Bill_Chapman_NegotiationsAcrossCultures_Final
- 1. 1 Negotiations Across Cultures Introduction In the early 90’s, Enron made the decision to be more diverse in its growth by expanding into the emerging market of India. Negotiations started with the state government and Maharashtra State for a $3 billion dollar 2015-megawatt power plant. A large amount of natural gas would be needed to power the plant. This led to Qatar, serving as a joint venture partner, to be the main source of the imported natural gas. An important objective was to secure a long- term purchaser in order to obtain long-term debt financing and generate a good enough return to the investors. MSEB was the only potential buyer for the deal, and signed the purchase power agreement with Enron to officially start the Dabhol Power Project. However, opposition to this deal rose very quickly from the public. The World Bank refused to finance the project because of reports that indicated Maharashtra wouldn’t be able to absorb the additional power that Dabhol had charged. In addition, many of the public felt that the deal was hastily made without taking the time to consider the public’s well-being. A top Indian government official in electricity was quoted saying “India had no experience in negotiating, Enron was a savvy negotiator”1. The aggressiveness and quickness of the deal seemed very suspicious, which brought up accusations of bribing Indian officials. As a result of this deal, Enron went belly up before the final phase of the project finished. This left India with a bad taste of both western expansion techniques and negotiating experience from an aggressive American style. Indian culture tends to favor slower negotiations as a sign of good faith and trust, while American culture usually is more forward because more time means 1 "Error in India: Generation Gaps." The Economist. N.p., 11 Jan. 2001. Web. 5 Dec. 2015. <http://www.economist.com/node/473117>.
- 2. 2 more money spent. The purpose of this paper is to focus on cultural differences that occur during negotiations, and how this affects the negotiation table. Cultural Boundaries and Stereotypes Each country will have a different business style of negotiations based on their culture and values. It’s important to respect the attitudes and characteristics of another country’s culture instead of making assumptions. For example, Japanese negotiators will usually have “silent periods” during talks and choose indirect methods of communication, but that doesn’t mean that all Japanese do. One prominent, long-time minister in the Japanese government was famous for his brash “American-style” negotiating - which is not at all typical of many Americans2. Negotiation styles won’t be one-dimensional for each country; they can vary on a wide spectrum. Differences occur in negotiations is from both stereotypes and our own interpretations of behaviors through our own culture. An article published by Harvard Law School said that stereotypes are often pejorative (for example: Italians always run late), and they can lead to distorted expectations about your counterpart’s behavior as well as potentially costly misinterpretations3. The assumptions that one can make on the other’s behavior can be extremely insulting and can ultimately derail any potential business relationship. It’s suggested to focus on prototypes instead, which are general characteristics that are dynamic and could change. 2 Patton, Bruce, Roger Fisher, and William Ury. Getting to Yes. Third ed. P. 169-170.: Penguin, n.d. Print. 3 Shonk, Katie. "How to Resolve Cultural Conflict: Overcoming Cultural Barriers at the Negotiation Table." Program on Negotiation: Harvard Law School. Harvard University, 8 Nov. 2015. Web. 14 Dec. 2015. <http://www.pon.harvard.edu/daily/conflict-resolution/a-cross- cultural-negotiation-example-how-to-overcome-cultural-barriers/>.
- 3. 3 Our interpretations of culture can cloud our judgment and even discount a person’s individuality without being more considerate. Misunderstanding the customs and behaviors from Japan, India, or Mexico can show how little respect is given them in business negotiation. It’s highly recommended to question the assumptions one may have on a particular group and perform research before drawing conclusions. It’s more important of knowing why certain groups perform certain rituals, behaviors, or customs rather than what they perform. It’s essential for any negotiation abroad to learn any unique cultures about the company or the organization on the other side of the table. Just like we learned from the Enron example, Indian negotiating tends to be slow because trust in the relationship is more valued than time. It’s the opposite for Americans as time efficiently used over the course of negotiating because it had a direct link to cost. These differences can create tough barriers and lead to disagreements. It’s significant to remember to be open to learning different cultures and using it as an opportunity to create special relationships. Individualism and Collectivism In 2000, a publication in the International Journal of Psychology described how culture affects negotiations through differences on individualism and collectivism. Individualism culture can promote autonomy while collectivism culture promotes interdependence of individuals on social obligations. In terms of goals and accomplishments between the two, individual can be rewarded by economic and social institutions while legal institutions protect individual rights4. Collective will have one sacrifice the personal needs for the greater good of the community 4 Brett, Jeanne M. "Culture and Negotiation." International Journal of Psychology 35.2 (2000): 99-100. Print.
- 4. 4 while political and economic institutions put the greater good of the collective above the rights of the individual5. This difference reflects the basic goals that may be a priority to one, but not for another. Individuals tend to have more ‘self-interest goals’ that are higher of priority in negotiation than a collectivist. For example, an individual may heavily weigh a negotiation deal heavier on the chance of leveraging a higher commission or promotion rather than look at the potential relationship that can be obtained. Collectivist’s goals will usually be aligned within the groups. As these goals become transparent, it can result in mutual agreements. However, this all depends on the group's knowledge of the goals because if it’s not communicated to all stakeholders involved, self-interest goals may seem more important. Egalitarianism and Hierarchy Social structures are different across countries, companies, and groups. Some countries like Austria, Israel, and Denmark have an egalitarian culture, which all people are equal and deserve equal rights and opportunities. This environment tends to have people make decisions without consulting their managers or provide infrequent updates to their managers. Also, they will sometimes feel comfortable disagreeing with their boss. On the opposite side, people in hierarchy environments are usually obedient because social status implies power or influence. They frequently update their manager and will rarely disagree with their boss. Examples of countries that inherit this type are Malaysia, Slovakia, and most Arab countries. 5 Brett, Jeanne M. "Culture and Negotiation." International Journal of Psychology 35.2 (2000): 99-100. Print.
- 5. 5 These two societies differ in views towards the bases of power in negotiation settings. In situations where agreements cannot be reached in egalitarian cultures, power is evaluated. In addition, negotiators of this culture will even refer to BATNA less frequently as long as negotiations are progressing. They focus preferably on issues under consideration and sharing information on priorities and interests. Hierarchical societies will have vertical interpersonal relationships. When one has social status, it can dictate how people will interact with that person when others realize their status. In some cases when the social status is known, there’s a chance that negotiating may take very little time. If a CEO is negotiating with a low-level employee, then it’s likely the CEO will have all leverage and the employee will concede easily. These types of negotiators will use any means of power tied to their title to win. Negotiation Goals and Attitudes Different cultures will view the purpose of a negotiation differently from others. Negotiators may strive for a goal to make the deal as a signed contract between two parties. Other cultures will view the negotiation as an agreement, but also as potentially a great relationship to build upon. An article in Ivey Business Journal from 2004 took a survey of 400 people from twelve different nationalities and found that 74 percent of Hispanic responders said their goal in a negotiation was a contract, but only 33 percent of the Indian responders had a similar view6. This difference can explain why Indian negotiators tend heavily weigh a 6 Selacuse, Jeswald. "The Top Ten Ways That Culture Can Affect Your Negotiation." Ivey Business Journal. N.p., Oct. 2004. Web. 14 Dec. 2015. <http://iveybusinessjournal.com/publication/negotiating-the-top-ten-ways-that-culture-can- affect-your-negotiation/>.
- 6. 6 relationship to be more valuable than the contract while Hispanics want to make the deal a higher priority. Preliminaries of the negotiation are more than a formality in the relationship context and should be taken seriously if one is negotiating with in an Asian nation (or any nation for that matter). It helps to build the foundation of a good business relationship and produces trust between the two parties. Thus, the importance of knowing how the opposite party views the purpose of the negotiation is crucial. For instance, being on the side of the table and making attempts to persuade relationship negotiators on the delivery of a low-cost contract may not easily sway them. To persuade them, one would need to start from the very beginning and discuss about the benefiting opportunity for a mutual relationship. The attitudes of negotiators is also something that one needs to research before entering, because that person could be looking for a win-win situation or a win-lose situation. Typically those that look for a mutual benefit of the two parties will advocate win-win situations in order to strengthen relationships and trust for more deals in the future. Those who negotiate only for the benefit of themselves will try to extract as much as they can to have the best BATNA. In the same survey, 100 percent of the Japanese responders were looking for a win-win scenario in order for both parties to gain. Whereas only 33 percent of Hispanic responders took the same view. We could then infer from this that when entering in negotiations with Japanese it’s likely that the attitude will be more helpful for both parties to gain and prosper. Therefore, it can create a working relationship built on the trust of solving problems for both sides. Conclusion
- 7. 7 The exploration of negotiations across cultures has revealed a lot of information that should always be taken into consideration whether it’s within a different country or society. Values will influence the culture and motive for negotiation strategies and it’s up to either party to be open to the opposite’s culture before making irrational decisions. As we saw in the earlier example of ENRON, the styles of both sides clashed. India was accustomed to the development of a slow negotiation for a relationship building negotiation and not to the aggressive western style. Our values will reflect the strategies and decisions we make at the table. However, without knowledge of the other side’s style, beliefs, and culture, it can create more of an issue for both negotiating parties. This doesn’t mean that when two negotiators from different cultures will always clash in their strategies or values to end up walking away from the deal. There may be times where they both have similar cultural values and there are no issues in the negotiation. In any case, as businesses trend towards expansions, acquisitions, or partnerships outside their country’s borders, negotiation strategies will need to be considerate to the values and cultures of the other party. The wealth of information available on any society’s culture is priceless and should be taken advantage to achieve an optimal negotiation.
- 8. 8 ADDITIONAL SOURCES "Enron's Indian Negotiation Debacle." The Negotiation Experts. N.p., n.d. Web. 14 Dec. 2015. <http://www.negotiations.com/case/negotiation-project-india/>.