Phatak and Habib suggest that two overall contexts have an influence on international negotiations: the environmental context and the immediate context. The environmental context includes environmental forces that neither negotiator controls that influence the negotiation. The immediate context includes factors over which negotiators appear to have some control. Understanding the role of factors in both the environmental and the immediate contexts is important to grasping the complexity of international negotiation processes and outcomes.

Environmental Context

Salacuse identified six factors in the environmental context that make international negotiations more challenging than domestic negotiations: political and legal pluralism, international economics, foreign governments and bureaucracies, instability, ideology, and culture. (Culture has received by far the most attention by those examining international Negotiation.) Phatak and Habib have suggested an additional factor: external stakeholders. These factors can act to limit or constrain organizations that operate internationally, and it is important that negotiators understand and appreciate their effects.

Political and Legal Pluralism

Firms conducting business in different countries are working with different legal and political systems. There may be implications for taxes that an organization pays, labor codes or standards that must be met, and different codes of contract law and standards of enforcement (e.g., case law versus common law versus no functioning legal system). In addition, political considerations may enhance or detract from business negotiations in various countries at different times. For instance, the open business environment in the former Soviet republics in the 21st century is quite different than the closed environment of the 1960s and conducting business in China today is quite different than even 10 years ago. Nations may also use international trade agreements such as the North American Free Trade Agreement (NAFTA) or the World Trade Organization (WTO) to influence other geo-political factors, such as the United States delaying trade negotiations with Chile to influence their vote on Iraq at the United Nations Security Council.

International Economics

The exchange value of international currencies naturally fluctuates, and this factor must be considered when negotiating in different countries. In which currency will the agreement be made? The risk is typically greater for the party who must pay in the other country’s currency. The less stable the currency, the greater the risk for both parties. In addition, any change in the value of a currency (upward or downward) can significantly affect the value of the agreement for both parties, changing a mutually valuable deal into a windfall profit for one and a large loss for the other. Many countries also control the currency flowing across their borders. Frequently, purchases within these countries may be made only with hard currencies that are brought into the country by foreign parties, and domestic organizations are unable to purchase foreign products or negotiate outcomes that require payment in foreign currencies.

Foreign Governments and Bureaucracies

Countries differ in the extent to which the government regulates industries and organizations. Firms in the United States are relatively free from government intervention, although some industries are more heavily regulated than others (e.g., power generation, defense) and some states have tougher environmental regulations than others. Generally, business negotiations in the United States occur without government approval, and the parties to a negotiation decide whether or not to engage in an agreement based on business reasons alone. In contrast, the governments of many developing and (former) communist countries closely supervise imports and joint ventures, and frequently an agency of the government has a monopoly in dealing with foreign organizations. In addition, political considerations, such as the effect of the negotiation on the government treasury and the general economy of the country, may influence the negotiations more heavily than what businesses in developed countries would consider legitimate business reasons.