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INTERNATIONAL BUSINESS NEGOTIATIONS: A COMPARISON OF THEORY WITH THE PERCEIVED REALITY OF AUSTRALIAN PRACTITIONERS
Max Smith
School of Commerce
The Flinders University of South Australia
GPO Box 2100
Adelaide South Australia 5001
Telephone: +61 8 82013897
Facsimile: +61 8 82012644
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SCHOOL OF COMMERCE
RESEARCH PAPER SERIES: 00-9
ISSN: 1441-3906
Abstract
This exploratory study attempts to compare a number of the international business negotiation issues identified in the literature with the perceptions of Australian negotiation practitioners. The findings, although generally supportive of the literature, indicate that the complexity of the issues addressed is often not captured and, therefore, further investigation is warranted in a number of areas. Directions for further research to address apparent weaknesses in the literature are provided.
Introduction
Many of the issues addressed in this research attempt to elicit culturally specific characteristics as they relate to international business negotiations. It is recognised that these characteristics are generalisations that are not applicable to all members of these communities. This issue was addressed by Mahoney et al (1998), who encountered a similar dilemma when dealing with Hofstede’s (1980) cultural dimensions. As they put it: ‘Note that these dimensions do not represent absolutes, but instead reflect tendencies within cultures. Within any given culture, there are likely to be people at every point on each dimension’ (Mahoney et al 1998, p. 538). As such, readers of this paper should bear in mind that it is the tendencies within cultures that are being referred to when culturally specific issues are raised, not behaviour universally applicable within that culture.
Literature Review
One of the seminal works on negotiating is Fisher and Ury’s (1991) ‘Getting to Yes - Negotiating Agreement Without Giving In’. In this book, a product of the Harvard Negotiation Project, the authors put forward the concept of ‘principled negotiation’, which is described as a method that allows you to ‘obtain what you are entitled to and still be decent’ (p. xiv). The authors, therefore, reject the use of tricks or posturing and tend to advocate the use of win/win or integrative bargaining styles. The book is very broad in scope, covering all manner of negotiations and attempts to bring a universal approach to all negotiations. As such, it is not specific to international business negotiations and is essentially acultural, in that, culturally based differences in approaches, attitudes and principles that may impact on cross-cultural negotiations are not considered.
In contrast to this, Salacuse (1998), after a review of the literature and interviews with practitioners, outlined ‘ten factors in the negotiation process that seem to be influenced by a person’s culture’ (p. 223). He further proposed that the culturally different responses would fall on a point on a continuum between two polar extremes. Salacuse’s ten factors and associated continuum are shown in Table 1.
TABLE 1
The Impact of Culture on Negotiation
Negotiation FactorsRange of Cultural Responses
GoalContract Relationship
AttitudesWin/Lose Win/Win
Personal StylesInformal Formal
CommunicationsDirect Indirect
Time SensitivityHigh Low
EmotionalismHigh Low
Agreement FormSpecific General
Agreement BuildingBottom Up Top Down
Team OrganizationOne Leader Consensus
Risk TakingHigh Low
Source: Salacuse 1998, p. 223
The first factor, Negotiating Goals: Contract or Relationship, relates to the purpose or intent of the parties to the negotiation. According to a number of authors (Chen 1993; Martin et al 1999; Phatak & Habib 1996; Salacuse 1998; Stone 1996a) American business negotiators, in general, have as their primary negotiating aim, the signing of a contract between the parties. They consider such a contract a binding agreement that outlines the roles, rights and obligations of each party. In contrast to this, negotiators from Asian cultures are believed to have a more fluid (as opposed to watertight) view of contracts and, therefore, place more emphasis on establishing a sustainable business relationship rather than a contract (Chen 1993; Martin et al 1999; Paik & Tung 1999; Stone 1996a).
This cultural difference also affects the type of contract desired by negotiators from many non-Western cultures. Buszynski (1993), for instance, notes that many Asian cultures eschew the ‘Western tradition of legalism’ and ‘prefer to leave things vague’ (p. 20), which is reflected in a preference for general, less detailed, contracts. Additionally, people from these cultures are said to have a cultural expectation that the renegotiation of an existing contract is reasonable if conditions change or unforseen events affect the perceived profitability of the venture. These characteristics are associated with both Chinese (Chen 1993; Kirkbride et al 1991; Melvin 1995; Pye 1992; Stone 1996a) and Japanese (Kotler et al 1996; March 1995; Mead 1998; Pechter 1992; Phatak & Habib 1996) negotiators, as well as other cultural groups in Asia (Salacuse 1998).
The importance of relationships when negotiating with most cultural groups in Asia is also outlined by numerous authors (Coll 1996; Kotler et al 1996; Martin et al 1999; Mead 1998; Paik & Tung 1999; Pechter 1992; Slamet 1995). However, the nature of the relationship receives scant attention. In relation to the People’s Republic of China (PRC), Mead (1998) outlines the conflicting conclusions of previous scholars. Pye (1992), for instance, proposes that the Chinese use notions of friendship developed during the early stages of the negotiation to gain better terms later on, while Child (1994) concluded their attempts at friendship may be genuine. In contrast, McGuinness et al (1991) ‘conclude that the Chinese most frequently evaluate relationships in a utilitarian manner that reflects the value of the package’ (Mead 1998, p.243). In relation to the Japanese, Martin et al (1999) outline the various relationship-building functions ‘where the Japanese executives are making judgements about the others’ integrity, reliability, commitment and humility’ (p. 67). This also tends to emphasise utility over friendship as the aim of the relationship building process.
Engholm (1992), dealing more broadly with East-West business relationships, outlines two possible types of relationships in the region. The first is characterised by formality, politeness and a need-to-know level of transparency. Although there is a degree of loyalty between parties, their respective business interests come first. However, as Engholm (1992) explains:
The second type is a truly personalised relationship that is completely transparent and is founded on loyalty and reciprocity. Trust between the partners is never feigned. Few Westerners are party to this type of relationship with Asian business people, unless they are linked to them through family relations (p. 11).
The second factor, Win/Lose or Win/Win, is also known as distributive or integrative bargaining respectively. In the former, the parties to the negotiation see each other’s goals as incompatible and, therefore, believe one party can only gain at the expense of the other, thus, putting each party in competition with the other. In the latter case, however, the parties to the negotiation consider themselves to have compatible goals and, therefore, assume both parties should stand to gain from the final agreement. They, therefore, cooperate with each other to devise a mutually beneficial solution.
The latter win/win negotiating attitude is the hallmark of Fisher and Ury’s (1981) principled negotiation, mentioned earlier, and has become a prominent feature of much of the negotiation literature derived from the West, even when dealing with negotiators from other cultures. So much so, that, according to Pechter (1992), ‘the low-key, nonadversarial, win/win negotiating style’…is…’now regarded as the most effective way for Americans to do business with people from other cultures’ (p. 46). However, Li and Labig (1996) disagree with this assertion and argue that, in reality, parties to international business negotiations, in particular, often ‘have both cooperative and competitive interests that mandate a mix of both distributive and integrative tactics’ (p. 100). They further argue that the win-win/win-lose dichotomy should be replaced by a relationship orientation that recognises and caters for the reality of mixed motives in international business negotiations.
From a culturally specific perspective, the Chinese are most commonly characterised as bringing a win/lose attitude to international business negotiations (Dunung 1995; Kirkbride et al 1991; Stone 1996b). However, Engholm (1992) and English (1996) broaden this to include most of the business people of Asia who are familiar with the military tactics of Sun-Tzu’s Art of War and similar works.
A final consideration in this area is that negotiations themselves may only be appropriate when searching for a win-win outcome. As Choi and Kelemen (1995) explain:
According to the literature, it is not always best to negotiate in the international environment. It appears that negotiation is the appropriate approach to doing business only when relationships are very important, the value of exchange is high, the commitment is important, the time is sufficient, the trust level is high and the power distribution is low. When all of these are low or not important it is better to adopt a take it or leave it strategy or eventually a bargaining position. Negotiation is preferred for creating win win solutions in international situations.
(p. 14)
The third factor, Personal Style: Formal or Informal, relates to how negotiators interact with counterparts at the table. ‘Formal negotiators insist on addressing counterparts by their titles, avoid personal anecdotes, and refrain from asking questions that relate to the private life of the other negotiating team’s members. Informal negotiators, on the other hand, may start discussions on a first name basis, quickly seek to develop a personal, friendly relationship with the other team, and (if male) may take off his jacket and roll up his sleeves when deal making begins in earnest’ (Salacuse 1998, p. 228).
In this regard, negotiators from Germany, Japan, China and Java are considered to have a formal style of interaction relative to Americans (Kirkbride et al 1991; Kotler et al 1996; Martin et al 1999; Salacuse 1998; Slamet 1994; Stone 1996a) while Buszynski (1993) generalises this characteristic to most Asian cultures.
The fourth factor, Communications: Direct or Indirect, relates to the literature’s claims that people from certain cultures tend to adopt direct and simple methods of communication (eg, Germans and Americans), while people from other cultures tend to rely on indirect, more complex, methods (eg, the French and Japanese). ‘In cultures that rely on indirect communication, such as the Japanese, reaction to proposals may be gained by interpreting seemingly indefinite comments, gestures, and other signs’ (Salacuse 1998, p. 230). One of the oft mentioned expressions of indirect communications is the reluctance of most Asians to say ‘no’ directly, particularly the Japanese, Thais, and Javanese. The notable exception in this regard being the Koreans, who according to one study, were three times more likely to say ‘no’ as the Japanese (Kotler et al 1996, p. 902).
The fifth factor, Time Sensitivity: High or Low, relates to cultural differences in attitudes towards time and the length of time devoted to the negotiation itself. According to Paik & Tung (1999), based on work carried out by Kirkbride et al (1991) and Redding (1980), East Asians view time ‘as polychronic, non-linear, repetitive and associated with events; Americans, on the other hand, view time as monochronic, sequential, absolute and prompt’ (p. 111). This view of Americans is supported by Phatak & Habib (1996) and extended to the Germans by Salacuse (1998).
Most Asian cultures, particularly the Japanese, are renowned for the length of their negotiations. As one interviewer responded in a recent study - ‘A meeting that might take three days to conclude in the US will probably take two weeks in Japan’ (Paik & Tung 1999, p. 111). The reason for this is indirectly culturally based, in that, most Asian negotiators have a cultural preference to establish a relationship before they begin the negotiations proper (Buszynski 1993; Kotler et al 1996; Martin et al 1999; Mead 1998; Slamet 1995). That is, they don’t have a cultural preference for long negotiations, only for developing a relationship. The resulting effect is exacerbated by the business culture existing in some countries. The Japanese consensus based decision-making process (ring-seido) and the Chinese negotiator’s need to report results at each stage to higher (decision-making) authorities, are cases in point (Paik & Tung 1999, pp. 111-112).
The sixth factor, Emotionalism: High or Low, relates to the differing views between cultures as to the appropriateness of displaying emotions, as these differing cultural norms may be brought to the negotiating table. According to Salacuse (1998), ‘Latin Americans show their emotions at the negotiating table, while Japanese and many other Asians hide their feelings’ (p. 231). This is supported by Pechter (1992) who outlines an example of a negotiation where the Japanese party was offended by the other party and reacted by simply obfuscating and delaying a response, giving no physical indication that they were upset. Similarly, Chen (1993) explains that the ‘public expression of anger are considered bad manners in China’ (p. 14), but also outlines how the Chinese may feign anger to gain concessions. This perhaps explains the ‘emotional, dictatorial style’ encountered by a number of Australian executives operating in China (Blackman 1996, p. 27) that appears contrary to the Chinese negotiation behaviour and conflict handling preferences expounded by Kirkbride et al (1991, p. 376).
The seventh factor, Form of Agreement: General or Specific, relates to the culturally specific preference for the form of written agreement the contract takes. For instance, Americans are said to ‘prefer detailed contracts that attempt to anticipate all possible circumstances’ (Salacuse 1998, p. 232), while the Chinese, Japanese, Koreans and other Asian peoples, such as the Overseas Chinese, prefer a contract in the form of general principles rather than detailed rules (Chen 1993; March 1995; Martin et al 1999; Mead 1998; Paik & Tung 1999; Stone 1996a). The latter group’s preference, in large part, is the result of their different view of what a contract is. To them the signing of a contract is said to signify the beginning of a relationship, the details of which can be further negotiated post contract.
The eighth factor, Building an Agreement: Bottom Up or Top Down, relates to the culturally different processes for developing agreements. Negotiators from some cultures are said to prefer to begin negotiations by establishing general principles that are used as the framework upon which the contract is built. That is, they prefer a deductive or top down process. On the other hand, negotiators from other cultures are said to prefer to begin negotiations by first dealing with specifics, such as price, quality, and delivery dates; the sum total of which becomes the contract. That is, they prefer an inductive or bottom up process. According to the literature, the French, Chinese, Koreans and, to some extent, the Japanese, prefer a top down process while Americans prefer a bottom up process (Chen 1993; Kirkbride et al 1991; Paik & Tung 1999; Salacuse 1998).
The ninth factor, Team Organisation: One Leader or Group Consensus, relates to the culturally specific ways different groups organise themselves and how decisions are made within the group. At one end of the spectrum a negotiating team may have a supreme leader who has complete authority to decide all matters, while at the other end, authority rests with the group and decision-making occurs through consensus. In the latter case, the negotiating teams tend to be relatively larger than in the former case because of the greater number of personnel involved in the decision-making process.
According to the literature, Americans have a cultural preference for the one leader/small group combination, while the Japanese and Mainland Chinese prefer the consensus decision-making/large team combination. For the Japanese, the decision-making is a more pure consensus based process than the Mainland Chinese because it revolves around the concept of nemawashi or group commitment and ring-seido or group consultation within the firm. In Mainland China, however, a consensus-based process is necessary because of the number of interested parties, many external to the firm, who are involved in the final outcome. These may be Provincial and Federal bureaucrats from a range of different departments, who are often competing with each other or hold varying levels of power and authority relative to the deal being negotiated (Blackman 1996; Chen 1993; Kotler et al 1996; March 1995; Marten et al 1999; Mead 1998; Paik & Tung 1999; Salacuse 1998).
The tenth factor, Risk Taking: High or Low, relates to research indicating certain cultures are more risk averse than others (Hofstede 1980). According to Salacuse (1998), in this regard, ‘the culture of the negotiators can affect the willingness of one side to take "risks" in a negotiation - to divulge information, try new approaches, or tolerate uncertainties in a proposed course of action’ and ‘the Japanese are said to be highly risk-averse in negotiations’ (p. 236). Although inherently logical, this characteristic does not appear to be widely reported in the literature.
The way concessions are usedby different international business negotiators appears to be another cultural factor that will impact on the negotiation process. According to Mead (1998), ‘cultures vary in terms of what concessions they might offer, and of what value’ (p. 247). There also appears to be a cultural variance as to when, during the negotiations, the concessions are offered. For instance, the literature indicates that while American negotiators tend ‘to make small concessions early to establish a relationship and to keep the negotiation process moving forward smoothly’ (Phatak & Habib 1996, p. 34), ‘East Asians prefer to make concessions towards the middle or at the end of the negotiations’ (Paik & Tung 1999, p. 113). These stereotypes are supported by Blackman (1997), Chen (1993) and Mead (1998) who all apply this characteristic to the Chinese, while Phatak and Habib (1996) and Martin et al (1999) outline its use by the Japanese.
Another, apparently culturally specific area related to concessions is the initial starting price put forward by negotiators. Within the literature, the Chinese are characterised as setting much higher initial starting prices and positions, than negotiators from other cultures. Blackman (1997) sees this as part of China’s ‘haggling tradition’. As she explains, ‘the haggling formula followed is fairly standard. It begins with broad principles and unrealistic demands, and proceeds with exaggeration of Chinese compromises and minimisation of those yielded by the opposition…’ (p. 194). In recognition of this, a number of authors recommend this tactic be reciprocated when negotiating with the Chinese. That is, ‘play the game’. For instance, Kirkbride et al (1991) ‘suggest that parties who expect to reach compromise solutions in the bargaining process will correspondingly give themselves greater room for manoeuvre and movement by setting higher and more extreme initial demands and offers’ (p. 376).