Building Trust through Contracting Expertise
May 2012

Building Trust through Contracting Expertise

Your success rate in contract negotiations with Finnish partners could probably be improved. Your draft contract could facilitate this aim, if you avoid irritation deriving from terms and conditions uncommon in the Finnish market.

Success is not based on chance! One of the most important foundations of success is a good reputation and – based thereon – the customer’s trust in your capabilities. When entering the Finnish market, your enterprise may be largely unknown there, and the customers’ trust must first be earned.

What methods are open to you to earn the customer’s trust? The answer varies from case to case. A good starting-point is to analyse one’s own faults – particularly in cases where price and quality were competitive. What prevented potential customers from trusting you? It doesn’t make sense to blame the customer.

Professionalism on display

Customers need to be confident not only about the supplier’s technical capabilities and financial soundness, but also as to the supplier’s general proficiency in conducting international business. In sales negotiations it is natural that the focus is on technical capacity and quality requirements. The commercial capability is usually addressed in payment terms and collateral. The presentation of proficiency in international business, however, is frequently neglected.

In cross-border business this is a critical issue, A foreign supplier’s professional skills will not be self-evident to Finnish customers. Naturally, professional skills as such do not disappear at the border. However, such skills are strongly related to the commercial and legal conditions prevailing in the supplier’s home market. The trust in the supplier’s proficiency does not survive the moment the customer has reason to suspect that the supplier is not familiar with the relevant local business culture or legislation.

The customer knows that many local factors influence the price, timetable, and terms of any contract. These factors include, inter alia, the local contract culture, available collateral and debt-collection procedures, product liability, data protection, notifications and permissions required by authorities, taxation, minimum wage provisions, and the availability of insurance.

It is not possible to demonstrate expertise in these matters before it has been acquired. In general you cannot convince your customer of your proficiency if the offer is made on the basis that the relevant parameters will be figured out only after the order has been obtained. The customer will be concerned that learning by doing could be a hazard to the proper fulfilment of the contract.

Knock-out in contractual negotiations

You can lose a customer’s trust only once. This may even happen before the contract is signed – for example, if a first draft is submitted to the potential customer who spots immediately that it is based entirely on the business practices followed in the supplier’s home country. In many industrial sectors, Finnish businesses use very specific types of delivery terms which are rarely deviated from. Furthermore, certain terms which are perfectly common in one’s home country may breach mandatory Finnish law or be simply unsuitable with respect to local conditions.

In short, a proposal made in an unsuitable form may cause the negotiations to fail: the customer disagrees with the draft presented, and the parties find themselves at a dead end. It is often difficult for a party to retreat completely and accept an entirely new draft presented by the other party. Therefore, contractual negotiations become lengthy and complicated, indeed demanding more time and resources than the negotiation of price and quality. In a competitive environment the customer will find it easy to choose another supplier. What then? Complete retreat after all?

By no means! This would imply that your initial offer was not made with serious intent – if you are willing to agree to whatever is required, an educated buyer will suspect that you have no intention of honouring your promises.

Balancing objectives

The right approach would be to start negotiations with a contract draft that not only reflects the company’s clear vision of the local Finnish conditions, but also takes a balanced approach to the mutual interests of the parties.

Reasonable contract terms help motivate the parties to cooperate and to avoid incurring damages and losses during the contract term. A balanced contract draft demonstrates to the customer that the supplier is well aware of his or her needs and interests, thus offering evidence of proficiency.

To protect your own interests as supplier, the contract should be watertight when it comes to payment mechanisms. Not all forms of collateral common in other countries work effectively in Finland. The same applies to debt collection and insolvency mechanisms, which are governed by Finnish law (even where it is agreed that the governing law of the contract will be that of another country) as far as the property is located or the customer domiciled in Finland.

A good contract achieves a delicate balance between both parties’ aims and objectives. Achieving the right balance is a learning process, resulting in the benefits of shorter negotiation cycles and higher success rates.