Negotiations in a Cross-Cultural Environment - the US and China - Case Study Example

Nеgоtiаtiоns in а Сrоss-Сulturаl Еnvirоnmеnt Name Unit Class Executive summary This report looks at negotiations in cross cultural context. The aim of the report is to look at the cultural differences in doing business at China by an America firm. This is achieved by looking at the problems that may arise during negotiations and negotiation skills that are required to solve these problems. Chinese culture differs greatly from American culture hence negotiations should be done with cultural dimensions in mind. The main differences are in language, history, religion and economic systems. According to Hofstede cultural dimensions, China has high power distance, collectivism, and masculinity and low uncertainty avoidance. The Chinese society is also pragmatic and restrained with long term orientation. This is a society which is polychronic and affective. By analyzing the Chinese culture, entering into negotiations without knowledge of their culture can lead to failure. This is due to sharp contrast that exists between the two countries culture. While the Chinese culture is ambiguous in negotiations, Americans are straight forward. The Chinese also prefers use of groups in negotiations unlike the Americans who may use a single person. The report recommends that when making negotiations with Chinese, their cultural implications should be well understood as it determines the outcome. Use of interpreters should be used when one does not understand the language. In negotiations, no one should use foreign language unless he or she understands it well. Table of Contents Executive summary 2 Table of Contents 3 Introduction 5 Cultural factors (USA and CHINA) 6 Hofstede’s cultural dimensions 6 Power distance 6 Individualism/collectivism 7 Masculinity and femininity 7 Uncertainty avoidance 7 Pragmatism 8 Indulgence 8 Long term and short term orientation 8 Time orientation 9 Mono-/polychronic 9 Non-verbal communication 9 Verbal communication 10 Trompenaars Dimensions 10 Universalism and Particularism 10 Neutral and affective 11 Specific and diffuse culture 11 Achievement and Ascription 11 Symbols, heroes’ rituals values 11 Factors affecting negotiations 12 Power distance and negotiations 12 Uncertainty and negotiations 12 Orientation and negotiation 13 Negotiations and diffuse culture 13 Language and negotiations 14 Negotiations and cultures 14 Negotiation strategy 14 Negotiation outcome 15 Conflict resolution 15 Factors affecting cross-cultural Negotiation and Decision Making 16 Language and cross-cultural negotiations 16 Differences in Decision Making 16 Personal Relationships 16 Status and Protocol 17 Interpreters, Translators and Bicultural Brokers 17 Management Implications 18 Conclusion 18 Reference 19 Appendices 21 Introduction Expansion to emerging economies leads to benefits such as low cost of labor and new market for the product. As the home market becomes more competitive, expanding to emerging economies offers the best alternative to help in maintaining competitive advantage. As a multinational company, the decision to expand should focus on china. This is due to the tremendous opportunities that exist in the country. China has earned the position of the second trade partner to US that can work to the advantage of the firm (Derek, 2011). Though China economy is still behind US, it has the highest growth rate. China has a large growth in foreign direct investment (FDI) among the emerging economies. China GDP was at $8.2tn in 2012 compared to US GDP at $16.2tn (Linda, 2014). This report will look at the MNC expansion to china cultural differences to be faced problems that may arise in negotiations and negotiation skills required solving them. This will be achieved through analyzing the cultural factors, factors affecting negotiations, factors affecting cross-cultural negotiations and decision making. Cultural factors (USA and CHINA) China and USA have distinct cultures that need to be addressed before venturing into business. The management is expected to negotiate and make plans that are in line with the diverse cultural of operations. The cultural differences that exist between China and USA involve language, religion, history and economic systems. Understanding the cultural differences is the key to success in the multinational operation. To fully understand the cultural differences between the two countries, Hofstede cultural dimensions offer the best approach. Hofstede’s cultural dimensions Geert Hofstede analyzed culture into various dimensions and came up with issues that come about due to national culture difference. The five dimensions are; power distance, uncertainty avoidance, and individualism, masculinity / femininity and long term orientation. Power distance Power distance relates to the way in which inequality is perceived and accepted in various cultures. Different cultures exhibit different power distances. In countries with low power distance, they believe that there should be minimal inequality. In this situation, the subordinates are consulted, and every individual contribution is much appreciated. This is in contrast with countries with high power distance where inequality is desired, and people expect it. China has a high power distance of 80 while USA has 40 (The Hofstede Centre, 2014). In China, the employees wait for the leaders decisions and needs more supervision than their American counterparts. There is also a belief that power has privileges as opposed to American system of leadership. Individualism/collectivism This looks at the way people prefer to place their importance in the society. For individualism, importance is placed on self and autonomy while in collectivism; the importance is placed on interdependency within the family and society rather than oneself. USA culture is more individualism with index of 91 while Chinese culture more collectivism with rank of 20 (The Hofstede Centre, 2014). The relationship between the employer and employee in China is family like based on morals. In USA, the relationship between the employee and employer is based on mutual advantage. The implications are that the Chinese employees are more likely to maintain harmony and avoid conflict through not speaking their mind (Churinthorn, 2010, p.173) Masculinity and femininity This cultural concept looks at what is perceived to be an appropriate role that certain gender plays. In a society that is masculinity, it implies that genders have distinct roles. In femininity societies, gender roles overlap where both men and women roles are intertwined. China has the masculinity cultures with score of 66 while America has 62 (The Hofstede Centre, 2014). This is where material and success dominate the culture. The cultures values money and people are expected to live to work. In this case, managers in China and US are expected to be decisive and assertive. Uncertainty avoidance When there is extreme uncertainty, it leads to intolerance. Human beings have ways to alleviate uncertainty. Cultures with high uncertainty avoidance have structures in their work with an aim to reduce ambiguity. For those with low uncertainty avoidance, they see uncertainty as acceptable in their lives. In this case, China has a low uncertainty avoiding culture ranking 30 while US have ranking of 46 (The Hofstede Centre, 2014). This means both cultures can easily accept new ideas. It also implies that Chinese culture is more tolerant to ambiguity than American culture. Pragmatism According to Peter (2009), China culture is very pragmatic. This implies that people believe that the truth is based on the situation. The main orientation is to live a virtuous life which leads to changing traditions, thriftiness and perseverance. China score at 87 in pragmatism (The Hofstede Centre, 2014). Indulgence China is a restrained society hence has a score of 24 (The Hofstede Centre, 2014). Weak control of desires and impulses is indulgence which leads to the classification of cultures as restrained or indulgent. China is much restrained by the social norms hence are not indulgent. Long term and short term orientation Based on Confucian work, long term and short term orientation are defined as the fifth dimension of culture which looks at the orientation of people perspective based on present and future. China and America score differently in the long term and short term orientation. For China, they highly score in long-term orientation with 118 points while US have 29 points (The Hofstede Centre, 2014). This shows that China is long term oriented as opposed to US. This is a cultural aspect that emphasizes the need to have shame and is sensitive to cultural contacts. Time orientation Time orientation varies into three main groups which are past, present and future. Past looks at history, respect the ancestors and old and like to view everything in respect to the history. Present orientation looks at the present moment as very important and has poor implementation of plans. Future orientation looks at the future potential and exploits present and past for future advantage. This is a culture that makes strategic plans. China is respect for the old people and ancestors but also practices strategic planning. The family history and origin is highly respected (The Hofstede Centre). Mono-/polychronic Monochronic refers to the tendency to do one task at a time while polychronic refers to multitasking. According to Churinthorn (2010), China is polychronic, unlike USA. This means that the company will have to face a culture where things are done through multitasking. The Chinese culture requires constant nurturing of the business relations. Cultures which are monochronic are more organized and rely on the calendar for the events. In Chinese culture working conditions are flexible and mostly disregard timeframes. This implies that the Chinese culture puts importance to the reputation as opposed to numbers and facts. In some instances, the Chinese partners or employees may not empathize on numbers and facts when reputation is at stake. Non-verbal communication This includes the tone, gesture, eye contact and the facial expression. In every culture, different gestures have different meaning. For the Chinese, there are several non-verbal communications which are appropriate. These include the use of thumbs up sign to show that everything is all right. While doing business meeting, the seating arrangements means a lot. This also applies to the posture that one uses while in business or dinner. According to Churinthorn (2010), slouching or putting feet under the chair or desk is considered inappropriate. Also using the feet to gesture or move things is disregarded. Body contact is also restricted in China while personal space is limited which implies that when conversing, the Chinese tends to stand close as opposed to those from western countries. Verbal communication Chinese are fonder of using concise speech. There is also use of indirect communication which mostly used with succinct statements. Due to their courteous nature, using “no” is more unlikely. This leads to use of such terms such as “maybe” which could be meaning “no” in actual sense. Due to the confusion culture, Chinese are more reserved and rarely uses expressions in their communication. The participant in any communication in China tries to avoid any embarrassment to those involved. This is through respecting the stature of the participants and avoiding doing anything that can undermine the status of one another. Use of open criticism that is appropriate in US may be taken as insulting in China (Churinthorn, 2010, p. 175) Trompenaars Dimensions Universalism and Particularism China scores are very high in Particularism as opposed to US which scores high in universalism. Universalism empathizes that all procedures can be applied to any situation unlike Particularism, which considers the situation. China focuses more on relationship buildings as opposed to rules and regulations which are the case of USA. Neutral and affective America culture is more neutral as opposed to China which is affective. In china, emotions are often discussed openly. According to Churinthorn (2010) Chinese are more likely to talk with enthusiasm and smile as opposed to the American counterpart due to culture. Americans are more introverted and are less likely to bring emotions into situations. This is unlike the Chinese culture where emotions are more likely to be displayed. Specific and diffuse culture America scores high in having a specific culture. This is where though there is large public space; there is a small space that is reserved for close friends. Chinese culture is more diffuse with both public and private space equal in size (Kęstutis, 2013). There is a strong separation between the private and work life of an individual. Achievement and Ascription In Chinese culture, achievement is not regarded as much as backgrounds and connections. Ascription culture in china uses Guanxi which looks mostly on connections and family background of an individual (Churinthorn, 2010, p. 177) Symbols, heroes’ rituals values Culture differences are shown by the symbols, heroes, rituals and values. In China, these aspects of culture are empathized on. Founders of successful organizations are seen as heroes. Rituals are collective activities that culture perceives to be socially essential. They may be celebrations or formal activities which are carried out in rational ground. This can be expressed in determining who speaks in a meeting or who is not supposed to be late for a meeting. Churinthorn (2010) claims that hierarchy plays part in Chinese meeting where it’s ritually expected that the leader is supposed to speak. Values are the most important part of the culture. It determines what is good or bad, decent or indecent and determines the normality. For those in the leadership position in china, values are expected to be present. Factors affecting negotiations Power distance and negotiations In china, there is high power distance as more emphasis is put on respecting those in top of the hierarchy. Making negotiations in china is affected by the power distance. Chinese negotiators prefer formal negotiations (Churinthorn, 2010 p. 176). This involves addressing them using their titles and avoiding discussing personal matters. Using the official titles during negotiations is perceived to be a sign of respect. Negotiations in China must respect formality due to power distance. Uncertainty and negotiations While the American's counterparts are straightforward, Chinese are more ambiguous (Kęstutis, 2013, p.94). This is due to fact that Chinese culture has high uncertainty. The negotiations in China use indirect style which is in most cases ambiguous. In China, it’s common for one to smile which can be viewed as viewed as a mask to negotiating counterparts. When negotiating, it’s common for the Chinese counterparts to give indirect answers such as maybe instead of no. Orientation and negotiation According to Kęstutis (2013), Chinese are long time oriented. This means that the negations carried out with Chinese partners should be aimed in creating a long time relationship. Besides sealing a contract, the aim should be more on the future relationship as interpersonal relationship takes priority as opposed to the commercial goals. Negotiations in China are based on future and attached to the economic growth. The focus on past and present during negotiations is limited in china. Negotiations and diffuse culture According to Kęstutis (2013), Chinese culture is diffuse which means that public and private space have similar size. The negotiations carried out in China should be able to understand that business life and personal life are more linked. This means that in business negotiations, it’s common for personal life concepts to appear. People are more likely to discuss private life as much as business life in a diffuse culture. Language and negotiations When negotiating, language is an obstacle which has to be tackled first. At the moment, the Chinese have made a lot of efforts to learn other languages which include English and Japanese. There have also been efforts by other countries such as Americans to learn Chinese. This implies that for the business negotiations to take place in China, both parties must first overcome the language barrier (Kęstutis, 2013). The knowledge of English among the Chinese plays a big part in making negotiations. Negotiations and cultures From Kęstutis (2013), Chinese culture is very unique in comparison with western culture. The differences are in the language, religion and economic systems. To business negotiations, culture differences act as a barrier. For negotiations to take place, cultural differences need to be understood. This leads to the business partners being able to understand each other culture and finally able to communicate in an understandable way. Negotiation strategy For effective negotiation, business must use appropriate strategies. One of the strategies is using a process-oriented dimension and understanding it. This is through gaining knowledge on Chinese culture which can help a lot in understanding their negotiation behavior. It’s also important to be patient when negotiating with Chinese. Churinthorn (2010) claims that Chinese requires time to build trust before continuing with negotiations. Chinese tends to be more resourceful with those they trust. Gaining the trust before negotiations makes the process to be smooth. Negotiation outcome The goal for the negotiations varies from culture to culture. In china, the goal for negotiation is creation of a long term relationship which can lead to a contract. According to Kęstutis, (2013), creation of relationship is the most valued outcome than commercial gains. For negotiations to be successful, trust is essential. Unlike the American counterparts who are more interested in signing a deal, culture in china views relationship as the ultimate goal. Conflict resolution Effective conflict resolution is very important in multinational organizations. According to Wenli, (2010), avoidance is used as a way of conflict resolution in China. This is due to the fact that Chinese maintains high interest in maintaining harmony. The idea of authority and obedience plays part in conflict resolution as the Chinese employees are keener to authority advice. The method of resolution may also vary depending on the situation. For the young Chinese, western influence may change their approach to conflict resolution (Conflict Resolution Network). Factors affecting cross-cultural Negotiation and Decision Making Language and cross-cultural negotiations According to Kęstutis (2013), language has a great impact on negotiations. When there is the language barrier, negotiations become almost impossible. In some cases, there is a need for interpretation for communication to take place. Adopting English as business language helps a lot in solving language barrier in business negotiations. According to Churinthorn (2010) though Chinese is the national language in China, a lot of efforts has been put in learning other languages. Differences in Decision Making According to Kęstutis (2013), each culture has differences in their decision making style. While others make decisions that are risk oriented, other cultures are risked averse. Chinese though considers themselves as risk takers in decisions makers prefers having a lot of information before making a decision, For example, while Americans prefer having a leader to make a decision, the Chinese will use a group negotiating team. The form of agreement reached whether general or specific is culture dependent. Personal Relationships The type of culture determines the relationship of the negotiators. In some cultures, personal relationship is empathized while in other it does not (Kęstutis, 2013). When making a decision in a formal culture, there is a tendency to use titles and avoid discussing personal matters. Informal cultures establish a formal relationship hastily and refer to each other using the first names. Status and Protocol In decision making status and protocol plays a big part in cultures where there is large power distance. These are cultures where hierarchy is observed, and decisions are made by those in high status. The employees respect those with high status and follow their orders. According to Kęstutis (2013), use of formal titles is evidence in such cultures. In China, status and protocol have great effect on decision making due to high power distance. Social Aspects of Negotiations Social aspects play an important part in negotiations and decision making. For example, Chinese is more concerned with their social status especially when making negotiations. They tend to show low emotions and tries as much as possible to save their face and status. If they are embarrassed, they are more likely to be offended. This is due to fact that their social status places great importance in family honor which is protected through saving the “face" (Churinthorn, 2010) Interpreters, Translators and Bicultural Brokers Though in some instances it’s unavoidable to use translators, interpreters and bicultural brokers, it sometimes leads to problems in negotiations. When using interpreters, translators and bicultural brokers, they should be cultural experts who are moderate and with technical experts in negotiations (Kęstutis, 2013, p. 93). When properly utilized, they provide an effective approach in negotiations. Translators should be treated as members of the negotiating team and well briefed on the scenario. According to Churinthorn (2010), no one should attempt to negotiate in a foreign language unless he or she knows it well. Management Implications Decision making and negotiations have direct implications on management. The decisions made may be a win or lose for the firm. For the management, negotiations are based on win situation. It’s important to recognize that the negotiators are different from each other. The management should also be prepared to communicate in two different cultures and be culturally neutral. According to Churinthorn (2010), there is also need to be sensitive to the other culture norms to avoid discomfort or emotional stress. Conclusion The main cultural difference between America and China lies in language, geography, religion, history and the economy. The Chinese have been more focused on their language which had acted to create a barrier in business negotiations. Of late, this has changed, and Chinese and Americans have started empathizing foreign languages. Both countries are in different locations which have different cultures and history. This leads to different culture values. In dealing with Chinese organizations, it is important to understand their culture. This is due to fact that their negotiations are embedded in their culture which is very different from western cultures. In Chinese negotiations, culture will determine the outcome. Chinese culture also embraces relationship before coming to the next step of negotiations. Cultural differences are the main determinants for the success or failure of negotiations. If negotiation is to succeed, all the Hofstede’s cultural dimensions have to be addressed. The culture determines who will negotiate, the structure of negotiations, strategy of negotiations and process used to negotiate. For successful negotiations in China, cultural implications should be kept in mind. The negotiator should keep in mind the cultural aspects that each actor in the negotiation table has. The norms and values that are attached to the culture have a great role in determining the business outcome in negotiations. Reference Churinthorn, B., 2010. “Doing Business in China: Cultural Factors, Start-up Concerns, and Professional Development.” Executive Journal, 16(12), 170-182, Viewed 27 June 2014, http://www.bu.ac.th/knowledgecenter/executive_journal/july_sep_10/pdf/aw26.pdf Conflict Resolution Network, n.d., Negotiation, Viewed 27 June 2014, http://www.crnhq.org/cr_trainers_manual.htm# Derek, S., April 14, 2011, The United States vs. China—Which Economy Is Bigger, Which Is Better, The Heritage, Viewed 27 June 2014, http://www.heritage.org/research/reports/2011/04/the-united-states-vs-china-which-economy-is-bigger-which-is-better Kęstutis, P., 2013. “International Business Negotiations: Culture, Dimensions Context.” International Journal of Business, Humanities and Technology, 3 (7)91-96. http://www.ijbhtnet.com/journals/Vol_3_No_7_September_2013/11.pdf Linda Y., 2014. “Is China about to overtake US as the world's largest economy?” BBC Business News, 30th April, Viewed 27 June 2014, http://www.bbc.com/news/business-27216705 Peter H., 2009, Beyond Development Orthodoxy: Chinese Lessons in Pragmatism and Institutional Change, Amsterdam University Press: Amsterdam, 1-30, Viewed 27 June 2014, http://www.mearc.eu/resources/Peter-pubs/WRR-articleHo.pdf The Hofstede Centre, 2014, Viewed 27 June 2014, http://geert-hofstede.com/countries.html The Hofstede Centre, n.d., What about China? Viewed 27 June 2014, http://geert-hofstede.com/china.html Wenli, Y., 2010. “Conflict management among American and Chinese employees in multinational organizations in China, Conflict Management.” Cross Cultural Management: An International Journal, 17(3), 299-311, Viewed 27 June 2014, http://jpkc.fudan.edu.cn/picture/article/357/bc/c2/01351893486a9d82da022ebded10/2db5ff9c-5dff-4075-be55-724a3d5d99c2.pdf Appendices Hofstede’s Indices (Kęstutis, 2013) Read More