Negotiations in a Cross-Cultural Environment - Term Paper Example

Negotiations in a Cross-Cultural Environment Abstract Multinational companies today diversify by expanding into the global market. It has therefore, become necessary that managers understand cross cultural negotiation. The main objective of this report is to present the cultural differences between the USA and China. This is important for American managers and firms wishing to expand to China. The most important thing is for American managers to understand the Chinese culture, respect it, and adhere to it during the negotiation process. This report also provides guidelines on how to ensure a successful negotiation with the Chinese. Overall, American managers should be knowledgeable in the Chinese culture, realize the cultural differences that lie between them, and adopt the best practices during the negotiation. Introduction and Background In the current business world, most multinational companies have adopted various strategies in order to ensure their survival in the present competitive and challenging business environment. As part of their strategy, it has become important for MNCs to expand into emerging and developing countries, as opposed to national markets only. Expansion of MNCs into global markets is a challenging process that presents various problems. Therefore, it remains important for managers to equip themselves with effective negotiation skills to ensure a successful entry into foreign markets. This report is about the differences between the Chinese and American cultures, and presents potential problems in a negotiation between the Chinese and American managers, and recommends the negotiation skills necessary to overcome the problems. It comprises three major sections. The first part addresses the cultural factors of USA and China, showing the cultural differences between the two countries, while the second section is about some of the aspects that influence negotiation, in the context of China and USA. The third section focuses on the factors that affect cross cultural negotiation and decision making, with special reference to USA and China. The final part is conclusion and recommendations for successful negotiations. 1.0. Cultural factors: USA and China The Chinese and American cultures are different. Therefore, when interacting with the Chinese, Americans should be well knowledgeable in the Chinese culture to ensure effective intercultural communication. According to Chang (2003), culture refers to the unique characteristics that any social group exhibits. These characteristics include norms and values that members of a social group share and which distinguish them from other social groups. Culture is also all-encompassing, and includes the political, social, and economic structure of a social group, as well as the language, education, and religion of the group. 1.1. Hofstede’s Cultural dimensions Hofstede was a popular cross-cultural researcher, who specialized in studying aspects of different cultures (Chang 2003). The fact that different groups and countries exhibit varying cultures prompted Hofstede to develop a model, namely the four-dimension of culture model that would be used globally to help people to distinguish different cultures for individual countries. The model comprises the aspects of power distance, uncertainty avoidance, individualism-collectivism, and masculinity. Fig. 1: The meaning of Degree in Four-Dimension Scale Source: Chang (2003) 1.1.1. Power Distance Power is an important aspect in any hierarchical system, as it is a representation of wealth, respect, and a higher status. In most hierarchical systems, individuals that hold power are more likely to hold more onto their power and keep a power distance as large as possible. According to Chang (2003), the Chinese exhibit a high level of power distance. In China, people at the lower hierarchical level exhibit a higher acceptance of their positions and hold respect for individuals in higher power positions. These people are less likely to violate the law or rules, and seldom question orders from their superiors. Conversely, low hierarchical societies such as the USA, have low power distance at all the hierarchical levels. In this society, individuals at high hierarchical level are more willing to involve their subordinates in their exercise of power. For instance, as compared to the Chinese, the American managers are more likely to involve their subordinates in the process of decision making. These are also more likely to allow their subordinates to share their views, and to a considerable level, disagree with theirs (Chang 2003). 1.1.2. Uncertainty Avoidance This refers to the extent an individual or group is willing to take risk. The Chinese exhibit high uncertainty avoidance, while Americans exhibit a low level of uncertainty avoidance (Chang 2003). The Chinese managers are more likely to feel insecure with risks, chaos, and situations that are unstructured. This insecurity makes them to develop institutions, strict laws, rules and regulations to control their environment. In China, managers and employers are likely to establish a strong level of commitment to the company they are serving, in order for them to maintain their positions. Conversely, in societies where the level of uncertainty avoidance is low, people tend to worry less about the future and any form of unknown. Therefore, American people are likely to be less anxious about the unknown, and are also open-minded. As opposed to Americans, the Chinese people are more are more comfortable with job mobility and ambiguity. The companies in the Chinese set up are also more likely to have fewer rituals and are more flexible. 1.1.3. Individualism-Collectivism The American culture is high in individualism; hence Americans are more likely to value and prioritize their personal achievements, autonomy, and innovation, as well as individual heroes. For this reason, companies in America are also more likely to value and reward those individuals with high achievement level in their work. Such a culture therefore, appreciates and rewards progressiveness and creativity. On the other hand, cultures such as the Chinese culture that are high in collectivism are more likely to emphasize the aspect of group harmony, personal relationships, group image, social order, and harmony (Chang 2003). In such a culture, pure individual contribution is not appreciated, as long as it does not serve the interests of a group. For this reason therefore, the Chinese people are more likely to be more conservative and careful in order to ensure that harmony prevails in the group. 1.1.4. Masculinity/Femininity In a masculine culture such as Chinese culture, the aspect of gender plays a great role in the process of hiring and promoting individuals in higher positions of management. Cultures that are male-dominated tend to put a higher value on sons than daughters, since these believe that sons are the only ones qualified to inherit the assets and values of the family. People in masculine societies also prefer to deal with men than women when conducting business. In addition, people in a masculine society tens to revere the aspects of decisiveness, competitiveness, and assertiveness (See Appendix 2). Therefore, the Chinese tend to be aggressive and motivated to achieve their goals, and portray the need to be the best in their field. These also consider all other manly values as important for anyone in a leading role. Furthermore, in a highly masculine culture, there are fewer women taking managerial roles as well as professional positions. However, in feminine cultures, there are more women in the management and professional fields, and these are considered to play an important role in society (Chang 2003). Fig. 2: The Comparison of Degree between China and USA in Four-Dimension Scale Source: Chang (2003) 2.0. Factors Affecting Negotiation 2.1. Power Distance and Negotiation According to Chang (2003), power distance refers to the level at which there is acceptance of differences in power and wealth among people. This is manifested by the level of interaction between different social classes, as well as restrictions in movement between different social classes. In China, there is a high level of power distance, and the Chinese are known not to want to negotiate or conduct business with people who are not in their social class. Conversely, the American culture has low power distance; hence in their negotiations with the Chinese people Americans should be careful when selecting the ranks of the Chinese people that they want to negotiate with (Chang 2003). When choosing their Chinese negotiators, Americans should ensure that they hold equal status. 2.2. The Impact of the Uncertainty on Negotiation The Chinese culture exhibits a high uncertainty avoidance level; hence in China there are policies, rules, and procedures that define the course of action in uncertain situations. These have been put in place in order to minimize the risks and uncertainty that might arise (Chang 2003). The American culture has low uncertainty avoidance, thus, when negotiating with the Chinese, American managers should exercise a high level of patience. This is mainly because the Chinese are likely to spend a considerably long period of time while trying to settle an agreement; and this is in order to ensure that the agreement is made and that there is no possibility of risk and uncertainty arising later. 2.3. Time Orientation and Negotiation Attitudes to time vary across different cultures. The Chinese prefer negotiations to be slow, while on the contrary, the Americans believe that time is money, hence prefer negotiations to be fast (Shimutwikeni n.d). The Chinese prefer slow negotiations, as this will give them more time to learn more about the other negotiation parties and determine if they can be trusted, and whether there is a likehood of a long-term business relationship with them. The Americans rush through the negotiation process in order to have a contract signed within the shortest time possible (Macduff 2006). Shimutwikeni (n.d) notes that when negotiating with the Chinese, this can lead to mistrust. 2.4. Negotiations and Diffuse Cultures The Chinese culture is diffuse; hence the Chinese will aim at making a long term lasting relationship based on trust, both in business and outside business (Dreizler 2008). On the other hand, the American culture is specific; hence Americans will be only involved in the signing of the contract, and will not aim at any further relationship with their opponent, except for business only. 2.5. Language and Negotiations The aspect of language varies across cultures. For instance, Americans do not share their language with the Chinese. The official language in China is Mandarin, but there are varying dialects for different regions. The Chinese prefer to negotiate in their language, even as some are not competent in English (EUSME Centre 2013). Mastery of the Chinese language by the other party in a negotiation shows a high level of interest in the negotiation. Therefore, Americans should not entirely rely on interpreters when negotiating with the Chinese, but should have a mastery of the Chinese language and culture. 2.6. Negotiations and Cultures Cultures determine the thinking, communication, and behaviour patterns of individuals. Culture therefore, influence different aspects in business negotiations (Tu 2007: Bangert and Pirzada 1992). The Chinese culture highly draws from various traditional philosophies such as Taoism and Confucianism, which emphasize patience, peaceful relationships, and communism. On the other hand, the American culture is characterized by high individualism and a liking of information and networking. In addition, while most Chinese reside in their rural areas, most Americans reside in urban residences (Chang 2006). 2.7. Negotiation Process The negotiation process varies among different cultures; thus while some cultures adopt a bottom-up approach; others prefer a top-down approach (Lin and Miller 2003). The Americans prefer the top down approach or deductive process, which involves obtaining agreements on details such as delivery dates and price, and merging all the details to reach a contract. On the other hand, the Chinese prefer the bottom up approach or inductive process, where they first negotiate on principles before proceeding to the details (Shimutwikeni n.d). 2.8. Negotiation Outcome Salacuse (2004) notes that the purpose of negotiation varies in different cultures (See Appendix 1). In some cultures, the goal of a negotiation is to reach a deal and sign a contract with the negotiators, while other perceive the goal of negotiations as the establishment of long term relationships with the negotiators, which is considered vital before striking a deal and signing a contract (McDevitt 2006). In the Chinese culture, the development of personal relationship among the negotiating parties is considered more important before the parties can sign a contract. The Chinese believe that for any two or more businesses to merge or have an interaction there must be good relationship between the business owners and/or managers (McDevitt 2006). For this reason, trust is an important factor that is considered before the negotiation process. In the American culture, the goal of a negotiation is to sign a contract; hence Americans expect a strict adherence to the contract once it is signed. During the preliminary stage of a negotiation, Americans are more likely to rush through it, thus creating a possibility of misunderstanding between them and the other parties in the negotiation process. 2.9. Managing Conflicts In the Chinese culture there is the aspect of bargaining, hence the tough negotiations. However, despite this, most conflicts in China do not end up in courts. Therefore, when negotiating with the Chinese, it is important to keep face. In China, it is wrong to expose one’s problems to the public. Additionally, the Chinese highly value harmony, therefore will avoid conflict (EUSME Centre 2013). Therefore, the Americans negotiating with the Chinese should avoid conflict as much as possible. 3.0. Factors Affecting cross cultural Negotiation and Decision Making 3.1. Cross Cultural Negotiations Cross cultural negotiation is one happening between parties that originate from different cultural backgrounds. This kind of negotiation is challenging, based on the cultural differences of the negotiating parties, as each culture will have a different negotiation style (Tu 2007). Therefore, in order to ensure effectiveness in this kind of negotiation, it is important for the involved parties to have an understanding of cultural factors in international negotiations (Drew and Paul 1998: Guptara 1992). The negotiating parties should also consider the financial climate they are negotiating in, as well as possess negotiation skills. 3.2. Language and Cross Cultural Negotiations Language continues to be one of the major barriers in cross cultural negotiations, as the involved parties are likely not to speak the same language (Salacuse 1999). It is therefore; wrong to assume that your negotiating partner understands your language, since this might result in failed negotiations. However, employing a good interpreter can ensure that both parties communicate effectively (Lam 2000). 3.3. Rationale in National Negotiating Styles Different nations have varying rationales in negotiating styles. The Americans mainly focus on facts and evidence, as well as expert opinion, while the Chinese will first reach an agreement on general principles. They leave the other negotiating party to declare their interest and priorities first before they declare theirs (Drew and Paul 1998). Overall, any international negotiator should understand the negotiation style of the other party, and appreciate and respect their culture. All international negotiators should also be aware of their mannerisms, and how their negotiation partners might perceive them. However, it is also important to note that negotiation in China, just like other countries, has changed with time (see Appendix 3). 3.4. Differences in Decision Making International negotiators should have knowledge on the decision making process in the culture of their negotiation partner, including how managers and executives reach a decision, how they relate with their negotiation partners, their personal negotiation styles, and personal decision making behaviours (Ayoko 2007). In the Chinese culture, decision making process does not lie entirely on one individual, but is at the group level, and is highly influenced by politics. However, the Americans do not mix business with politics (Drew and Paul 1998). Overall, a negotiator should prepare for negotiation by understanding the decision making behaviour of their partners’ culture. 3.5. Personal Relationships In most countries, it is important to know well the persons with whom one is involved in a negotiation (Low 2010). Americans are interested in signing a contact, thus do not dwell on personal relationships. On the other hand, the Chinese value personal relationships, as through these, they establish trust with their negotiators (EUSME Centre 2013). Overall, for successful international negotiations, it is vital to develop personal relationship with the negotiation partners, as this lead to long lasting business relationship. 3.6. Status and Protocol Americans prefer to have relationships that are based on similarity and equality, while the Chinese culture is status oriented. The Chinese respect people with high authority or older age (Drew and Paul 1998). Overall, a successful international negotiator should respect the protocols of their negotiation partners. Most importantly is the ability to subordinate their preferences to that of their negotiation partners. 3.7. Social Aspects of Negotiations Different cultures might or might not involve the social aspects in negotiations. However, among the Chinese, it is friendship first, then business. In this case, the Chinese will involve their negotiation partners in social talks about home towns, families, and leisure activities, among others, before embarking on the negotiation process (EUSME Centre 2013). 3.8. Interpreters, Translators and Bicultural Brokers It is recommended that a negotiator should not negotiate in a foreign language, if they do not have a good mastery of the language. It is advisable for an international negotiator to employ translators, interpreters, and bicultural brokers, in order to enhance his or her capabilities (Lam 2000). In cross cultural negotiations, adopting the services of middlemen can be an effective approach. However, Lam (2000) argues that this lengthens the time taken to negotiate. 3.9. Management Implications Overall, there are different major aspects a cross cultural negotiator should consider. First, one should realize that they are not same as the foreign negotiator, with regard to beliefs, perception, and overall culture. Therefore, one should be ready to communicate and operate from two cultural standpoints. In addition, a cross cultural negotiator should maintain neutrality by accepting and respecting the norms and culture of the foreign negotiator (EUSME Centre 2013). 4. Conclusion The main difference between the American and Chinese culture lies in their perceptions of hierarchy and relationships, as well as communication styles. While the Chinese value personal relationships and have a strong respect for hierarchy, the Americans do not value personal relationships and socialization outside business, and show less reverence for hierarchy. When dealing with an organization or individual from a different culture, it is important to consider aspects such as their perception of time, relationships, decision making, language and communication and negotiation style. Understanding these will ensure an effective negotiation process. Cultural differences determine whether the negotiation process will be successful or not. This is mainly because lack of mastery of the culture of a foreign negotiator might lead to a failed negotiation and vice versa. On the other hand, cultural differences also determine the outcome of a negotiation, since the purpose of negotiations varies across cultures. 5. Recommendations For successful negotiations, the following should be considered; I. Avoid rushing through the negotiation process, as the other negotiation party might foresee high risks in the proposed deal. II. Efforts should be drawn on ensuring a relationship with the partner negotiator, and build trust with them. III. Uphold honesty, with regard to your interests, goals, and priorities, as this is a major step toward a better agreement with the partner negotiator. IV. Practise cultural relativity with regard to the foreign negotiation partner. Works Cited Ayoko, O.B 2007, “Communication openness, conflict events and reactions to conflict in culturally diverse workgroups.” Cross Cultural Management: An International Journal, 14(2), pp. 105-124. Bangert, D. C and Pirzada, K 1992, “Culture and negotiation,” The International Executive (1986-1998), 34(1), 43-43. Accessed 24 June 2014, Chang, L 2003, “An examination of cross-cultural negotiation: Using Hofstede framework,” Journal of American Academy of Business, Cambridge; Mar 2003; 2, 2; ABI/INFORM Global, pg. 567-570. Chang, L 2006, “Differences in Business Negotiations between Different Cultures,” The Journal of Human Resource and Adult Learning,” November, pp. 135-141. Dreizler, C 2008, “How to Negotiate with Chinese Managers,” GRIN Verlag, London. Drew, M. and Paul, J 1998, “Negotiating successfully in cross-cultural situations,” Academy of Marketing Studies Journal, Volume: 2 Source Issue: 2. EUSME Centre 2013, “Negotiating and dealing with Chinese business partners,” Viewed 24 June 2014, Guptara, P 1992, “The impact of culture on international negotiation. European Business Review, 92(2), 2-XI. Lam, M. L 2000, “Working with Chinese Expatriates in Business Negotiations: Portraits, Issues, and Applications,” Greenwood Publishing Group, New York. Lin, X. and Miller, S. J 2003, “Negotiation approaches: Direct and indirect effect of national culture,” International Marketing Review, 20(3), 286-286. Low, P. K 2010, “Successfully Negotiating in Asia,” Springer, New York. Macduff, I 2006, “Your pace or mine? Culture, Time, and Negotiation. Negotiation Journal, 22(1), 31-45. McDevitt, A. S 2006, “Cultural variations as predictors of negotiation outcomes: Implications for international business communication,” The University of Memphis, ProQuest Dissertations and Theses. Accessed 24 June 2014 Salacuse, J 2004, “Negotiating: The Top Ten Ways That Culture Can Affect Your Negotiation,” Ivey Business Journal, September/October. Accessed 24 June 2014, < http://iveybusinessjournal.com/topics/the-organization/negotiating-the-top-ten-ways-that-culture-can-affect-your-negotiation#.U6uOGijAGiw> Salacuse, J. W 1999, “Intercultural negotiation in international business,” Group Decision and Negotiation, 8(3), 217-236. Accessed 24 June 2014 Shimutwikeni, N n.d., “The Impact Of Culture In International Business Negotiations: Special Reference To China And United States Of America,” University of Dundee. Stark, A., Kim-Shyan Fam, Waller, D.S. & Tian, Z 2005, "Chinese Negotiation Practice: A Perspective from New Zealand Exporters", Cross Cultural Management, vol. 12, no. 3, pp. 85-102. Tu, J 2007, “Impact of culture on international business negotiation: A cross-cultural Comparison of Taiwan, Hong Kong, and Mainland China,” (Lynn University). ProQuest Dissertations and Theses, 301-n/a. Retrieved from http://search.proquest.com/docview/304700406?accountid=45049(304700406). Woo, H.S., Wilson, D. & Liu, J 2001, "Gender impact on Chinese negotiation: "Some key issues for Western negotiators"",Women in Management Review, vol. 16, no. 7, pp. 349-356. Appendix Appendix 1 Appendix 2 Appendix 3 Read More