Business Conflict: Chinese vs. USA - Essay Example

Chinese vs. American Business Conflict Business and culture are fundamentally interconnected since culture defines the environment in which business is connected. This paper examines a case study in which an organization suffers dysfunctional business relations with Chinese suppliers because of misunderstanding of cultural negotiation protocols. The managers of the American organization take offense when their Chinese partners attempt to change the terms of the contract, which unbeknownst to them is part of their business culture. The paper then explores the various avenues through which the conflict can be resolved through various theoretical frameworks. It is discussed from a functionalist viewpoint and then explores mediation as a theory through which the cross culture conflict can be resolved. Finally, there is proposal for a new method involving four steps; these are; taking a step back, mediation, renegotiation and implementation. After graduating from college, I secured a job with a manufacturing firm that specialized on steel products such as containers, vehicle bodies, metal rails and similar items. I was hired because the firm had decided after 10 years of depending on third party suppliers they should integrate a vertical integration plan. This decision saw them sourcing for the metals and ores they needed directly from China. This called for an expansive development plan and hiring new employees among which I was one. However, six months after I had been hired, I and other colleagues from my department were reassigned to other departments while some were laid off. I later came to learn that my directors had attempted to negotiate a deal with a Chinese contractor and after they had put together all the figures and agreements, they pulled out when they suspected their Chinese partners were trying to get the better of them. The first negotiations had been carried out in New York with a team from my company meeting the visiting Chinese delegation. Although the CEO was advised to procure the services of a Chinese intermediary, he insisted that he had confidence in his people and besides, the objective of direct sourcing was to cut out intermediaries. Afterwards three executive from my firm were sent out to China to commence formal negotiations and in less than two months, a contract had been neatly hammered down. However, one of the executives noted that the Chinese were much more amiable business people than he had been made to believe and they generally let them have what they asked in negotiations, which implied they were probably desperate for the contract. However, almost immediately, the firm realized that although they already had a contract, which was supposed to direct their engagement, their Chinese partners kept changing the terms and conditions to suit the prevailing circumstances. The directors chose to ignore this at first, but when they were informed that their Chinese supplier were considering increasing the price of the ore due to a slight economic slump which weakened the Yuan and strengthened the dollar they got concerned. A team with notably more lawyers than executives was sent to Peking; however, they were shocked to realize that the Chinese team consisted of the same negotiators with whom the deal had been closed months ago and they expected to renegotiate the terms of the agreement based on the prevailing economic conditions. My superiors were livid and for some reason the Chinese appeared offended to see that we had sent lawyers not a negotiating team. The “negotiations” broke down after two days and when the team came back they proposed a legal action; however, this had to be done in China and after 2 months the firm’s chief corporate lawyer advised the directors to count their losses since the case was not going well for them. Consequently, my organization was forced to scale down its operations and go back to sourcing from third party operatives, it took a whole year for them to understand what went wrong with their initial attempt, and drawing from prior lessons it commenced a fruitful partnership with another Chinese firm, but this time through a Chinese intermediary. The main reason for the conflict was a misunderstanding of different cultural values and attitudes towards business by both the American and Chinese parties, none of which had previously transacted business with the other culture. The Americans were ignorant of the social, political and cultural dynamics that one is required to take in to account when they engage in business with the Chinese (Graham & Lam, 2003). Among this is the fact that in China, a contract is not necessarily binding and when something is agreed on, the Chinese expect that it should be open to future negotiation. In addition, there was not sufficient communication from both sides, the Americans negotiated and the Chinese listened and they did not differ which is not the same thing as agreeing. The communication was based on cross-purpose from the onset and the eventual breakdown was inevitable given that neither side understood the other’s cultural approach to negotiation or conducting business. Concisely, the primary cause of the ensuing conflict was insufficient understanding of the business and social culture of their partners by each of the player. From a cultural concept, the genesis of the conflict was the fact that the American and Chinese sides took to the negotiating table with radically divergent mindsets and although they came up with a deal, it was based on mutual misunderstanding. The Chinese hold personal relations and impersonal connections in high esteem while on the other hand the West tends to have more trust in contracts and their ability to enforce them without regard to personal relations. Therefore, contracts and laws in China have to be interpreted from the Chinese perspective, based on a relationship known as guanxi, which is paramount to the terms and conditions of a contract (Dunfee & Warren, 2001). American contracts tend to be cast in stone so to speak and once an entity has signed one, they are under personal and legal obligation to fulfil their side even if circumstances change. Conversely, in China, the terms of the contract and even the contract itself is simply a way of formalizing the relationship presumptively founded on mutual respect and trust. Therefore, it is expected that should the situation change, the terms of the contract should be renegotiated out of this respect and trust so that no party is unduly exploited or disadvantaged. Dunfee and Warren (2001) posit that Guanxi is institutionalized in Chinese institutions since the manner in which rules are written in the law and the interpretation of the courts is in accordance to the concept. Therefore, for anyone to do business in china or with the Chinese, he\she must have a basic undertaking of the underpinnings of Guanxi, which our company lacked. Given the rift between the two cultures, understandings of what constitutes of business ethics as well as the divergent perception of the notion of a contract, the most workable short-term solution would be for the western side to get a Chinese intermediary. China’s rapid growth role in international business makes it nearly impossible for western businesses not to engage with it and consequently this has been found to be an effective short-term solution for the problem of cultural conflict. The intermediary should be someone with the requisite social connections in China as well as sufficient knowhow of Western business culture and practices. Through such individual members of different cultures can transcend their cultural differences and be assisted to understand the various issues that result in conflict and work around them productively. Alternatively, every party should take time to study and learn the other culture before they try to engage in business with them can handle conflict of this nature. For example, an American businessperson may wish to experience China as a tourist and read about its culture and traditions so they can have an inkling of what to expect. The primary causes of cultural conflict is often ignorance by one or both parties and this always reduces considerably when one makes effort to understand the other culture. Conflict resolution often calls for negotiation and compromise (Mayer, 2012), while this generally tends to be effective in some cases, compromise may have negative implications. For example, as aforementioned, the Chinese concept of Guanxi is quite different from convectional American business practice and its activities can be deemed unethical and even illegal in the West. For example, in China it is commonplace to offer presents to potential business partners or to use one’s influence within an organization to help their “friends” move things faster or more smoothly. Nevertheless, such practices in the US would be frowned upon and may even result in prosecution for corruption and nepotism. In the same way, breaching the terms of a contract in the west is considered a crime since contracts cannot renegotiated after they have been agreed on (Luo, 2008). In case the above-mentioned conflict was to be resolved through a Chinese middle person, he may convince the US side to adjust their contract. However, the American partners would be offended if the attempt would have a negative impact on their projected bottom lines. Therefore, any solution involving adopting elements of Chinese culture may be viewed as unethical and even cause legal problems for the firm. To avoid putting the firm in such a situation, the best option would be to involve all the stakeholders in the secondary negotiations. This way, the investors and distributors to whom the company is accountable will be a part of the mediation and they will not feel left out therefore be less likely to take umbrage at the new conditions. Furthermore, given that miscommunication was the primary cause of the conflict in the first place, all the stakeholders should be briefed on the problem and how it came about and be involved in the process of coming up with the least damaging solution for both sides. From a functionalist viewpoint, society is bound together by agreement or unity, which the different members of a community should agree on (Durkheim, 1960). In the globalized business setting, this is often difficult because of the contradictory and sometimes conflicting cultural assumptions. For purposes of this study, the consensus can be applied through what Emile Durkheim refers to as organic solidarity, which brings together people from diverse cultural backgrounds (Thompson, 2002). Mediation is the most effective negotiation technique to achieve cohesion when divergent understanding of business culture results into conflict. This is because both parties can use the mediator as a conduit to understanding each other’s perspective and coming up with a solution that will be mutually beneficial. Furthermore, in the case study, the problem has emerged because of a contract which one side appears to disregard. Therefore, mediation is appropriate since it provides for non-binding mediation contracts, the two firms could therefore have carried on with business and their representatives drew such contracts, which each side could amend in consultation to the other. However, given the American propensity for written and binding contracts, Arbitration could also be considered as long as an informed arbitrator represents both sides. The flexibility of the contract can also be factored in so that the contract describes to what extent it can be renegotiated. This compromise will create a desirable situation in which both parties will have a contract they are secure doing with them business. The functionalist theory may be used in contextualizing of the above conflict and the application of mediation to try solving it. Societies tend to function, as organisms which when harmoniously linked will result in productive functional societies. The American and Chinese business cultures are an example of such organisms that need to be connected for the business to flourish between the two cultures. This is where the mediator comes in; in 1972, Young laid the groundwork for the mediation theory; he distinguished the disputant’s need for intervention from the motivation of the mediator to intervene (Lee, Yang & Graham, 2006). In recent years, this approach has gained popularity not just for the traditional business dealings but also for labor disputes and it has been even been used in the place of litigation, from the above case study it is apparent that the theory of mediation is the most appropriate. The Americans wanted to pursue a legal recourse but this is clearly not an option given that the Chinese government share the Chinese firm’s interpretation of the contract and its supposed flexibility. The mediation frameworks therefore comes in as the most effective way for both parties to express their grievances and have them addressed by a mediator who understands the working of both cultures and can come up with a way to harmonize their contradictory demands. Although mediation is not the only solution, nor necessarily the most effective framework in this context, it is likely to be highly effective since it will balance the needs of both sides taking into consideration their cultural differences. The following is a proposal of how to deal with a conflict situation such as the one described in the case study, when communication fails between two culturally divergent parties. A three stage process that involves elements of reflection, negotiation and conflict resolution theories. Taking a step back The first stage of my proposal is that when parties have come at an impasse where they are no longer able to come to an agreement, they should take a step back and reexamine the problem a fresh. A common mistake many organisations make in such situations is that each keeps trying to get their way by manipulating or strong-arming the other party through methods like litigation. My proposal is that instead of going to this extent, the parties should terminate communication for a period and each can evaluate and reflect on their responsibility in the conflict and determine through group reflection and consultation what they are willing to compromise. Mediation and Dialogue The second stage involves both parties engaging each other in constructive dialogue in the presence of a neutral mediator. For dialogue to be sustainable, it is important that each side be offered a chance to take responsibility for their contribution in the conflict (Saunders, 2003). They should acknowledge where they think they went wrong without addressing the faults of the other team, the second party would also do the same and afterwards they can fill in the gaps for each other. Through constructive dialogue, people are given a chance to reflect on their actions and try to come up with a solution that will satisfy both sides (Wagner, 2007). In most cases, there is a possibility that they will realize that despite their having different short-term objectives, their end plans are mutually beneficial or symbiotic. With this realization, they will find it easier to understand and make allowances for each other’s divergent points of view. Renegotiation This is the stage where the parties table their new proposals having taken to account the feedback from their opponents. In the above case study, after the American and Chinese parties have realized that their cultural approaches to doing business were the barrier to success they should renegotiate while factoring in the differences. The Chinese would then make their demands according to what they have learnt about the Americans and vice versa. In the renegotiation stage, it is critical that both sides table all their “cards” to avoid any further misunderstandings. Successful renegotiation should end up in an interim contract, which will be gradually implemented and only fully binding after initial implementation process is proven successful. Implementation In this final stage, the solution that both sides have agreed on is applied to the situation that had emerged because of the conflict in question. The implementation should however be controlled and monitored by both parties who should each have a representative to oversee the process. The implementation should be divided into several stages such that at the end of each a committee consisting of the mediator and representatives can evaluate the success and determine if the solution is working to the best interest of both parties. References Dunfee, T. W., & Warren, D. E. (2001). Is guanxi ethical? A normative analysis of doing business in China. Journal of Business Ethics, 32(3), 191-204. Durkheim, E. (1960). Sociology (translated by J.D. Folkman), in K. Wolff (ed.), Emile Durkheim 1858-1917, p. 383, Columbus: Ohio State University Press,. Graham, J. L. and Lam, N. M., (2003).The Chinese Negotiation. The Harvard Business Review. Vol. 81, No. 10, pp. 82–91. Lee, K. H., Yang, G., & Graham, J. L. (2006). Tension and trust in international business negotiations: American executives negotiating with Chinese executives. Journal of International Business Studies, 37(5), 623-641. Luo, Y. (2008). The changing Chinese culture and business behavior: The perspective of intertwinement between guanxi and corruption. International Business Review, 17(2), 188-193. Mayer, B., (2012). The dynamics of conflict resolution : A Guide to Engagement and Intervention. San Francisco: Jossey-Bass. Saunders, H. H. (2003). Sustained dialogue in managing intractable conflict. Negotiation Journal, 19(1), 85. Wagner, C., (2007) Not Just Talk - SDCNs Informational Video Vimeo, Rrtieved from: http://www.vimeo.com/1746722  Thompson, K., (2002). Emile Durkheim. London. Routledge. Read More