One of the biggest benefits of the internet is the ability to reach global business partners easily.
In my practice as Attorney at Law I am involved in cross-border business transactions on a daily basis. What strikes me is that no matter how big the business partners, they hardly ever think of the cultural differences amongst each other.
1) Check the relevant legal position in the other country
Each country has specific legal requirements and they are not interchangeable. What works for one might be impossible in another region.
Let me give you an example:
A German company bought a Dutch company. After having checked the target carefully, they came to the conclusion that the Dutch company would be a perfect strategic addition to their own business within Europe.
After the German company had bought the Dutch target, the CEO approached me and instructed me to dismiss all employees of the Dutch company they had just purchased.
I asked him why he wanted to get rid of all the employees. He explained that this is how they handled all their acquisitions abroad in order to get a perfect start with new employees, handpicked to fit the company’s DNA.
I had to explain to him that a dismissal of all the employees was not possible and that we had to find another way to reorganize their Dutch acquisition in order to fit the DNA of the German mother. It came as a shock to the German company as they were not aware of this restriction at the time they had bought the company. If they had known at the time, they would have done their due diligence differently and would probably have paid less.
In order to make sure that you get the differences that matter to your case, engage an attorney who knows both legal systems and can help you to take these peculiarities into account before you close the deal.
2) Make sure you know exactly what the other party means
International transactions are mostly performed in English. This makes business life easy especially because most business partners are mastering the English language quite well.
But, be aware that – even if you think that you speak the same language – there could be huge misunderstandings that lead to disappointing outcomes.
Let me give you another example:
US and British negotiators found themselves at a standstill: the American company had proposed that they table a particular key point. The British negotiator nodded and immediately picked up that specific key point and started discussing it. The American negotiator got very cross and walked out. The British negotiator was left behind in disbelief.
In Great Britain tabling a motion means to bring it to the table and discuss it. In the United States tabling a motion means not to discuss a specific item.
In order to make sure that you get the differences that matter to your case, engage an attorney who knows the differences between those legal terms and business terms. Ask him or her – that way you don’t have to show any doubt towards your business partner.
Let me show you how even the Dutch Supreme Court was struggling with the interpretation of an English term:
Within a Share Purchase Agreement the parties had an argument about the interpretation of an indemnification clause.
The argument was about who should be paying the corporate tax before the transfer date of the shares. It comes down to the interpretation of the following:
“included in the provision in the Interim Accounts for corporate income tax covering the period as of April 1, 1998 up to and including the Economic Transfer Date”.
Does “as of April 1” mean “as per/as at April 1” or does it mean that the seller has to pay the corporate tax up until April 1.
Well the difference of this interpretation has cost the purchaser an amount of NLG 4.220.000 corporate income tax provision – of which it is quite certain that the parties intended otherwise…….all because the Dutch appeal courts as well as the Supreme court misinterpreted the intention and the exact English wording of that clause.
This shows, that it is extremely important to not just assume that the other party understands the clause the way you do – make sure to take a lawyer who knows the differences and makes sure that there will be no doubt whatsoever on both ends – and, last but not least – at the courts.
3) Be aware of cultural differences
Even though English is a universal business language and even though we can communicate real time with our business partners around the globe, cultural differences will remain.
Not only will they remain, the mutual understanding of those cultural differences are often crucial in the outcome of negotiations and the success of your cross-border business relation.
Let me give you an example:
A Dutch company was selling 200 fully equipped ambulances to Saudi Arabia. When the first ambulances were unpacked the Saudi called the Dutch company and told them that they are insulted by what they had delivered. The Dutch didn’t understand, they delivered state of the art ambulances, manufactured by Mercedes. The Saudi doctor explained: In your ambulance you have an air-conditioning installed. The big unit is on the ceiling and from there, behind the driver, two side tubes connect the air-conditioning to the outside air. When a patient lies in the ambulance his head is near the driver; so when he looks up to the ceiling – all he sees is a huge cross, which for us is unacceptable! The Dutch company adapted the air-conditioning accordingly and the problem was solved.
Ignoring the cultural differences can lead to unexpected pitfalls and – on top of all – most of the times the other party will not explain why the “wrong” cultural approach leads to discontinuing negotiations.
Without that awareness you might be insulting your business partner and destroy a business relation before it is even established.
Therefore it is vital to engage a trusted advisor with proper knowledge of and experience in both countries.
Make sure that you seek specialized legal cross-border advice before you get involved – this might save you from unexpected clashes and help you to achieve your foreign goals even smoother and quicker.
At ACG International our attorneys do know the difference between the different legal systems and expectations of the parties. We will gladly assist you and our specialists are looking forward to showing you how ACG International can be of added value for your specific business and can avoid expensive cross-border mistakes.