Analysis of the negotiations between Switzerland and an Iranian Gas Export company and of the cultural implications this underlines.
Executive Summary
The Swiss EGL has accomplished a deal with the National Iranian Gas Export Company in March 2008. Due to the current political situation this case has stirred up severe international criticism, not only because of the fact that an energy company is doing business with Iran but also because the Swiss foreign minister Calmy-Rey was assisting the conclusion of the contract. The picture of her wearing a veil when meeting the Iranian President Ahmadinejad went around the world. First and foremost the United States assailed the deal. Jewish organisations followed shortly after and named the contract an “unfriendly” act towards Israel. For a short period, it seemed that the deal could burst before it even came into force. Even though the Swiss company has prepared the contract carefully and the success seemed certain, the political problems it raises are not yet resolved.
The following paper will investigate some of the main questions this case is posting. It will discuss cultural, religious and environmental aspects and in addition, explore the role of the media. Mistakes in management cannot be detected many. Maybe the political situation has not been taken into account carefully enough but besides that, the company has applied an exemplary intercultural management style.
Introduction
On March 17th, 2008 Switzerland’s Elektrizitätsgesellschaft Laufenburg EGL signed a 25- year contract with the state-owned National Iranian Gas Export Company NIGEC for the delivery of 5,5 billion cubic meters of gas per year. Joachim Conrad, the member of the executive board within EGL named the deal a milestone for the natural gas business of the company. As he declared in a media release: "Natural gas from Iran is necessary to the opening of a fourth gas transportation corridor to Europe"1. The signing of the contract took place in presence of representatives of the two governments, Iranian Prime Minister Mahmoud Ahmadinejad, foreign minister Manuchehr Mottaki and Swiss foreign minister Micheline Calmy-Rey. International newspapers reported on the huge deal worth between $28 billion and $42 billion2. Iran State Television showed the meeting between Ahmadinejad and Calmy-Rey, both laughing, her wearing a Muslim veil. The contract had required a long preparation time for EGL. Early in the stage, the company asked for help from the Swiss government to accompany the negotiations.
The successful deal didn’t stay untouched for long. On the same day as international newspapers reported on the happenings, the US-department for foreign affairs made an intervention. It questioned if the deal didn’t possibly violate the UN Security Council resolutions over the Iranian uranium-enrichment program. One day later, Jewish organisations followed. As Jerusalem Post titled: “Swiss selling principles for Iranian gas”. Israeli administration officials called the business deal an “unfriendly” act towards Israel. “Iran assists extremist organisations, tramples human rights and it denies Israel its right to exist”, Israel’s Rafi Barak, director-general in charge of Israel’s Western European department, said in a meeting with Swiss ambassador Walter Haffner. Shortly after, the World Jewish Congress placed its critic as well and called the deal a “propagandistic triumph for the mullahs”. Micheline Calmy-Rey laughing and wearing a veil was interpreted as a sign of taking sides. Only two days after the contract was signed it looked like it was becoming already unstable. The US claimed the contract to examine the content according to the UN-sanctions.
In Switzerland, too, the case met with severe criticism. The Swiss conservative party SVP even placed an ad in newspapers showing the socialist politician Calmy-Rey wearing the veil, sitting in a chair under the picture of Ayatollah Khomeini, a photograph that was taken during the meeting of the two governments in Teheran. The latest accusation comes from the US-Jewish organisation Anti-Defamation League ADL. An ad that was placed in several international newspapers accuses Switzerland of supporting and financing terrorism.
In the wake of these large international critics, the gas deal, which was so carefully prepared and which is highly important for Europe’s energy supply is put in danger.
The Company
EGL is a European energy trading company, member of the Swiss AXPO Group. It trades in electricity, natural gas and energy-related financial products. Through its subsidiaries, the company is present in major European markets. Besides its trading activities, EGL holds interests in Swiss power plants and owns a gas-fired combined-cycle power plant in Italy. The gas division is relatively new for the company. It started only in 2003 to implement natural gas activities as an additional business field. Increasing demand for natural gas throughout Europe has led to this decision.
The Gas deal with Iran is not a single project within this region. EGL is the developer of the Trans Adriatic Pipeline, also known as TAP. This project consists of the building of a enormous pipeline from the Caspian and the Middle East into Western Europe. To realise this gigantic project EGL has established an equally owned joint venture with Norwegian StatoilHydro to develop, build and operate the TAP. Next to gas from Russia, the North Sea and Northern Africa TAP will open a fourth transportation corridor for gas trading. It is supposed to diversify natural Europe’s gas supply and equally minimise dependence from Russia. Many European countries will benefit from the pipeline and therefore the project is co-financed by the European Union.
Hence, the gas deal with Iran is just a first important step to guarantee gas resources for Europe. According to EGL, negotiations for the deal took a long time. Early in the stage, the Swiss government was involved since the Iranian partners belong to a state-owned company. Connections had to be built and since Switzerland’s government already had the contacts to Iranian administration circles it was only consequential, to involve high-rank Swiss officials.
Discussion
There are many questions that come to mind considering the above case. Firstly, was it necessary to bring along the foreign minister, why couldn’t another representative be sufficient as well? Secondly, would it have been less critical if the representative was not wearing a veil during the meeting? Thirdly, it is important to know if the political situation was taken into account when deciding to start negotiating. Another crucial point is the fact that the event received a big media echo. The question here is, was the media invited to the event and was it necessary to be photographed together with the Iranian president?
To answer these questions many factors have to be discussed. The cultural dimensions have to be taken into account as well as environmental and religious factors. In the following paragraphs, I will develop a discussion that could possibly answer some of the posed questions.
1. The Cultural Dimension of doing Business in Iran
First I would like to make an important distinction. Even though Iran belongs to South West Asian region that is called the Middle East together with many Arabic countries, it doesn’t count itself as part of the Arab world. 51 percent of its inhabitants have Persian roots. Still, considering religion and cultural values, Iran shows many similarities to the neighbouring countries. Ever since the Iranian Revolution in 1979 the country is considered as predominantly Muslim. The religion was forced onto many Persians with strict rules and laws that are largely Koran-oriented.
However, to explore the main factors for doing business in Iran I have to rely on literature about the Arab world since Iran is hardly ever mentioned as a special case. Still, I believe it is legitimate to make this categorisation considering cultural preferences on how to do business. One of the main distinctions that can be made between Western and Middle East business partners is that the Westerners belong to more individualist and the Middle Easterners to more collectivist societies (Hofstede, 1997-2004). Applying Geert Hofstede’s cultural dimensions it is clear that in most cases collectivism is linked with Power Distance: “In cultures in which people are dependent on in groups, these people are usually also dependent on power figures. Most extended families have patriarchal structures with the head of the family exercising strong moral authority” (Hofstede 1997, p. 55). This surpassing importance of power figures has to be taken into account when doing business with Iran.
A newer approach that could explain the same comes from Richard Gesteland (1999). He classifies international collaborators into relationship focused and deal focused business partners. Relationship focused cultures have a strong bond with their families, friends and groups known and are therefore not very open to doing business with strangers. To this strongly ingroup-oriented behaviour also belongs an indirect approach when meeting with strangers. This means that many times a trusted intermediary is involved in order to introduce the two parties to each other. Usually, this has to be a high-status person who has known both sides for a long time and therefore has already built a relationship of trust to both. In addition, relationship focus business is usually done face-to-face. This has the advantage that the trust between the partners can be reinforced with every meeting. Furthermore, deal focused partners mainly rely on written contracts, in contrast to relationship focus cultures. There, agreements are often made on handshakes. In the EGL case, the agreement was made four month before the contract was signed6. The event of signing was just a final step to reinforce the deal.
But what conclusions can be drawn from Gesteland’s theory in the Swiss-Iranian case? It is possible that the hierarchical aspect of the relationship-focused Iranian partners played a considerable role. Because Iranian company is state owned, it is obvious that on the Iranian side high-rank politicians were involved. To give the contract its importance, ministers were present during negotiations. For the Swiss company, it was, therefore, essential to bring equal players into the game. But another point is important as well. The Swiss government acted like the typical intermediary as described above. It has been involved mainly because it already had a bonding relationship to the Iranian counterpart. In the next paragraph, I will explain why.
2. Switzerland’s Role in Iran
Switzerland’s bonds to the Persian region dates far back to the 17th century when Swiss clock makers established their business there. During the 19th century, the business connection was enforced particularly within the transport and banking industry. 1873 both of the countries signed a friendship and trade agreement, in 1934 a friendship and settlement accord followed. From the 20th centuries, Iranians moved to Switzerland as tourists, students or refugees.
This long tradition of contact has led to the circumstance, that the United States assigned Switzerland as their protector in Iran. Since the US doesn’t have a diplomatic bonding with the country, Switzerland has represented the US-consular and diplomatic interests in Iran since 1980. In addition, Switzerland and Iran have been engaged in a human rights dialogue since 2003 and in discussions on migration since 2005. For this reason, the Swiss officials have met with their Iranian counterparts many times over a long period of time, a long enough bonding to build a relationship of trust. EGL, on the other hand, is very new in the region. To start negotiating, the company had to rely on somebody who already had the contacts.
When put under attack through the media the Swiss foreign minister argued according to the above explanations. Micheline Calmy-Rey rejected the critics and declared that Switzerland had the right to defend its own strategic interests. The Jewish accusations of taking sides she counterattacked with: “To stay in the role of a mediator, one has to have the confidence of two parties”. Pointing at the human rights dialogue she emphasised that she took the occasion of getting together with Ahmadinejad to talk about human rights: “It is far more difficult, to go there and look into the president’s eyes and say that violations of human rights are unacceptable as well as denying Israel its right to exist.”
3. Religious Factors
The main business behaviour of the above case that can be traced back to religion is probably the fact that Muslims have a pronounced top-down approach. Within Jürgen Rothlauf’s book about Intercultural Management, it is described as such: “Business (in a Muslim environment) is usually conducted like an extended family whose spiritual base is the religious community and whose bosses are family members (…). This leads to the fact that there exists no collective decision-making process but a pronounced top-down attitude”.
Another crucial point is the dress code. Status and prestige are very important factors in a Muslim society where people show what they have. Gabi Kratochwil’s emphasises this fact within her guidebook “Business-Knigge” for etiquette and conduct in the Arabic world: “Negligent and shabby clothing is considered a lack of wealth, good up-bringing and education.” For men it is therefore vital to wear suit and tie. For women it is important to avoid fitted clothing and to cover arms and legs. In addition, there exists a consensus derived from the Koran that every Muslim woman has to cover up her hair with a veil. For Christian, Buddhist or Jewish women this dictate generally doesn’t count when doing business in Muslim countries. But not so in Iran, where it was decided after the Iranian Revolution in 1979, that every woman has to wear a veil no matter what religious faith the person has. This rule is even written down in the state law.
The meeting of Calmy-Rey with president Ahmadinejad can be considered as precedence within current diplomatic negotiation environment. So far no high-rank Western woman has dared to meet with the Iranian president. The Swiss foreign minister emphasised that she didn’t have a choice if she wanted to attend the meeting: “Wearing a veil is a law in Iran and if you go to a country, you have to respect the law.” And in an interview with the Swiss newspaper NZZ: “It is a matter of respect for the host country within a globalised world where not only one value system exists”. Within diplomatic codes of behaviour it is widely accepted that one has to adjust to the host country for international meetings. In addition, the Arabic world has a very distinct approach to the roles of host and guest. The host is bound to guarantee protection for the guest. This comprises the planning of the whole time of the stay. “One is well advised to comply with one’s role as the guest for the time of the stay in the host country“.
Within the discussed case these aspects have been taken into consideration. It doesn’t seem to me, that the Swiss delegation has done something wrong. Nevertheless, the pictures displayed to the world caused quite a stir. The cause for this can be found within the actual political situation in the region.
4. Environmental Factors
The Middle East is a very delicate region to conduct business due to ongoing frictions, wars and political tensions. The situation of Iran is no exception. Its uranium-enrichment program has led to the UN Security Council resolutions and to the US Iran Sanctions Act. But such environmental conditions are very important factors for business relations. Intercultural preparation in most companies neglects these factors. The studies of Daniel J. Kealey (2005) show that current intercultural training mainly focuses on interpersonal relations. In a survey of experienced cross-cultural trainers, all of them focused their programs on individual needs. “There were no suggestions for simultaneously preparing trainees for dealing with (…) the organisational (e.g. governance, scheduling, and financing) and environmental issues (e.g. political and socio-economic constraints) that will affect the success of the project.”
Accordingly, many projects currently fail due to environmental constraints. Having examined many of these failures Kealey comes to the conclusion that “certain environmental conditions may have such a destructive effect on international projects that it is probably better not to proceed with the project if they are not addressed decisively at the outset.”15 This sounds rather negative but includes an aspect worth clarifying. If the environmental factors are addressed at the outset and if a strategy can be developed on how to deal with the constraints business in difficult regions can still be successful. But not all scholars give such a high importance to environmental factors. According to Kluckhohn and Strodtbeck (1961) for example ideal conditions of an intercultural encounter occur when the organisation dominates the environmental conditions.
In the Swiss-Iranian case, the political aspect indeed is very difficult to handle. The political interest in the region is high. The totalitarian regime of Ahmadinejad is a thorn in some Western group’s flesh. The regulatory environment and the political and social climate in the country are not getting much support from the West.
This situation was probably clear to the company, as well as the role of the UN-sanctions and Iran’s reputation on the international scene. Still, the project TAP needed component suppliers from the Middle East and Central Asia to be effective in the future. This economical aspect was weighed as far more important than the international critics that could occur. EGL did probably not anticipate this enormous reaction. However, it would have been wise to give more importance to these environmental aspects before accomplishing the deal.
5. The Role of the Media
The main problem of the case might be the fact that the picture of Micheline Calmy-Rey and Mahmoud Ahmadinejad went around the world. One could ask the question if it was necessary to let the Iranian Television film this event. But here it has to be taken into account that in Iran, the visit of a Western high-rank politician is very rare. The regime of Ahmadinejad wanted to take advantage of this occasion and show a positive image to the Iranian people. With satellite Television and today’s fast-spreading news content, this filmed material didn’t stay in Iran for long and was shown all around the world. In the role of the guest, Calmy-Rey could probably not have refused the pictures. Maybe the Iranian regime wanted to use the occasion in a propagandistic way and maybe Calmy-Rey was a little bit naive to let the photographs be done her laughing next to Ahmadinejad and sitting under the portrait of Ayatollah Khomeini. But that the reactions would be negative to such an extent could not have been foreseen.
But the case shows how media plays an essential role. Possible media reactions should be considered very carefully within current intercultural business relations.
An Outlook on the Case
Even though the veil question is very important and interesting to discuss, it is not the main aspect of succeeding or failing in this case. But it is possible that the visit to Iran and the meeting of president Ahmadinejad will harm the Swiss foreign minister’s image.
As for now, EGL has declared not handing out the contract to the United States. Switzerland is not a contractual partner and therefore it cannot deliver the contract either. To the question of naivety, EGL declared within a newspaper interview that it didn’t act blue-eyed.
International experts had put the contract carefully through their paces and hadn’t detected any violates of the UN-sanctions. Within the sanctions, energy deals are explicitly excluded from the sanctions because states like Japan, France and Italy are already buying Iranian petroleum. The American Iran Sanctions Act on its part only denies US-companies investments or trading with Iran. Therefore, the Swiss-Iranian contract is not put in danger through these accords. But the gas deal could possibly have consequences for the Swiss position as US-representative in Iran. If this would have negative effects for Switzerland is a too large discussion for this paper. The protests from the Jewish and American side will probably stay on the international scene for quite a while. But I don’t believe that they will be successful in bursting the deal. There are too many other parties that are in favour of the contract. The European countries won’t make any interventions as well as the countries that already have deals to buy Iranian energy resources.
Concluding, it can be said the deal still bears some explosives and EGL, as well as the country of Switzerland, could suffer from a bad reputation for doing business with a government that doesn’t respect human rights. But on the other hand, it also has to be noticed that economically speaking the deal is a big success and EGL has applied an excellent intercultural management approach to set off negotiations and finally close the contract.
