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Negotiations Across Cultures

Introduction

In the early 90’s, Enron made the decision to be more diverse in its growth by expanding

into the emerging market of India. Negotiations started with the state government and

Maharashtra State for a $3 billion dollar 2015-megawatt power plant. A large amount of natural

gas would be needed to power the plant. This led to Qatar, serving as a joint venture partner, to

be the main source of the imported natural gas. An important objective was to secure a long-

term purchaser in order to obtain long-term debt financing and generate a good enough return to

the investors. MSEB was the only potential buyer for the deal, and signed the purchase power

agreement with Enron to officially start the Dabhol Power Project.

However, opposition to this deal rose very quickly from the public. The World Bank

refused to finance the project because of reports that indicated Maharashtra wouldn’t be able to

absorb the additional power that Dabhol had charged. In addition, many of the public felt that the

deal was hastily made without taking the time to consider the public’s well-being. A top Indian

government official in electricity was quoted saying “India had no experience in negotiating,

Enron was a savvy negotiator”1. The aggressiveness and quickness of the deal seemed very

suspicious, which brought up accusations of bribing Indian officials.

As a result of this deal, Enron went belly up before the final phase of the project finished.

This left India with a bad taste of both western expansion techniques and negotiating experience

from an aggressive American style. Indian culture tends to favor slower negotiations as a sign of

good faith and trust, while American culture usually is more forward because more time means

1 "Error in India: Generation Gaps." The Economist. N.p., 11 Jan. 2001. Web. 5 Dec. 2015.

<http://www.economist.com/node/473117>.

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more money spent. The purpose of this paper is to focus on cultural differences that occur during

negotiations, and how this affects the negotiation table.

Cultural Boundaries and Stereotypes

Each country will have a different business style of negotiations based on their culture

and values. It’s important to respect the attitudes and characteristics of another country’s culture

instead of making assumptions. For example, Japanese negotiators will usually have “silent

periods” during talks and choose indirect methods of communication, but that doesn’t mean that

all Japanese do. One prominent, long-time minister in the Japanese government was famous for

his brash “American-style” negotiating - which is not at all typical of many Americans2.

Negotiation styles won’t be one-dimensional for each country; they can vary on a wide spectrum.

Differences occur in negotiations is from both stereotypes and our own interpretations of

behaviors through our own culture. An article published by Harvard Law School said that

stereotypes are often pejorative (for example: Italians always run late), and they can lead to

distorted expectations about your counterpart’s behavior as well as potentially costly

misinterpretations3. The assumptions that one can make on the other’s behavior can be extremely

insulting and can ultimately derail any potential business relationship. It’s suggested to focus on

prototypes instead, which are general characteristics that are dynamic and could change.

2 Patton, Bruce, Roger Fisher, and William Ury. Getting to Yes. Third ed. P. 169-170.: Penguin,

n.d. Print. 3 Shonk, Katie. "How to Resolve Cultural Conflict: Overcoming Cultural Barriers at the Negotiation Table." Program on Negotiation: Harvard Law School. Harvard University, 8 Nov.

2015. Web. 14 Dec. 2015. <http://www.pon.harvard.edu/daily/conflict-resolution/a-cross-cultural-negotiation-example-how-to-overcome-cultural-barriers/>.

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Our interpretations of culture can cloud our judgment and even discount a person’s

individuality without being more considerate. Misunderstanding the customs and behaviors from

Japan, India, or Mexico can show how little respect is given them in business negotiation. It’s

highly recommended to question the assumptions one may have on a particular group and

perform research before drawing conclusions. It’s more important of knowing why certain

groups perform certain rituals, behaviors, or customs rather than what they perform.

It’s essential for any negotiation abroad to learn any unique cultures about the company

or the organization on the other side of the table. Just like we learned from the Enron example,

Indian negotiating tends to be slow because trust in the relationship is more valued than time.

It’s the opposite for Americans as time efficiently used over the course of negotiating because it

had a direct link to cost. These differences can create tough barriers and lead to disagreements.

It’s significant to remember to be open to learning different cultures and using it as an

opportunity to create special relationships.

Individualism and Collectivism

In 2000, a publication in the International Journal of Psychology described how culture

affects negotiations through differences on individualism and collectivism. Individualism culture

can promote autonomy while collectivism culture promotes interdependence of individuals on

social obligations. In terms of goals and accomplishments between the two, individual can be

rewarded by economic and social institutions while legal institutions protect individual rights4.

Collective will have one sacrifice the personal needs for the greater good of the community

4 Brett, Jeanne M. "Culture and Negotiation." International Journal of Psychology 35.2 (2000):

99-100. Print.

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while political and economic institutions put the greater good of the collective above the rights of

the individual5. This difference reflects the basic goals that may be a priority to one, but not for

another.

Individuals tend to have more ‘self-interest goals’ that are higher of priority in

negotiation than a collectivist. For example, an individual may heavily weigh a negotiation deal

heavier on the chance of leveraging a higher commission or promotion rather than look at the

potential relationship that can be obtained. Collectivist’s goals will usually be aligned within the

groups. As these goals become transparent, it can result in mutual agreements. However, this all

depends on the group's knowledge of the goals because if it’s not communicated to all

stakeholders involved, self-interest goals may seem more important.

Egalitarianism and Hierarchy

Social structures are different across countries, companies, and groups. Some countries

like Austria, Israel, and Denmark have an egalitarian culture, which all people are equal and

deserve equal rights and opportunities. This environment tends to have people make decisions

without consulting their managers or provide infrequent updates to their managers. Also, they

will sometimes feel comfortable disagreeing with their boss.

On the opposite side, people in hierarchy environments are usually obedient because

social status implies power or influence. They frequently update their manager and will rarely

disagree with their boss. Examples of countries that inherit this type are Malaysia, Slovakia, and

most Arab countries.

5 Brett, Jeanne M. "Culture and Negotiation." International Journal of Psychology 35.2 (2000):

99-100. Print.

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These two societies differ in views towards the bases of power in negotiation settings. In

situations where agreements cannot be reached in egalitarian cultures, power is evaluated. In

addition, negotiators of this culture will even refer to BATNA less frequently as long as

negotiations are progressing. They focus preferably on issues under consideration and sharing

information on priorities and interests.

Hierarchical societies will have vertical interpersonal relationships. When one has social

status, it can dictate how people will interact with that person when others realize their status. In

some cases when the social status is known, there’s a chance that negotiating may take very little

time. If a CEO is negotiating with a low-level employee, then it’s likely the CEO will have all

leverage and the employee will concede easily. These types of negotiators will use any means of

power tied to their title to win.

Negotiation Goals and Attitudes

Different cultures will view the purpose of a negotiation differently from others.

Negotiators may strive for a goal to make the deal as a signed contract between two parties.

Other cultures will view the negotiation as an agreement, but also as potentially a great

relationship to build upon. An article in Ivey Business Journal from 2004 took a survey of 400

people from twelve different nationalities and found that 74 percent of Hispanic responders said

their goal in a negotiation was a contract, but only 33 percent of the Indian responders had a

similar view6. This difference can explain why Indian negotiators tend heavily weigh a

6 Selacuse, Jeswald. "The Top Ten Ways That Culture Can Affect Your Negotiation." Ivey Business Journal. N.p., Oct. 2004. Web. 14 Dec. 2015.

<http://iveybusinessjournal.com/publication/negotiating-the-top-ten-ways-that-culture-can-affect-your-negotiation/>.

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relationship to be more valuable than the contract while Hispanics want to make the deal a higher

priority.

Preliminaries of the negotiation are more than a formality in the relationship context and

should be taken seriously if one is negotiating with in an Asian nation (or any nation for that

matter). It helps to build the foundation of a good business relationship and produces trust

between the two parties. Thus, the importance of knowing how the opposite party views the

purpose of the negotiation is crucial. For instance, being on the side of the table and making

attempts to persuade relationship negotiators on the delivery of a low-cost contract may not

easily sway them. To persuade them, one would need to start from the very beginning and

discuss about the benefiting opportunity for a mutual relationship.

The attitudes of negotiators is also something that one needs to research before entering,

because that person could be looking for a win-win situation or a win-lose situation. Typically

those that look for a mutual benefit of the two parties will advocate win-win situations in order to

strengthen relationships and trust for more deals in the future. Those who negotiate only for the

benefit of themselves will try to extract as much as they can to have the best BATNA.

In the same survey, 100 percent of the Japanese responders were looking for a win-win

scenario in order for both parties to gain. Whereas only 33 percent of Hispanic responders took

the same view. We could then infer from this that when entering in negotiations with Japanese

it’s likely that the attitude will be more helpful for both parties to gain and prosper. Therefore, it

can create a working relationship built on the trust of solving problems for both sides.

Conclusion

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The exploration of negotiations across cultures has revealed a lot of information that

should always be taken into consideration whether it’s within a different country or society.

Values will influence the culture and motive for negotiation strategies and it’s up to either party

to be open to the opposite’s culture before making irrational decisions. As we saw in the earlier

example of ENRON, the styles of both sides clashed. India was accustomed to the development

of a slow negotiation for a relationship building negotiation and not to the aggressive western

style.

Our values will reflect the strategies and decisions we make at the table. However,

without knowledge of the other side’s style, beliefs, and culture, it can create more of an issue for

both negotiating parties. This doesn’t mean that when two negotiators from different cultures

will always clash in their strategies or values to end up walking away from the deal. There may

be times where they both have similar cultural values and there are no issues in the negotiation.

In any case, as businesses trend towards expansions, acquisitions, or partnerships outside

their country’s borders, negotiation strategies will need to be considerate to the values and

cultures of the other party. The wealth of information available on any society’s culture is

priceless and should be taken advantage to achieve an optimal negotiation.

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ADDITIONAL SOURCES

"Enron's Indian Negotiation Debacle." The Negotiation Experts. N.p., n.d. Web. 14 Dec. 2015. <http://www.negotiations.com/case/negotiation-project- india/>.