Business Negotiations – Week 7 Lecture 1

International and Cross-Cultural Negotiation

In the last two decades, the frequency of international negotiation has drastically increased. People today travel more often and farther, and business is more international than ever before. For many people and organizations, international negotiation has become the norm rather than an exotic activity that only occurs occasionally. There are hundreds of thousands of books and articles written on the challenges of international negotiation, and how culture impacts the negotiation process. While culture has many definitions, for the purposes of this course, we will refer to culture as shared values, beliefs, and behaviors of a group of people. Countries can have more than one culture, and cultures can span national borders. 

What Makes International Negotiation Different?

According to Phatak and Habib (1996), there are two contexts that have an influence on international negotiations; the environmental context and the immediate context. 

The environmental context includes environmental forces that neither negotiator controls that influence the negotiation. There are six factors in the environmental context that make international negotiations more challenging than domestic negotiations: political and legal pluralism, international economics, foreign governments and bureaucracies, instability, ideology, and culture. These factors can limit or constrain organizations that operate internationally, and it is critical to understanding their impact on negotiation. 

Political and Legal Pluralism – Companies doing business in different countries have to deal with various legal and political systems. There are taxes that organizations have to pay, labor codes or standards that must be met, and different codes of contract law and standards of enforcement. Also, political situations may enhance or detract from business negotiations in various countries at different times. For example, doing business in China today is very different than 20 or 10 years ago. 

International Economics – The fluctuations of a currency plays a big role when negotiating in different countries. For example, if the United States and Europe negotiate an agreement, they have to also decide in which currency the agreement will be. The risk is usually greater for the party who must pay in the other country’s currency. From the above example, if the agreement is made in dollars, then Europe will have to pay higher fees. The less stable the currency, the greater the risk for both parties. Any changes in the value of a currency (going up or down) can significantly affect the value of the agreement for both parties. 

Foreign Governments and Bureaucracies – The way industries are regulated by governments plays a role in negotiation as well. In the United States, companies are relatively free from government intervention, even though some industries are heavily regulated than others. Also, in the United States, business negotiations happen without government approval, and parties decide whether or not to engage in an agreement based on business reasons alone. In contrast, the governments of many developing countries are closely monitoring imports and joint ventures, so negotiations are more challenging.

Instability – While businesses in North America enjoy stability, many countries around the world are not very stable. Instability may take many forms, including a lack of resources that Americans commonly expect during business negotiations, shortages of other goods and services, and political instability. The challenge for international negotiators is to anticipate changes accurately and with enough lead time to adjust for their consequences.

Ideology – Negotiators in the United States generally share a common ideology about the benefits of individualism and capitalism, while negotiators from other countries do not always share this ideology. 

Culture – People from different cultures appear to negotiate differences, and may interpret the fundamental process of negotiation differently. We will discuss the role of culture on negotiation later on in this lecture.

Immediate Context can have an important influence on negotiation. The relative bargaining power of the two parties involved has received a lot of attention in recent years. Joint ventures have the subject of a great deal of research on international negotiation, and relative power has often been operationalized as the amount of equity (financial and other investment) that each side is willing to invest in the new venture. The presumption is that the party who invests more equity has more power in the negotiation and therefore will have more influence on the negotiation process and outcome. Levels of conflict between parties will also influence the negotiation process and outcome. High-conflict situations that are based on ethnicity, identity, or geography are more difficult to resolve (Middle East peace process, etc.). Diplomatic ‘back-channel’ negotiations conducted in secret may help resolve high conflict situations, but their success is not guaranteed. The relationship between neighbors, desired outcomes, and immediate stakeholders can also influence the negotiation process and outcomes. 

Culture and Negotiation

Culture is the most studied aspect of international negotiation. There are various meanings and definitions of culture but they all share two important aspects. First, culture is a group-level phenomenon, meaning that a defined group of people shares beliefs, values, and behavioral expectations. The second common element of culture is that cultural beliefs, values, and behavioral expectations are learned and passed on to new members of the group. It is important to know that while cultural differences are very important, international and domestic negotiation is determined by several other factors as well. There are four ways that culture has been analyzed in international negotiation: as learned behavior, as shared values, as dialectic, and in context. 

Culture as Learned Behavior

Rather than focusing on why members of a given culture behave in certain ways, it is better to concentrate on creating a catalogue of behaviors that foreign negotiators should expect when entering a host culture. Providing a list of dos and don’ts is for negotiators to obey is important when negotiating with people from different cultures. For example, when negotiating with the Chinese negotiators, it is important to understand that the Chinese will begin the negotiations with a search for a broad principle and the building of relationships, followed by assessing the boundaries of the relationship, and a decision whether to enter the agreement. 

Culture as Shared Values

The second method of analyzing culture focuses on understanding central values and norms and then building a model for how these norms and values influence negotiations within that culture. Some cultures value individualism while others value collectivism, some value power and others don’t, and some cultures do not feel comfortable in uncertain situations, while others are focused on career and quality of life. 

Culture as Dialectic

This approach does not provide international negotiators with simple advice about how to behave in a given situation. Instead, it suggests that negotiators who want to have successful international negotiations need to appreciate the richness of the cultures in which they will be operating. 

Culture in Context

This approach recognizes that human behavior is not determined by a single cause. Rather, all behavior may be understood at many different levels at the same time, and social behavior as complex as negotiation is determined by many different factors, one of which is culture. The strength of this approach is in forging a deeper understanding of how cross-cultural negotiations work and using that understanding to prepare and engage more effectively in international negotiation. 

The Influence of Culture on Negotiation

From the managerial perspective, there are several factors of how culture influences negotiation. Some of the factors include: definition of negotiation (the definition of negotiation is not the same for everyone), negotiation opportunity (some negotiators look at negotiation as distributive versus integrative situation), selection criteria of negotiators, protocol, or the formality of relations between two parties, communication, time, risk propensity, group versus individuals, nature of agreement, and emotionalism. Research also shows how a culture of both negotiators can influence the setting of priorities and strategies, culture can impact the outcome of negotiation (intracultural versus cross-cultural), and can impact the negotiation process and information exchange. Weiss presents eight different culturally responsive strategies that negotiators can use with a negotiator from a different culture. These strategies depend on the degree of familiarity that a negotiator has with the other culture. For example, if the degree of familiarity is low, then negotiators can employ agents or advisers, bring in mediators, or to convince the other negotiator to use your approach. If the degree of familiarity is medium, then adapt to the other negotiator’s approach, and coordinate adjustments. If the familiarity is high, embrace the other negotiator’s approach, improvise an approach, or create a new approach.