirations.

9. Foreign investment and government intervention
The government of Costa Rica while considering a Stone
Container‘s project there. When the company found the proper
location to construct a facility, environmentalist groups launched a
media and legal campaign to prevent the construction due to their
concerns for the potential damage to the environment. A new
government came to power in Costa Rica, and facing this situation,
named an inter-ministerial commission to analyze the investment
and render a decision. The commission encouraged stakeholders
to provide feedback and requested written submissions of
recommendations. The commission made a decision, rendered a
report, and approved the project, but requested relocation of the
facility. A joint committee with government representatives and
stakeholders continued negotiating.

10. Foreign Investors, Strategic Processes, and Trust:
Situational and Cultural Considerations
Governments can design processes to take care of the needs and
concerns of all stakeholders when considering a project. But there
is no reason why a private foreign-investment company cannot
design a process to better face multiparty negotiations in a host
country.
A foreign investor can decide to engage multiple stakeholders in a
consensus-building process to make a decision whether or not to
invest.

11. Foreign Investors, Strategic Processes, and Trust:
Situational and Cultural Considerations
Latin Americans are very uncertainty-averse and do not easily
accept change. (Hofstede, 2008). Resistance to a project can be
due to situational factors, prior experiences can affect peoples
perceptions (Government, left or right wing, democratic, dictatorship, etc) .
Local communities may perceive that foreign investors only come
to take the wealth of their land or damage it with their economic
activities, leaving them worse off.
Distrust of local communities in foreign investors might be a
common belief, a cultural tendency of uncertainty avoidance, or
the result of situational factors. This can prevent the successful
implementation of a project.

12. Foreign Investors, Strategic Processes, and Trust:
Situational and Cultural Considerations
To inspire trust one must shape expectations…
The foreign investors have a chance to shape the local
communities‘ expectations and perceptions by engaging the
communities in direct, honest, and open talks to address the
distrust issue.
Foreign investors should open dialogue to permit members of
local communities voice their views of risk and find ways to
satisfy their concerns.

13. A Strategic Approach for Foreign Investors:
Implementable Investment Projects
• Manage Reputation Upfront: Build Trust and Manage Connections
(connect with local trustworthy leader to share interests in implementing a
project and interests of locals, sincere curiosity, influence circles, etc.)
• Stakeholders’ Involvement (stakeholder’s assesment, focus on interests)
• Joint assessment (Joint fact finding and contingent commitments)
• Joint Problem-Solving and Citizen Choice (cross cultural awareness,
better than no deal alternatives, take draft agreement to constituents)
• Foresee obstacles that project’s implementation may face and
design dispute resolution mechanisms. (Think of predictable surprises)

14. Implementing Investment Projects
• We will always have the tension between establishing foreign
investment projects in developing countries and impacting the
environment of local communities.
• But foreign investors and local communities can work together to
reach mutually satisfactory agreements that take into
consideration interests, needs, and concerns important for each
stakeholder.
• Even if there are huge cultural differences among the potential
negotiating parties, there is always a chance to bridge this gap…
We need to be sincerely curious to learn about and from each
other.

15. Implementing Investment Projects
• Paying attention to cultural issues, respecting differences,
learning about the local communities where the projects are to
be established, honoring others‘ cultures, appreciating others‘
identities, acknowledging emotions, framing the foreign
investment as a mutually beneficial opportunity, and engaging
stakeholders in decision-making processes will build the trust
required to have positive working relations among foreign
investors and local communities.
• Countries will welcome more foreign investment and improve
the conditions of their economies and the living conditions of
their people.

16. Conflict Prevention Due Diligence:
Negotiation & Consensus Building Strategies for
Foreign-Investment Projects
Prof. Luis Ore
Business School
Universidad de Lima, Peru
lore@ulima.edu.pe
May 28th, 2016
…Thank You !