Cultural Differences In International Business Negotiations example essay topic

1. INTRODUCTION 3 2. THE CHARACTERISTICS OF THE CULTURE 4 2.1 The three levels of culture 4 2.2 Hofstede's four dimensions of culture 5 2.2. 1 Power Distance 6 2.2. 2 Individualism-Collectivism 6 2.2. 3 Uncertainty Avoidance 7 2.2.

4 Masculinity 9 2.2. 5 Summary of the four dimensions 9 3. NEGOTIATION PROCESS 14 3.1 What is negotiation? 14 3.2 The aspects of negotiation 14 3.3 Negotiation strategies 15 4.

CROSS-CULTURAL BUSINESS NEGOTIATIONS 17 4.1 Cultural implications 17 4.1. 1 Communication 17 4.1. 2 Relationships 18 4.2 Stereotypes of cultures 19 4.3 Practical viewpoints: interview of Jyrki Paavola, Hacklin Oy 19 5. SUMMARY 20 REFERENCES 22 APPENDIX 1 1. INTRODUCTION Nowadays distances are getting shorter and the world is globalizing.

In order to survive companies must respond to the tightening competition. Internationalization is becoming a part of companies' daily lives. Exporting and importing has been part of the business for centuries, but also other types of international activities are becoming more frequent. International acquisitions and mergers as well as establishing new product plants abroad are common projects for large corporations. Even though business is dealt between companies, it is people, human beings, who are involved in these processes. This requires interaction and communication between various individuals and decision makers.

Negotiations are held for various instances and play a crucial role in accomplishing decisions between and within companies. Couple of decades ago companies were satisfied with having a product and being able to sell it to somebody; nowadays both parties are involved in negotiations trying to find win-win situations and different solutions. This creates pressures for people who are responsible of negotiations. As mentioned earlier, we are now living in more and more international environment. It does not, however, mean that there are no cultural differences anymore. Language alone can be a challenging obstacle.

In addition negotiation techniques and procedures can be very different. Behind these artifacts lays the values, which are very difficult to comprehend. In this seminar paper we are trying to illustrate the effect of cultural values on different negotiation techniques and methods. We believe that preparation plays a vital role in successful cross-cultural negotiations. First we approach the matter from theoretical point of view and at the end of the paper we also show practical example from the life of a Finnish manager. 2.

THE CHARACTERISTICS OF THE CULTURE According to Geert Hofstede, culture is 'collective programming of the mind'. What we have learned from our parents, from school and from work, affects our values and behaviour. Everything we do, or think is in some way taught. (Hofstede 1980) Culture's effects on our behaviour can be demonstrated with Figure 1. Figure 1. Culture's effects on behavior (Hasan 1998) In fact, one could compare culture with an ice berg, where only the top is above the water.

The danger with ice berg and culture is that after we have seen the top, we believe that we know what is under the surface. The top of culture, which is perceived, could be e.g. behavior, clothing and architecture. Below the surface lies ethics, values, sense of justice and our relations towards work and other people. (Brislin and Yoshida 1994, 41; Szabo 1998) When we meet people from another culture we begin to form perceptions and standpoints. We are trying to understand them. If we form these perceptions by only observing their behavior and their looks, our estimates about them will not be correct.

True values and the reasons for their behavior lie somewhere else. Therefore, we must examine the culture deeper, under the surface. 2.1 The three levels of culture Culture can be divided in different levels. At the top level there is the national culture.

The most important element of it consists of values. Our values determine what we consider to be beautiful or ugly, good or evil and right or wrong. Values are part of our unconscious and are therefore very difficult to reach. We cannot say that somebody's values are right or wrong, they are just different. If we want to change someone's values, we must be prepared for a long and difficult process. (Hofstede and Usunier 1996,119-120) The lower levels of the culture are easier to reach.

At the middle level there is the professional culture. Certain professional groups, such as soldiers, engineers and doctors share their own professional language, jargon, and professional culture. (Hofstede and Usunier 1996,120; Snell et al. 1998) A Finnish and a German doctor may relate closer to each other, than for example a Finnish doctor and a lawyer.

At the lowest level there is the organizational culture. In each organization there are certain rituals and habits that occur worldwide regardless of the country where the daughter company is located at. For example, the employees of a large multinational company may feel to be the part of the big, happy family. Even though organizations often have deep values and beliefs, organizational culture is usually superficial.

(Hofstede and Usunier 1996,120; Brewster and Tyson, 1991) In next chapters we will concentrate to observe mainly national cultures. 2.2 Hofstede's four dimensions of culture Geert Hofstede conducted a large survey in 1967 and 1973. He studied employees of the IBM in over 50 countries. Since all of the employees were working within the same company, he was able to concentrate on national differences.

In this way he was capable of differentiating four dimensions, with which he could observe the differences and similarities of national cultures. These four dimensions are: Power Distance, Individualism-Collectivism, Uncertainty Avoidance and Masculinity. 1 Power Distance With Power Distance can be explained those perceptions that people have about power distribution and its justification. If society accepts that power and wealth is distributed unequally, the society has high Power Distance. In high PD countries managers are authorities. In low PD nations, like in Nordic countries, managers and leaders are consultative and they will discuss about issues.

(Hofstede and Usunier 1996,121; Brislin and Yoshida 1994,136-137; Hofstede 1980) Asia has typically high Power Distance. If manager for example in negotiation makes an error, the subordinate must accept the mistake and continue the negotiation. He / she cannot notify the manager about the error, because manager would loose his / hers face. It would shrink the distance between superiors and subordinates, and that would be against cultural rules.

(Brislin and Yoshida 1994, 36-37) Reasons for high or low Power Distance has been researched widely. For high PD countries it seems to be typical, that they are former colonies. The nation is typically poor and power has concentrated in few hands. Climate is usually warm: tropical or sub-tropical.

Also middle class is more often than not less educated than in low PD countries. (Hofstede 1980) When negotiators from low PD countries meet their counterparts from high PD countries there will eventually be misunderstandings. For example Finnish negotiators may be confused when the other party talks only to the Finnish manager. The other negotiators may become frustrated since nobody pays attention to them. On the other hand, once you know who is the superior manager of the opposite party, you know who makes all the decisions. And thus you can concentrate only to that one person. 2.2.

2 Individualism-Collectivism In cultures, where individualism is appreciated one should look after him / herself and one's family. In collective cultures people are more likely to form groups and look after each other within these groups. In collective societies family is also larger than just a nuclear family. Aunts, uncles and grand parents belong often in families. In collective countries teamwork has a significant role.

When in individualistic countries people are thinking about themselves, in collective cultures people are first thinking about group's interests. (Hofstede and Usunier 1996,121; Brislin and Yoshida 1994,136-137; Hofstede 1980) The United States and the other Anglo countries are typically high Individual cultures (Hofstede 1980). Competition of the success between individuals is keen. This can lead to aggressive behavior in negotiations.

There may also be individuals who are just trying to 'look good' rather than trying to find the best solution for everybody. Asia and Arabic countries are collective cultures. People work more effectively in groups than in individualistic cultures. Negotiators from high IND cultures can expect to face problems if they are for example trying to emphasize their individual brightness. It is also common that when dealing with collective cultures, the relationships must be stable before anything firm and concrete can be achieved. In some cases it can take years.

(Hofstede 1980; Hofstede and Unusier 1996) 2.2. 3 Uncertainty Avoidance Uncertainty Avoidance is the one of the four dimensions, which most depends on person's individual characteristics. Still there are clear national differences. (Hofstede 1980) We believe, that UA is the dimension, which most easily can be perceived in negotiations.

Uncertainty Avoidance describes how uncomfortable members of society feel in new, unstructured situations and when facing uncertainty. High UA cultures form strict rules and laws to deal with upcoming situations. Members of culture are often emotional and are trying to find the absolute truth. They believe that one should not brake company's rules, even though the company would benefit from it. (Hofstede and Usunier 1996,122; Brislin and Yoshida 1994,136-137; Hofstede 1980) Organizations are often slow and bureaucratic. Negotiators from uncertainty tolerant cultures may become frustrated with the slow speed of negotiations, when the high UA negotiators are trying to consider everything.

On the other hand, surprises are not common in high UA countries. Members of uncertainty tolerant cultures can deal better with differences. They are more likely to be able to function effectively in cross-cultural negotiations. They do neither express their feelings openly.

Negotiators from low UA cultures are less likely to suffer from stress than people from high UA cultures. (Hofstede and Usunier 1996,122; Hofstede 1980) Members of uncertainty tolerant cultures are used to taking risks. Therefore they can handle their stress well, even though they might have more stress than people from high UA cultures. When people from high UA cultures are afraid of the worst, people from low UA cultures hope for the best. (Hofstede and Usunier 1996,122; Hofstede 1980) If we research history, we can find many interesting points dealing with Uncertainty Avoidance or Tolerance. It seems like without few exceptions, those democratic nations who have formed their present structure of government after the WWI, belong to the high UA cultures.

The other historical fact seems to be that if the ancestors of today's inhabitants have been under the rule of Roman Empire they have been used to strict governing and thus avoid uncertainty. The ancient Buddhism is in favor of new and openness. (Hofstede, 1980) The bureaucracy of China is not because of the religion, but because of the communism. We have heard to be argued, that people from low UA cultures are better and more effective negotiators, because they are more capable of dealing with new, uncertain situations. When negotiating with people from different cultures negotiators may feel unsecure.

Members of high UA cultures are not willing to take risk. On the other hand, they can be very temperament ic and even scary for the members of low UA cultures. Low UA negotiators may also become frustrated with high UA rules and rituals. 2.2. 4 Masculinity The differences between values are small among the women from both masculine and feminine cultures. The national differences can be seen mainly from the values and behavior of men. Norms of the business, however, are formed by the actions and values of men.

(Hofstede and Usunier 1996,122; Hofstede 1980) Members of the masculine society are competitive and task oriented. People are self-confident and know what they want. In masculine cultures men are succeeding better in business than women. Money and power are highly appreciated.

"Big is beautiful". (Hofstede and Usunier 1996,122; Brislin and Yoshida 1994,136-137; Hofstede 1980) In feminine cultures caring and helping are important in life. Pleasure and the quality of life is appreciated. In feminine society men and women are equal. Serving is more important than achieving.

(Hofstede and Usunier 1996,122; Brislin and Yoshida 1994,136-137; Hofstede 1980) In masculine society managers concentrate on tasks, performance and their personal status. In feminine cultures managers are people oriented and serve and negotiate with their subordinates. In feminine cultures people work to live, when in masculine cultures people live to work. (Hofstede, 1980; Brislin and Yoshida 1994, 38) In cross-cultural negotiations there can be huge differences. Masculine negotiators are aggressive and want to proceed fast. Negotiators from feminine cultures want to go on slower and have also good time.

Especially women from feminine cultures may face problems when negotiating with the men from the masculine cultures. 2.2. 5 Summary of the four dimensions By using the criteria described above can different cultural areas be determined and classified rather accurately. Hofstede's studies have been criticized especially because they make too wide generalizations. (Collett, 1998) On the other hand, when the purpose is to give an overview about cultural differences in international business negotiations, very specific details of cultures are useless and can be confusing. As we have stated above, in every culture there are individuals who act and think differently from the large majority.

However, the conclusions demonstrated below describe rather clearly the national differences. In Table 1., there is one way to classify different countries. Dimensions have certain indexes. They are not comparable with each other, but demonstrates the differences between nations. The larger the index score is, more the country has the characteristics of the dimension. In order to give an illustrative example, we have chosen only 30 countries in our table.

Table 1. The countries can be divided in eight different sections: Developed Asia, developing Asia, developed Latin, developing Latin, Middle-East, Anglo-cultures, Germanic cultures and the Nordic countries. (Hofstede, 1980) Japan seems to be separate from the other Asian cultures. The sectors can be perceived better in the next Table. We have divided the countries in quartiles. After the country, there is the ordinal number, which illustrates in which quartile the country belongs.

For example Philippines have the PD index score of 94. It is among the first 25 per cent of the countries in PD dimension, so it has the quartile score 1. In UA dimension Philippines's core is 44, which places it to the last quartile of the 27 countries, thus the quartile score is 4. Table 2.

Cultural areas divided in quartiles with 27 example countries. NEGOTIATION PROCESS 3.1 What is negotiation? Negotiation, as trade in general, can be seen as an effort to reach a win-win situation where both sides of the negotiation feel that they have gained from the deal. Within this continuum each negotiator tries to maximize the gain to his / her own organization.

Negotiation has been described by Kapoor et al (1991, 18) as: "a process of interaction between people. It has the mission of creating lasting relationships. The objectives of negotiation are to manage and nurture those relationships". Other statement by Cateora (1996) defines that "to negotiate is to confer, bargain or discuss with a view toward reaching an agreement". Many shortsighted negotiators do not often understand the importance of relationship nurturing and try to gain all the advantage they can from the current negotiation. This approach can be profitable when the deal is one-shot and passing in nature.

However, when trying to contribute to lasting relationships more notice should be placed on the partner's situation. The reputation of stone-hard and advantage taking negotiator travels fast in business world and the negotiator may find his situation weakened also in negotiations with old partners. (Fuller 1991, 28-29) 3.2 The aspects of negotiation According to Kapoor et al (1991) there are four aspects to negotiating. The first of them is the aspect of networking, which involves acquiring background information about the other company and its negotiators.

The aspect of communication is about the pre-meeting discussions between team members. Also during the actual negotiation negotiator will be communicating constantly, either overtly or covertly. Overt communication is proceeded through spoken words and documents, covert communication is through e.g. dressing, mannerisms and seating arrangements. In negotiations one will have to observe the other party and to analyze their communication. From that analysis one can discern facts about the other negotiators. The aspect of preparation is probably the most important part when considering the whole negotiation process.

It is about the formation and training of the negotiation team. In this process information is gathered through the networking aspect or within one's own organization. When the negotiation situation is practiced, role plays are often very good in preparing team members on what to expect. (Kapoor et al., 1991, 48; Fuller, 1991, 86) The aspect of contribution is the bargaining piece of the whole negotiation. If neither side is willing to give something in order to reach something the whole negotiation process is not worthwhile. Therefore a team should have a clear idea of their limits and requirements before entering the negotiation.

(Kapoor et al, 1991, 48; Hofstede and Usunier, 125) The aspect of environment concerns the outside influence on negotiations. As only part of the environment can be immediately understood much remains hidden to the eyes of the participants. These factors include cultural differences, economic backgrounds and also personal backgrounds. (Kapoor et al, 1991, 49; Szabo, 1998; Brislin and Yoshida, 1994) 3.3 Negotiation strategies According to the dual concerns model there are four generic strategies used in negotiation. These strategies are dependent on the level of concern for both one's self interest and the other party's interest. The following matrix depicts the relationship between self and other interests and the resulting approach to negotiation.

Concerns for others High Low High Integrative Dominating Low Obliging Avoiding Concerns for Self Different methods can be used in getting to negotiator's objectives. Several strategies are often used in negotiations and even if the negotiator is not using them him / herself negotiator must recognize these strategies in order to counter them. Win-win strategy where both parties operate in harmony and reveal their positions to each other might be best strategy to choose if there really is mutual trust. Often the opposite side may, however, choose not to reveal their facts and that would leave the negotiator in a position where bargaining is impossible. (Fuller, 1991, 86-87) In stonewalling strategy the other party stubbornly refuses every suggestion.

In this way they hope to gain irresistible bargain or to make the other party lose their poise. In the good samaritan approach the other party tries to prove that they are actually doing a favor to you by offering their product at such a low price. 'Take it or leave it' -negotiators want a decision to be done immediately or they will leave. Splitting the difference is a tactic where the other sides solution to tie-ups is to split the difference in price, this can however leave the other party in much worse situation than the proposing party. Piece by piece approach tries to get the other party to accept certain conditions and then negotiate on something else.

The negative side of this strategy is that when tie-ups occur in some other issue, those already agreed can not be re-evaluated. (Fuller, 1991, 89-95) The previous examples are general strategies used by negotiators. Some other tactics and techniques can be used for specific situations. When negotiating internationally some strategies may, however, have drawbacks when used in cultures which differ from American culture (previous examples are taken from a book made in the US). We will examine these cultural differences in next chapter. 4.

CROSS-CULTURAL BUSINESS NEGOTIATIONS 4.1 Cultural implications Negotiators entering international business negotiations without proper research into that culture are most likely to face unstructured situations. Process of negotiation varies remarkably according to culture. This is the point that is not usually taken into consideration. Certain tools, such as knowledge of different strategies and Hofstede's four dimensions, enables negotiators to understand the deeper meaning behind the negotiation techniques and methods encountered in other cultures.

This also assists in forming negotiators' own strategies to be used in different cultures. (Brislin and Yoshida, 1994, 49; Cateora, 1996) Probably the most important thing the negotiator can have is the correct mindset. Negotiators should accept the fact, that the members of the opposite party behave in different ways - it is not right or wrong, it is only different. People are 'programmed' by their culture to function as they do. (Hofstede, 1980; Szabo, 1998; Hasan 1998; Brewster, 1991; Brislin and Yoshida, 1994) To begin with, the negotiator must comprehend his / her own cultural mindset in order to be able to reflect the values and characteristics of other cultures to his / her own.

To understand someone else one has to first understand him / herself. (Brislin and Yoshida, 1994; The Development of... , 1992) 4.1. 1 Communication Language barriers are probably the most visible obstacles when considering communication. The problem of getting something said can, however, be smaller problem when compared to that how it is understood. Western countries generally are Low Context cultures.

To them the precise meaning of what is said counts significantly and everything is usually very clearly phrased. This explains the lawyer armies of American businessmen. Other than western cultures, however, belong to High Context linguistic group, which means that they place more meaning on the relationship between the agreeing parties. Contracts may be more vague, but continuing relations solidify them on the way. (Schuster and Copeland, 1996) In countries with high individualism, people are used to protecting their personal interests in opportunistic manners. Therefore they are trying to prevent the opposite party to do the same by having everything written down.

In collectivist countries people place more emphasis on relationships and trust, because they expect everybody to protect the interests of group before their own. In some cultures 'yes' can mean 'no'. This is due because in high power distance cultures, one can not lose his / hers face. In these cultures saying no would mean insulting the other party and terminating the negotiation. (Hofstede, 1980; Brislin and Yoshida, 1994) General directness of Nordic businessmen can also lead to problems when faced with more talkative counterparts. Everything should not be accepted at a face value, because in some countries it is custom to exaggerate the offers.

(Kapoor et al., 1991,154) 4.1. 2 Relationships When conducting international business negotiations it is important to understand the local relationships. You have to have the right contacts in order to negotiate at all. There can even be cases when people in negotiation room have no power about the decision to be made. Strategically it is important to understand who is the real decision maker.

In countries with high power distance this is usually the superior manager, when in low PD countries the whole negotiation team is integrated in the decision making process. (Kapoor et al, 1991, 84-88; Hofstede, 1980; Hofstede and Usunier, 1996,125-126) When negotiating internationally good relations between negotiating parties play significant role. e.g. collective cultures do not even begin to negotiate without firm relationships. To build up relationship takes time (even years), but once a firm relationship has been formed negotiation process itself goes smoothly. 4.2 Stereotypes of Cultures If stereotypes are used as the only reference to cultural understanding there is a great potential to turn the cross-cultural business negotiation into a disaster. Even though stereotypes determine the culture in general, every negotiator is still an individual.

(Cateora, 1996,518-519) However, stereotypes are the first (and in some cases the only) source of information about cultures. In this aspect they provide a basis for understanding of those cultures, because there are roots and reasons for stereotypes. (Szabo, 1998) Here we will present a few case examples of stereotypes. When faced with these cultures in actual situation it is worthwhile to find out in what extent they are accurate.

One should e.g. respect German punctuality and formality, be patient with French disability to stick with the agenda, always use humor with British and Americans and try to understand the consensus decision making of the Swedes. (Hasan, 1998) 4.3 Practical viewpoints: interview of Jyrki Paavola, Hacklin Oy In order to gain also practical knowledge, we conducted an interview via e-mail. Our interviewee Jyrki Paavola is board member in Hacklin Oy, which is a middle-sized logistics provider company. He conducts about 20-50 business negotiations per year in various cultures.

Therefore we consider him as an expert in our field of study. Mr. Paavola's answers support many of our findings. He for example claims preparation to be the most important stage of the negotiation process. One thing, which we found surprising, is that Mr. Paavola said language to be the most difficult aspect of negotiations. We believed that this could have been solved with the use of translator, and more emphasis could have been placed to other cultural differences. Mr. Paavola's advise to novice business negotiators to cope with cultural differences in international business negotiations is the following.

You should do your homework and learn the language. In the negotiation itself you should ask if you do not understand. Behave more subtly than in domestic situations, but still do not mimic the opposite party. Also remember to mention the other party's name frequently enough.

We have attached the whole questionnaire and Mr. Paavola's answers to the end of this paper. 5. SUMMARY International business negotiations are coming more and more frequent in the global business environment. Cultures vary, however, remarkably in different countries. Hofstede alone has found eight different cultural areas, by using only four different indicators of culture.

Also within cultural areas the differences can be enormous. Culture forms values attitudes and behavior, which again form culture. Everything affects everything. Thus only observing the members of alien culture we can not comprehend why people act as they do. Without the deeper knowledge of culture negotiator can not function efficiently in cross-cultural situations. In negotiations different strategies are used to reach the solution, which is usually the win-win situation.

By using different cultural studies negotiators are able to better understand the mindset of their opponents. Basis for this understanding is the comprehension of one's own culture. When communicating in different cultures one should remember that everything said should not be taken literally. The effects can be reduced by establishing firm relationships and networks.

These relationships can also be requirements for successful negotiations. Stereotypes are the usual form of cultural understanding. This should, however, be only a stepping stone for further research. To cope efficiently with cultural differences, the international business negotiator has to reserve time and be committed. The importance of preparation and networking should not be overlooked. It is more important to acknowledge the basic differences between cultures than to know few specific details of the culture of the opposing party.

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Recalled Ltd., Hank o Sauquet, Alfonso - Jacobs, Gabriele (1998) Can we learn from Herodotus? 167-177 Schuster, C. - Copeland, M. (1996) Cross-Cultural Communication: Issues and Implications. International Business Negotiations Snell, Scott A. - Snow, Charles C. - Can ney Davison, Sue - Hamrick Donald C. (1998) Designing and Supporting Transnational Teams: The Human Resource Agenda. Human Resource Management Vol. 37, No. 2,'s. 147-158 The Development of the International Manager.

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Bibliography

Hasan, Naj mal (1998) Lecture courses: KS 1 International Business Operations and JO 8 Culture and International Management.
Turku School of Economics and Business Administration, autumn 1998 Szabo, Erna (1998) Lecture course: JO 8 Culture and International Management.
Turku School of Economics and Business Administration, autumn 1998 INTERVIEWS Paavola, Jyrki, board member, Hacklin Oy, interview October 29th 1998 APPENDIX 1 Questionnaire and answers from Mr.