India’s rapid ascendance to prominence on the world economic stage is likely to be a major story in the 21st century. A study by Goldman Sachs suggests that India is expected to be the world’s third-largest economy by 2035, next only to the United States and China. Management consulting firm A.T. Kearney has noted that India has become the third most attractive foreign investment destination globally. The initiation of the reform process in 1991 began to highlight some of India’s strengths that had gone unnoticed previously. The intellectual spark of the Indians, the use of English in many, if not all, transactions, the existence of an independent judiciary, albeit an imperfect one, all brought to the forefront the inherent strengths of India as a potential economic power. Nowhere was this more evident than in the rapid growth of software exports from India, which increased from $128 million (U.S.) in 1991 to $2.4 billion (U.S.) in 2002/’03.
India is in the midst of an economic transformation that is likely to affect, albeit in varying degrees, its political culture, social practices, and the basic values and attitudes that affect the day-to-day interpersonal interactions among individuals. There is, however, often a lag between a change in the economic sphere and a change in the socio-cultural practices that govern behaviour. Socio-cultural values are often slow to change, in part because they are unconsciously held, and in part because they are integral to an individual’s identity, which is threatened by the potentiality of change.
In a dialogue between two people the conversation is rarely about exactly the same subject. In order for the dialogue to have a productive end result, each of the speakers shapes ideas around the other person’s cognitive and cultural perceptions. During international negotiations, this endeavor translates into culturally foreseeing related issues that are likely to be appreciated by an individual of a specific culture.
As for the discussions, these are often impeded because the parties involved seem to be looking after different logic paths. In most contexts that are cross-cultural related, the possibility for talking past one another or misunderstanding things is greatly enhanced. Don’t enter international negotiations thinking that everyone thinks the same. That’s certainly not true especially since people of different cultures have specific ways of thinking, and they abide by a specific set of rules and principles.
Divergent negotiation styles
Singular cultural systems are able to generate divergent negotiation styles formed after the culture of each nation, history, geography, and political system. It’s impossible for all business people to think alike as there will always be different cultural images, assumptions, and prejudices. People can thrive in cross cultural negotiation only if they can find a way to understand each other. It is important to communicate with counterparts in order reach mutual ground and land a favorable deal.
When dealing with cross cultural negotiation, many of the tactics and strategies used conventionally may not work. This usually happens when one of the associates tries to use a cultural technique that is less known by the other parties involved.
Establishing a goal
Business negotiators who come from different cultural backgrounds may have a tendency to see the purpose of a business deal in a very different way. In the view of some people, the main purpose of a negotiation is to have a contract closed and signed. Others believe that signing a contract is not the best way of landing a great deal; they strongly deem that building a connection with their opponent is a lot more important. Even though a written contract makes things seem a lot more definite, this is not the best way of constructing a relationship.
In a recent study performed by the Global Negotiator, researchers found that out of 400 people who were interviewed, 74% of Spanish respondents said that the goal of their negotiation was to sign a contract. 33% of Indian business people said they had the same view, and that it is important to have papers signed in order to build a good business foundation.
Language matters the most
Language matters a lot in business negotiations of all kinds, especially cross cultural negotiation. All the parties involved have to verify that they understand each other before starting the meeting. In some cases, a translator may be required just to ensure that communication is done right and that there are no misunderstandings. The Swedes for example, are known to have a tough attitude in negotiations. They’re extremely detailed and methodical, and they don’t feel comfortable in challenging positions.
In Sweden, bargaining is not seen as a valued endeavor. Usually, those who negotiate in an attempt of offering a high price just to lower it later on, are not seen as reliable individuals. Both the English and the Americans consider that the term “fair play” doesn’t have an equivalent and that it shouldn’t be used that often when trying to close business agreements. That’s because in a negotiation, it is assumed that all the parties involved walk into a meeting without any hidden purposes.
In the business environment, and when we say business we refer to domains like marketing, advertising, venture capital, real estate, and others, negotiating is an unavoidable endeavor. There’s no way of avoiding, so that’s why business people have to master the art of proper cross cultural negotiation prior to entering meetings.
- Power Distance
In some countries, the levels of power are distinct and understood internally but may not be apparent to outsiders. For example, in Russia, power tends to be concentrated at the top. Executives or government officials may negotiate an agreement, only to have it re-negotiated by higher-level officials.
- Individualism/Collectivism
People in a culture may think of themselves in terms of the individual or as members of a connected group, or collective. In the United States, people score highly in individualism while Pacific Rim countries, such as China and Japan, tend to be more collectivist. This thought process influences the way societies are organized and decisions are made.
- Masculinity/Femininity
The third element refers to the extent to which societies endorse what is considered traditional or stereotypical masculine and feminine characteristics. For example, aggressiveness and competition are often considered “male” characteristics, while a focus on relationships and cooperation are traditional “female” characteristics. Many Scandinavian countries score higher on quality of life in relationships while other cultures, such as the United States and Mexico, score higher on the competition.
- Uncertainty Avoidance
Uncertainty avoidance refers to the extent to which someone is comfortable with unstructured or uncertain situations. Some cultures are uncomfortable with ambiguity; in negotiations, businesspeople would seek rules and regulations to guide them. Other cultures are low in uncertainty avoidance, and more relaxed about negotiations. Americans tend to be comfortable with uncertainty.
These elements describe cultural values in a general way and certainly not all people in a given culture will adhere to each and every aspect. These can, however, be broad descriptions of how different cultures approach negotiations.
Factors influencing Cross-cultural Negotiation
Cultural differences can influence business negotiations in significant and unexpected ways, as many a hapless deal maker has learned. In some cases, it’s a matter of ignorance or blatant disrespect, as with the American salesman who presented a potential Saudi Arabian client with a multimillion-dollar proposal in a pigskin binder, considered vile in many Muslim cultures. He was unceremoniously tossed out and his company blacklisted from working with Saudi businesses. But the differences can be much more subtle, arising from deep-seated cultural tendencies that influence how people interact everything from how people view the role of the individual versus the group to their attitudes, say, about the importance of time or relationships. In response to these challenges, a great body of literature has emerged to help executives navigate differences not only in protocol and deportment but in deeper cultural tendencies as well.
But my research shows that there’s another, equally treacherous, aspect to cross-border negotiation that’s been largely overlooked in the literature: the ways that people from different regions come to agreement, or the processes involved in negotiations. Decision-making and governance processes, which determine either a “yes” or a “no,” can differ widely from culture to culture, not just in terms of legal technicalities but also in terms of behaviors and core beliefs. In my experience observing and participating in scores of international negotiations, I’ve seen numerous promising deals fail because people ignored or underestimated the powerful differences in processes across cultures. In these pages, I will examine how systematic differences in governance and decision making can disrupt cross-border negotiations, and I will offer advice on how to anticipate and overcome possible barriers on the road to yes.
Map the Players and the Process
In any negotiation, you are always interacting with individuals, but your real purpose is to influence a larger organization representing a diverse set of interests to produce a meaningful yes. In an international deal, just as at home, you need to know exactly who’s involved in that larger decision process and what roles they play. But in unfamiliar territory, the answers might surprise you. Indeed, applying “home” views of corporate governance and decision making to international deals may seriously hinder the negotiation process. I find it’s useful to break down the decision-making process into several constituent parts: Who are the players? Who decides what? What are the informal influences that can make or break a deal? Let’s look at each of these factors, which can vary dramatically when you cross national borders.
The players
If you’re accustomed to deal making in the United States, you know that extra players beyond those representing the two companies may influence the deal: the SEC, the Federal Trade Commission, and the Justice Department, among others. In his book Masters of the Universe, Daniel J. Kadlec writes that when Travelers and Citicorp were contemplating a merger, the heads of both companies together visited Federal Reserve Chairman Alan Greenspan to get a reading on the Fed’s likely attitude.
Abroad, you’ll of course find extra players as well, but they will be different and often less obvious. For those executives experienced in North American shareholder-based corporate governance, it may come as a surprise to discover that in Germany, labor has virtually equal representation on many supervisory boards of directors. It will probably be less surprising, though no less discomfiting, to discover that local party officials play an integral part in Chinese negotiating teams in the People’s Republic, even when the Chinese company is nominally “private.” In the European Union, various Brussels commissions may get involved in business negotiations. If an acquisition target has foreign subsidiaries, the skein of negotiating partners may grow even more tangled. All these constituencies bring their own interests to the table, as well as varying abilities to block or foster negotiations. Even GE, one of the most experienced acquirers, suffered a humiliating defeat in its attempted merger with Honeywell, in part because GE’s management underestimated the nature and seriousness of European concerns about competitiveness and the potential for these concerns and GE’s European competitors to obstruct the deal.
Another example is drawn from the research of my colleagues William A. Sahlman and Burton C. Hurlock: Near the time of the collapse of the Soviet Union, California-based venture capital firm Sierra Ventures was negotiating with the director of the Institute for Protein Research in Russia, hoping to get the rights to an apparently revolutionary biotechnology process. Marathon negotiations with the institute’s management team—heroically bridging huge gaps between East and West, business and science, bureaucracy and venture capital—seemed as if they would finally culminate in an acceptable deal for both sides. Although the deal ultimately succeeded, nearing the finish line it suddenly became clear that several Moscow ministries, each with its own point of view and agenda, also had to approve the agreement. This posed a potentially fatal set of obstacles that could have been anticipated had the Sierra team made more than a perfunctory effort early on to learn about the real decision process.
Even if you know who’s playing, a failure to understand each player’s role and who owns which decisions can be very costly. For example, when Italian tire maker Pirelli sought to acquire its German rival, Continental Gummiwerke, Pirelli claimed control of a majority of Continental’s shares and received tacit backing from Deutsche Bank and support from Gerhard Schröder, then Prime Minister of Lower Saxony, where Continental is based. In a U.S. transaction, merely owning enough equity often allows the acquirer to control the target. But not in this setting.
There are some impressive stories of executives deftly navigating these potential barriers—U.K.-based Voda-fone’s successful acquisition of Germany’s Mannesmann is a notable recent example—and such cases might seem to herald major changes in German law and governance. But the circumstances and tactics in Vodafone’s case were highly specific to the deal, and the general implications for Euro-governance seem limited. Deeply entrenched structures continue to blindside many a corporate suitor and not just in Germany. In fact, versions of this cautionary tale could be repeated in locales as distinct as Switzerland and Japan, where boards of directors representing constituencies other than shareholders may exert powers unfamiliar to those accustomed to Anglo Saxon-style governance, including voting caps and the power to block share registration or voting of outside equity holders.
Cultural assumptions can sometimes make it very difficult to recognize or acknowledge who has formal decision rights. For example, when Honda invested heavily in an extensive relationship with British automaker Rover, workers and managers at the two companies developed very positive working relationships for more than a decade. The partnership intensified after the government sold Rover to British Aerospace (BAe), but as Rover continued to lose money, BAe decided to discard the relationship, abruptly selling Rover to BMW through a secretive deal that caught Honda completely unawares. The Japanese automaker considered its connection with Rover a long-term one, much like a marriage, and it had shared advanced product and process technology with Rover well beyond its effective contractual ability to protect these assets. Honda’s leaders were dumbfounded and outraged that BAe could sell and to a competitor, no less. Yet while Honda’s prized relationship was at the level of the operating company (Rover), the Japanese company had not taken seriously enough the fact that the decision rights over a Rover sale are vested at the parent (BAe) level. From a financial standpoint, the move made sense for BAe, and it was perfectly legal. Yet Honda’s cultural blinders made the sale seem inconceivable, and its disproportionate investments in Rover in effect created a major economic opportunity for BAe. The bottom line: Understanding both formal decision rights and cultural assumptions in less familiar settings can be vital.
Credit: https://hbr.org/2002/03/the-hidden-challenge-of-cross-border-negotiations
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