International Business Negotiation

Introduction in the negotiation process

Negotiation is a basic human activity. It is a process we undertake in everyday activities to manage our relationships, such as between husband and wife, children and parents, employers and employees, buyers and sellers and business associates. In business relationships, parties negotiate because they think they can influence the process in such a way that they can get a better deal than simply accepting or rejecting what the other party is offering.

The negotiation process involves a set of guidelines and decisions through which a company aims to accomplish its objectives and to promote its interests. In order for a negotiation to end up well the negotiator should be very careful in choosing the appropriate strategies and tactics. The negotiator style expresses his personality, socially (cultural, education) and individually (temper and intellect) determined. We need to make a clear distinction between strategies and tactics.

The strategy represents the overall guideline and it should indicate the direction in which the negotiation should go. In other words it represents the general plan in which are presented the general objectives that lead to the final goal of the negotiation. Tactics, on the other hand, always follow after strategy flashing it out with a concrete line of action. If strategy is the thought then tactics are its formulation therefore tactics should not be directly oriented towards the objectives, but towards the strategy. The negotiation style highlights the negotiator’s personality which is socially (culture, education) and individually (intellectual capacity, temper) determined.

Factors that influence the international negotiations

Although there has been an interest in international negotiation for centuries, the frequency of international negotiation has increased rapidly in the last 20 years. The international negotiations are influenced by two contexts: environmental context and immediate context. The environmental context includes environmental forces that neither negotiator controls.

The immediate context includes factors over which negotiators appear to have some control. Understanding the role of factors in both contexts is important to grasping the complexity of international negotiation process and outcomes. There are six factors in the environmental context that make international negotiations more challenging than domestic negotiations. These factors are presented below. Political and legal pluralism: Firms conducting business in other countries are working with different legal and political systems.

There may be implications regarding the taxes, labour codes and standards that must be meet and different codes of contract law and standards of reinforcement (eg: case law versus common law). International economics: An important factor that must be considered when negotiating internationally is the fluctuation of international currencies. The risk is typically greater for the party who must pay in the other’s party currency. Foreign governments and bureaucracies: Countries differ in the extent to which the government regulates industries and organizations.

The governments of many developing and (former) communist countries closely supervise imports and joint ventures and frequently an agency of the government has a monopoly in dealing with foreign organizations.

Instability: The challenge for international negotiators is to anticipate changes accurately and with enough lead time to adjust for their consequences. The negotiators facing unstable circumstances should include in their contracts clauses that allow neutral arbitration, and consider purchasing insurance policies to guarantee contract provisions.

Ideology: Negotiators from United States believe strongly in individual rights and the superiority of private investment. Negotiators from China and France believe that group rights are more important that individual ones and public investment are seen as a better allocation of resources than private investment. Ideological differences increase the communication challenges in international negotiations because the parties may disagree at the most fundamental levels about what is being negotiated.

Culture: People from different countries appear to negotiate differently and may also interpret the fundamental processes of negotiations differently. People in some cultures approach negotiations deductively (they move from general to the specific) whereas people from other cultures are more inductive (they settle on a series of specific issues that become the area of general agreement). Besides environmental context, the immediate context should also be analyzed.

Relative Bargaining Power: One aspect on international negotiations that has received considerable attention in the relative bargaining power of the two arties involved. Joint ventures have been the subject of a great deal of research on international negotiation, and relative power has frequently been utilized as the amount of equity 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. On the other hand, other researchers question this presumption and say that relative power is not a simple function of equity, but appears to be related to the management control of the project.

In addition, several factors seem to be able to influence relative power: special access to markets (e. g. in current or former communist countries), distribution systems (e. g. in Asia, where creating a new distribution system is so expensive that it may be a barrier to entering markets) and managing government relations (e. g. when the language and culture are quite different).

Levels of Conflict: The level of conflict and type of interdependence between the parties to a cross cultural negotiation will also influence the negotiation process and outcome. High-conflict situations – those based on ethnicity, identity or geography – are more difficult to resolve. Also important is the extent to which negotiators frame the negotiation differently or conceptualize what the negotiation concerns, and this appears to vary across cultures, as do the ways in which negotiators respond to conflict.

Relationship between Negotiators: The relationships developed among the principal negotiating parties before the actual negotiations will also have an important impact on the negotiation process and outcome.

Negotiations are part of larger relationships between two parties. The history of relations between the parties will influence the current negotiation, just as the current negotiation will become part of any future negotiations between the parties. Desired Outcomes: Tangible and intangible factors also play a large role in determining the outcomes of international negotiations. Countries often use international negotiations to achieve both domestic and international political goals.

In recent ethnic conflicts around the world, numerous parties have threatened that unless they are recognized at the formal negotiations they will disrupt the successful resolution of the conflict. Ongoing tension can exist between one party’s short-term objectives for the current negotiations and its influence on the parties’ long-term relations. Immediate Stakeholders: The immediate stakeholders in the negotiation include the negotiators themselves as well as the people they directly represent, such as their managers, employers, and boards of directors. Stakeholders can influence negotiators in many ways.

The skills, abilities, and international experience of the negotiators themselves clearly can have a large impact on the process and outcomes. People can be motivated by several intangible factors in the negotiation, including how the process or outcome will make them look in the eyes of both the other party and their own superiors, as well as other intangible factors like their personal career advancement.

Cultural aspects of International Business Negotiations

When negotiating internationally, one needs cultural knowledge and skills in intercultural communication. Many agreements have to be negotiated, drafted, signed and finally implemented: sales contracts, licensing agreements, joint ventures, etc. Negotiation is not only based on legal and business matters, but also on the quality of human and social relations. The most frequently studied aspect of international negotiation is culture.

Culture is perceived from two points of view: as learned behaviour (it is concentrated on creating a catalogue of behaviours that foreign negotiators should expect when entering a host culture) and as shared values.

This second approach concentrates on understanding central values and norms and then building a model for how these norms and values influence negotiations within that culture. Geert Hofstede conducted an extensive program research on cultural dimensions in international business negotiations. Hofstede and Michael Harris Bond formulated five such dimensions from research studies:

1. The individualism/ collectivism dimension describes the extent to which a society is organized around individuals or groups. Collectivistic societies integrate individuals into cohesive groups that take responsibility for the welfare of each individual. Negotiators from collectivistic cultures will strongly depend on cultivating and sustaining a long term relationship.
2. The power distance dimension. According to Hofstede, cultures with great power distance will be more likely to concentrate decision making at the top, and all important decisions have to be finalized by the leader. Negotiator from comparatively high power distance cultures may need to seek approval from their supervisors more frequently and this can lead to a slower negotiation process
3. The uncertainty avoidance dimension. Negotiators from high uncertainty avoidance cultures are less comfortable with ambiguous situations and are more likely to seek stable rules and procedures when they negotiate. Negotiators from low uncertainty avoidance cultures are likely to adapt to quickly changing situations and will be less uncomfortable when the rules of negotiation are ambiguous and shifting.
4. Masculinity/ Femininity. A high masculinity ranking indicates that the society values, the achievements, the control and power have a high degree of gender differentiation. In high feminine ranking countries are valued the people, the quality of life and the environment. In case of negotiations, this dimension will have an effect on the negotiator’s style: distributive bargaining or an integrative one.
5. Long term orientation. A high long- term orientation ranking indicates that a society values long term commitments and respect for tradition. A low term orientation ranking indicates that the society is inclined more toward immediate results and “saving face” by keeping up the appearances.

Culture can influence the outcome of a negotiation and it works through two basic groups of variable: the situational aspects of a negotiation (time and time pressure, power, an exercise of power, number of participants, location, etc); and the characteristics of the negotiators (especially personality variables and cultural variables. For instance, regarding the process of negotiation, “Americans tend to view negotiating as a competitive process of offers and counteroffers, while the Japanese tend to view the negotiation as an opportunity for information sharing” (Foster, 1992, p. 272). Communication: Culture can influence how people communicate.

There are also differences in body language across cultures; a behavior that may be highly insulting in one culture may be completely innocuous in another. Communication has been shown to generate greater cooperation even among negotiation partners that display strong tendencies to self-interest. The language used for negotiation has its importance. There are semantic differences in the words used and many misunderstandings can arise from ignoring the precise meaning of key concepts. When messages are exchanged, the degree to which they should be interpreted has to be taken into account as well as the cross- cultural differences in linguistic styles, involving the use of silence or conversational overlap. For instance, silence is a full form of communication for the Japanese.

The capacity to cope with different communication style is a key to successful international business negotiation. Another important issue in communication is formality versus informality. Frequently a contrast is made between cultures which value informality and those which are more formal (most cultures which have long historical roots and high power distance). Atmosphere can be considered a central issue in the negotiation process and has a basic importance to the development of the negotiation process. Atmosphere has a double role, as a bearer of the history of the relationship and as main factor explaining the transition from one stage to the next.

Atmosphere can influence the dynamics of conflict and cooperation, reducing or overcoming the distance between the partners, the power/ dependence relation and the expectations of the parties concerning future deals. Time: Culture largely determines what time means and how it affects negotiations. Monochronic time, which is typical of low context cultures, is a linear concept of time. People in this culture tend to focus on one thing at a time and schedules and deadlines are important. Their comfort level with a negotiation is higher when there’s a definitive list of issues in which each one is dealt with and decided before moving on the next.

Polychronic time, which is typical fro high context cultures, is circular in nature. People can do many things simultaneously in a polychromic culture hese activities interfere with completing a task or a communication, schedules and deadlines are unimportant. Their comfort level with a negotiation is higher when the parties spend time establishing a relationship before bringing up issues. People with a polychromic sense of time prefer to think about the whole package before committing to any part of it. Nature of agreements: Culture also has an important effect both on concluding agreements and on what form the negotiated agreements takes. Agreements are generally considered as being mostly written but this is not always true. In low context cultures agreements are typically based on logic, are often formalized, and are enforced through the legal system if such standards are not honored.

In high- context cultures there are used memorandums of agreement to formalize a relationship and to signal the start of negotiations. If the other party is from a low context culture will interpret the same memorandum of agreement as the completion of the negotiations that is enforceable in a court of law.

Negotiation patterns in cross-cultural negotiations

The negotiation process involves the general strategy or approach taken, the tactics used by the parties, and the flow of the process itself during negotiation phases. The way in which tactics are combined to form strategy and the way strategies are employed to reach a goal creates a pattern of negotiation.

This pattern is displayed in the general strategic approach of the parties toward the particular negotiation, as evidenced for be frequency of certain tactics; the influence of one party over another, as evidenced by the sequence of tactics; and the flow of the process toward an outcome during the phases of negotiation. Strategic approach: The first indication of the pattern of a negotiation is seen in the strategic approach taken- whether the negotiator begins with a goal of minimizing individual gain and therefore uses more distributive tactics, or with a goal of maximizing joint gains and therefore uses integrative tactics more frequently.

Sequence of tactics: There is evidence that the frequency with which integrative or distributive tactics are used, particularly as to information exchange, has an impact on the outcome of the negotiation. The sequence of tactics can follow a pattern that is either reciprocal or nonreciprocal. A reciprocal response is one in which negotiators match each other’s moves exactly. Nonreciprocal responses include countering a tactic with its exact opposite, or countering with similar but not the same tactic. Flow of the process: In looking at the flow of the negotiation process itself, the timing and intensity of tactics used differ between distributive and integrative strategies, and thus will differ across cultures.

In a distributive negotiation there is an escalating exchange of messages over time and an increased number of proposals and offers immediately before a deadline is met; in an integrative negotiation there is a peak exchange of messages or proposals during the problem solving stage; and in mixed integrative- distributive negotiation there is a linear exchange of information and proposals over time, but not significant increase during the problem solving and resolution stages.

The behaviors that negotiators form different cultures use to gain cooperation or to engage in competition are different. In the Western culture where people believe that negotiation is primarily about distribution of resources, the interplay between cooperation and competition is to claim the largest portion possible. In the Eastern culture where people believe that negotiation is primarily about relationships, the interplay between cooperation and competition is to create a long- term relationship on favorable terms that will result in claimed value.

In low-context cultures information sharing is explicit and direct with a goal of making one’s priorities clear, whereas in high- context cultures, information sharing is implicit and indirect. In low-context cultures persuasion tactics are primarily appeals to rationality, relying upon logic and reasoning to argue a point and making more commitments to influence the other side. In high-context cultures, persuasion tactics are primarily appeals to emotions, relying on social roles and relationships to press a point and using strategic questioning and patience to influence the other side.

The study case Overview. This study case presents a negotiation of a joint venture between Celanese Corporation of the United States, a producer of value-added industrial chemicals, and China National Tobacco Corporation (CNTC). The venture produces tow, the fluffy synthetic fiber in cigarette filters. In 1982, when CNTC decided to increase its production of filter cigarettes, it was on the lookout for international suppliers.

Since all tow providers refused to sell their technology to China, CNTC approached Celanese, a highly regarded tow producer, with a view to setting up a joint venture. Celanese declined the offer after two years of arm’s-length, long-distance discussions through its Chinese agent, London Export Company (LEC), which was well regarded in China. Celanese believed that the joint venture would destabilize the international market and adversely affect its cash flow. In early 1984, LEC reviewed the negotiations and found there might be greater mutual benefit than had at first appeared. A senior LEC executive asked Celanese for permission to continue mediating the joint-venture proposal and, by mid-year, he had persuaded both parties of the potential joint-venture benefits.

As a result, CNTC promptly made Celanese the preferred supplier of tow, even before the joint-venture plant was finished; classified the output of the new plant as import substitution, so that foreign exchange would be conserved and CNTC would not need to buy tow abroad; and would share top management decisions fifty-fifty. First Steps Next came face-to-face negotiations, discussions, and communications between the parties. Differences in formal communication almost stalled these discussions before they had got off the ground, with suspicion arising over the language used and the legal requirements put forward. Some of the main issues were:

• The Chinese insisted on a holistic approach, asking the U. S. team to agree to a macro-concept for the new venture, with details to be agreed to later. Meanwhile, the U. S. party insisted that they should first reach an agreement on each component of the new venture and then move to the overall venture agreements. The Chinese insisted on the prior development of friendship and harmony, while the U. S. negotiators were blunt in their demands for openness and frankness about differences.
• The Chinese opposed the U. S. company’s proposal that lawyers be brought into the discussions. LEC, which was respected by both parties and was a China hand, helped resolve the problems and develop an atmosphere of trust, so that basic agreement was eventually reached. Stage Two The second stage was the complex planning, which costed $1 million, took two years to complete, and involved the translation of the basic agreement into a new plant and business organization.

It had been agreed, in early talks, that Chinese regulations on technology transfers, feasibility studies, and joint ventures were not well suited to the new enterprise, so much time was spent anticipating problems related to the design and construction of the plant, its general management, human resources policies and practices, purchasing, finance, and accounting. As a result, specific plans were drawn up by U. S. and Chinese teams, with some fifty experts involved at any one time.

Cultural problems were not lacking, and included the difficulty the Chinese encountered when their Celanese colleagues argued with them or expressed differences of opinion. As one senior Chinese manager said: “I had to learn that someone could argue with me and still be my friend. ” Cross-culturally sophisticated LEC personnel mediated for both sides on a number of troublesome issues. Stage Three The third stage involved construction of the plant, in the city of Nantong, Jiangsu province.

New cultural difficulties arose daily, as Chinese practices collided with Western performance imperatives. Celanese employees noted:

• Crews of Chinese subcontractors would disappear for days at a time, leaving work unfinished.
• In work units supervised by foreigners, the Chinese observed workloads; but in those supervised by Chinese, the workloads were usually reduced and additional employees hired.
• Many employees appeared indifferent to the satisfactory completion of the project.

The Celanese habit of flagging errors or shortcomings was taken by many Chinese as a personal affront—compounded by the indignity of seemingly being “talked down to. The Nantong factory was completed in 1989, when the joint venture went into operation, with a mixture of Chinese and U. S. managers and staff. Most of the Chinese managers appointed to the new enterprise saw themselves as loyal to CNTC, and their allegiance to the new venture was initially fragile.

The Chinese managers discussed problems with their seniors at CNTC, rather than with their U. S. venture colleagues. Neither side could identify with the new entity at first, and managers held meetings in their native tongue, which upset those on the other side. But overall, a long-term perspective was taken regarding the factory, where training was provided to enable employees to carry out prescribed operations.

At the same time, Celanese managers, believing that the performance of local suppliers had to be upgraded, spent much of their time helping suppliers improve deliveries. As an american manager points out: “Chinese plants… are accustomed to loose standards. Erratic delivery times are common with last-minute flurries of action to meet emergencies. ” By 1992, the Nantong plant was meeting corporate goals and becoming profitable, and so it was expanded; and in 1994, the production of acetate flake (the raw material for tow) was added. Then two additional manufacturing sites for acetate tow, each a separate joint venture with CNTC, were built and started up in 1995—one in Zhuhai, Guangdong province, and one in Kunming, Yunnan province. Efforts Bear Results

Looking back, Celanese says its joint-venture agreements reflect the learning and the changes that occurred in the wake of the original Nantong joint venture. A senior Celanese manager said that the performance of the Celanese joint ventures in China had exceeded original investment expectations. There are few joint ventures in China that have been as successful and learned so much from their own experiences. At the same time, the Chinese laws and regulations affecting joint ventures have seen tremendous changes since 1989, making it easier to do business in China. Celanese is now firmly established as a profitable corporate citizen in China, but cross-cultural learning and problems remain part of joint-venture life. 6. Conclusion

This case illustrates how important is that a long-term view is considered when planning one’s objectives, to ensure that every issue is covered. The different the cultural values between tha nations, tha harder it gets. We believe that the Celanese approach could not have been bettered. Both parties handled problems as they arose, choosing not to adopt stereotypical formats. Meanwhile, LEC’s role as long-term mediator played an important role in this negotiation facilitatig the discussions. Cultural bridging, like bridge construction, requires the cooperation of the parties at both ends of the divide. No negotiator will permit a bridge to be built if he or she feels threatened or sees the bridge as a long-term danger to security.

Consequently, negotiators who want to build a bridge across the cultural divide to their counterpart must be concerned to strengthen the other side’s sense of security, not weaken it as happens all too often in international business relationships.

References

1. Negotianting Essentials- Theory, Skills and Practices by Michael R. Carrell and Christina Heavrin, J. D. , Prentice Hall;
2. Negocierea comerciala internationala, Ioan Popa, Editura Economica;
3. International business negotiation, Pervez N. Ghauri and Jean-Claude Usunier, Pergamon Publishing House
4. Negotiation, Roy J. Lewicki and David M. Saunders, McCraw-Hill Publishing House
5. The Chinese Negotiator, Robert M. March, Su-Hua Wu, Kodansha Publishing House