Negotiating in China

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This chapter introduces a model that describes how culture affects negotiation. To use this model to anticipate and prepare for negotiating globally, we first need some basic understanding of what culture is and how people act and societies are struc- tured in different cultures. With this understanding, we can then begin to understand how culture affects negotiation, and how we need to adjust our strategic negotiation planning for culture.

What Is Culture?

Culture is the unique character of a group.1 Individuals have per- sonalities; groups have cultures. You can see culture in the patterns of peoples’ beliefs, attitudes, norms, and behaviors as well as in the nature of the social, economic, political, legal, and religious institutions that structure and organize groups.

Anthropologists suggest that culture emerges because people are faced repeatedly with similar social problems,2 for example, the problem of negotiation when people who are interdependent have conflicting interests. People develop procedures, such as a negotiation strategy, to solve those problems of social interaction. Then when similar problems arise later, people repeat the same procedures and teach others to use them. The result is a cultural

2 Culture and Negotiation

Brett, J. M. (2014). Negotiating globally : How to negotiate deals, resolve disputes, and make decisions across cultural boundaries. ProQuest Ebook Central <a onclick=window.open('http://ebookcentral.proquest.com','_blank') href='http://ebookcentral.proquest.com' target='_blank' style='cursor: pointer;'>http://ebookcentral.proquest.com</a> Created from sfsu on 2020-11-11 16:08:47.

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26 Negotiating Globally

norm, or standard of appropriate behavior, that guides effective social interaction. For example, in some cultures people greet each other by kissing, others by bowing, and others by shaking hands. All these different greeting behaviors are equally func- tional within culture; all signal recognition and respect within culture.

The important thing to understand about the different cul- tural norms that guide social interaction is that one culture’s norms are no better or worse than another culture’s norms. The norms are just different. Understandably, people are most com- fortable with the norms they learn at an early age, because by following those norms they can get along fine socially without a lot of thought and effort. The problems arise when one tries to “get along” in a culture in which norms for social interaction are quite different from those one is used to. Greeting via cheek kissing is not widely practiced in Japan; bowing is not widely prac- ticed in France. Violating a culture’s greeting norms has the ironic effect of being disrespectful when your intention was just the opposite, to signal respect.

Greeting norms also provide a ready example for understand- ing cultural prototypes. A cultural prototype describes the way that many people in a culture act: many Japanese bow in greeting; many French cheek kiss when greeting. But not everyone in a particular culture follows the prototype. This is why scholars and laymen like to represent culture in terms of a bell curve. The area under the bell is the central tendency or prototype.

We’ve drawn two bell curves in Exhibit 2.1 to represent cul- tural differences in greeting behavior in Japan and France, although the base or x-axis of the figure can represent any cultural characteristic. Here we’re showing physical distance in greeting behavior. Japan bell curve to the right shows high physical dis- tance in greeting behavior; for example, bowing. The France bell curve to the left shows physical distance in greeting behavior as low; for example, kissing.

The bell curves in Exhibit 2.1 illustrate four important fea- tures of cultural prototypes: central tendency, its location, cultural tightness-looseness, and cultural overlap. The central tendency of a cultural prototype is the 95 percent confidence interval around the central point of the curve. It’s the unshaded area within each

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Culture and Negotiation 27

culture’s curve in the exhibit. What you see immediately is that Japan’s bell curve is higher, tighter, and located more to the right than France’s, meaning that physically distant greeting behavior, such as bowing, is commonly practiced in Japan. France’s bell curve in contrast is lower, looser, and located more to the left than Japan’s, suggesting that greeting behavior is generally physically close in France, but varies quite widely, because most people exchange kisses but some embrace and others shake hands.

Cultural tightness refers to the extent to which cultural norms are relatively inflexible and formal, generating little within-culture variation, as illustrated in the Japan bell curve in the exhibit. Cultural looseness refers to the extent to which cultural norms are relatively flexible, generating improvisation and interpretation and greater variation of behavior within the culture, as reflected by the France bell curve.3 As a result of cultural tightness-looseness, the cultural prototype or central tendency is going to be a better predictor of peoples’ behavior in a tight culture than in a loose culture.

The exhibit also illustrates cultural overlap between France and Japan. This might be greeting behavior at the point of shaking hands. Some cultures are more similar than others. In our example of physical distance in greeting behavior, we chose two cultures,

Exhibit 2.1. Cultural Stereotypes and Cultural Prototypes of a Greeting Behavior.

Low High Physical Distance in Greeting Behavior

Fr eq

ue nc

France Japan

Kiss Shake Hands

Bow

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28 Negotiating Globally

Japan and France, that are quite different. If we had shown Japan and South Korea, the two countries’ bell curves would have over- lapped in the bow region of the graph. It we had chosen France and Italy, the two countries’ bell curves would have overlapped in the kiss region of the graph.

One reality of culture that Exhibit 2.1 doesn’t illustrate is that cultural boundaries are not as neat as the two adjacent curves might suggest. Culture is rather like a Matryoshka (one of those Russian nesting dolls): when you open the larger doll, there are smaller dolls inside. There are always cultures within cultures within cultures.

In this book we are going to talk about cultural boundaries in two ways: geographical regions and nations. In this chapter, in which the goal is to introduce you to important cultural differ- ences that can affect negotiation strategy, the discussion of culture focuses on broad geographic regions of the world that share cul- tural characteristics. In the negotiation strategy chapters to come, the examples and the research data are situated primarily within national boundaries. Nations are actually a pretty good way to define cultural boundaries when preparing to negotiate globally, because they define elements of culture—the political, legal, eco- nomic, and social environment—within which people normally negotiate, and which, as we will see, affect how they negotiate.

The challenge of negotiating effectively in a global environ- ment is in navigating cultural differences to achieve your goals without compromising your integrity. To do so you need to be able to recognize cultural behavior as such when you encounter it, and then know how to respond appropriately.

Three Prototypes: Dignity, Face, and Honor Cultures

Most people are familiar with the East-West cultural divide that distinguishes ways of thinking and governing, grounded in Confu- cian philosophy versus Aristotelian logic. This distinction between East-West cultural prototypes remains valid today, but it ignores vast geographic regions of the world, such as the Middle East and Latin America, where global negotiators are also active. Fortu- nately, recent cultural analysis has identified a third cultural

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Culture and Negotiation 29

prototype that is worth our attention for its unique characteristics and their implications for negotiation. This new analysis distin- guishes among dignity culture, familiar as Western culture, face culture, familiar as East Asian cultures, and honor culture, which is the prototypical culture in the Middle East, Latin America, and North Africa.

There is no single explanation for why a certain cultural pro- totype should be located in a certain part of the world. However, scholars generally agree that differing political solutions (for ex - ample, strong or weak rule of law), economic systems (for example, controlled or uncontrolled markets), and social solutions (for example, individualism versus collectivism) emerged in response to geographic challenges (including, for example, access to abun- dant versus scarce agricultural crops) and demographic challenges (for example, population density).4 We suggest that this dignity, face, and honor culture typology is relevant to negotiation because people in these three different types of cultures analyze social problems rather differently.

Exhibit 2.2 describes dignity, face, and honor cultures in terms of six sets of characteristics: self-worth, power and status, sensitiv- ity and response to insults, confrontation style, trust, and mindset. These are by no means the only characteristics that distinguish these cultures, but they are ones that are particularly relevant to how people negotiate. Self-worth refers to a person’s sense of his or her own value in society. Power refers to a person’s ability to influence an outcome. Status refers to a person’s position in a social hierarchy. Sensitivity and response to insults refers to the way a person is affected by and responds to another’s offensive behav- ior. Confrontation style refers to how a person responds when faced with defiance, opposition, or hostility. Trust is the willingness to make oneself vulnerable to another person.5 Mindset refers to the way people reason and process information.6

As you begin reading about the dignity, face, and honor culture prototypes, you are likely going to be thinking: but I know Americans who are not like that; I know Chinese who are not like that. Remember though, we are not describing particular indi- viduals but cultural prototypes, or central tendencies of thought and action that have developed historically in those cultures and still hold, even if not practiced by all people in that culture. We

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30 Negotiating Globally

should assume neither that all people in a particular honor culture, for example Iran, follow all norms of honor culture, nor that all honor cultures, for example Iran and Mexico, are the same with respect to each of the characteristics described in Exhibit 2.2. Remember, too, those Russian dolls. There are sub- cultures within cultures; not everyone is going to act exactly like the cultural prototype. For example, in dignity cultures people generally are self-interested and they generally are not shy to negotiate to achieve their goals, yet we know that American

Exhibit 2.2. Characteristics of Dignity, Face, and Honor Cultures.

Characteristic Dignity Face Honor

Geographical Location

Western Europe North America

East Asia Middle East North Africa Latin America

Self-worth Self- determined Variable

Socially conferred Stable

Socially claimed Dynamic

Power and Status

Egalitarian Dynamic

Hierarchical Stable

Hierarchical Dynamic

Sensitivity and Response to Insults

Low sensitivity

Medium sensitivity

High sensitivity

Confrontation Style

Direct Rational Unemotional

Indirect Control and use emotions Refer to social superiors to punish

Direct and indirect Express emotions Take matters into one’s own hands

Trust Swift trust of in-groups and out- groups

Trust of in-groups and distrust of out-groups

Distrust of out-groups and often also in-groups

Mindset Analytic Holistic Analytic and holistic

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Culture and Negotiation 31

women tend not to negotiate their employment contracts.7 Our purpose in discussing dignity, face, and honor cultural prototypes is to help you see cultural differences that may affect negotiation strategy.

Dignity Cultures

Dignity culture is the prototype of Western society.8 The key char- acteristic of dignity culture is the emphasis on the individual. Self-worth—one’s value to society in dignity culture—is self- determined or intrinsic, independent from social status, and therefore quite stable even in social situations that are much more threatening to self-worth in other cultures. In such an environ- ment, people are quite concerned for their own welfare, and rather less concerned about the welfare of others.

The social independence of dignity means that there is no presumption of social hierarchy in dignity cultures; each person is as good as any other. People in dignity cultures view themselves as equal to every other member of the society, and this view is reflected in the egalitarian governments and market economies characteristic of these cultures.9 Historically, the ideology of market economies and dignity (that is, intrinsic sense of worth) have developed together in environments that had abundant resources, low population density, and strong governments that could protect individuals’ property rights from violence.10

Interactions in Dignity Cultures When self-worth is intrinsic, not socially determined, it is not easily threatened in social interactions such as negotiations; in other words, your refusal to accept my offers is a reflection on you not me. People in dignity cultures are pretty good at main- taining their sense of self-worth, regardless of the way others behave toward them.11 If an insult does not damage one’s self- worth, there is no need to reciprocate the insult. Indeed, intrinsic self-worth provides the resilience to turn back insults, for example by implying that it is the insulter who lacks dignity (Who are you to say that to me?).12

Nevertheless, people in dignity cultures certainly care about respect.13 And, consistent with their intrinsic sense of self-worth,

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32 Negotiating Globally

they are likely to perceive conflicts in terms of violations of indi- vidual rights and autonomy.14 At the same time, dignity cultures afford several factors, less present in other cultures, that insulate members from the need to retaliate. As we have discussed, one insulating factor is the resiliency of dignity that resides largely in the self, rather than depending on social support. Strong norms in dignity cultures that encourage direct, rational, and unemo- tional confrontation of conflict are a second insulating factor. Recall the pumpkin example in Chapter One? When Mme. Petit refused to sell me all of her pumpkins, my approach was direct—I asked her why not. Mme. Petit’s approach was also direct—she told me she needed the seeds. Since we were both using the same normative approach, we quickly reached a workable agreement. The American manager in the data example in Chapter One also used a direct approach when asking his Chinese counterpart for more data. He didn’t even think he was engaged in conflict until her boss called him in. As we will see when we turn to discussing face culture in the next section, the American manager’s dignity culture norms did not match Chinese face culture norms about how to address a conflict.

A third insulating factor is the rather well-developed rule of law that is common in dignity cultures.15 Dignity cultures acknowl- edge that the prevalent norm of self-interest16 will lead to a loose culture that needs some reigning in. The rule of law in these societies channels and restricts conflict when self-interest gets out of hand, but still allows for the direct confrontation of disputing parties in courts and alternative dispute resolution systems. (There will be more about this in the dispute resolution chapter.)

Trust in Dignity Cultures People in dignity cultures tend to be trusting of others. They trust swiftly and on faith,17 believing that others deserve to be trusted until they prove they are not trustworthy.18 The belief in trust is bolstered by the norm of reciprocity—treat others as they treat you.19 People in dignity cultures largely assume that when they treat others as trustworthy, others will treat them as trustworthy. Trusting signals integrity and trustworthiness. So long as enhanc- ing the welfare of others by trusting promotes, or at least does not hurt, their own self-interest, they will do so.

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Culture and Negotiation 33

Relying on positive reciprocity to manage interdependence is also wholly consistent with the relatively egalitarian distribution of power in dignity cultures. It’s not easy to get others to do what you want in egalitarian cultures; they push back with their own ideas! When people cannot rely on status and authority for power, they fall back on trading and reciprocity to get things done. “If you’ll do this for me, I’ll do that for you.” Then when what they have to trade isn’t enough for the other, instead of being insulted, they just go off and look for someone else to trade with.

An Analytic Mindset People in dignity cultures tend to use Aristotelian logic when they reason.20 They break up problems such as negotiations into sepa- rate elements or issues, prioritize, and search for logical and linear rules to explain causality. Abstract linear thinking is so pervasive in Western culture that people often don’t notice its use. Yet it is the model underlying the five-paragraph essay that Ameri- can high schools use to teach writing. It is what my lawyer husband and lawyer daughter are using when I eavesdrop on their case discussions. It is the way dignity culture negotiators organize information. It underlies the structure and rules for building a Negotiation Planning Document.

Face Cultures

Face culture is the prototype of East Asian societies.21 The key characteristic of face culture is the emphasis on the interests of the collective, relative to those of the individual. (By collective we mean the groups to which people belong.) Self-worth—one’s value to society in face culture—is socially conferred. Face depends on a person’s relative position in a stable social hierarchy, and on fulfillment of the person’s role obligations in that society.22 Thus people are very concerned with the status and welfare of the groups from which they derive face.

Face cultures are very stable hierarchical social structures. The fundamental group in face culture is the family, and the unequal hierarchical relationships that are characteristic of families reflect the unequal hierarchical social structure of the rest of face societ- ies.23 Face cultures consist of hierarchies within hierarchies, rather

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34 Negotiating Globally

like those Russian nesting dolls. Historically, face cultures have developed in densely populated geographical areas, where their stable hierarchical social structures facilitated the cooperation necessary for organized food production. Although the modern East Asian nations of Japan and South Korea are democratic, their social structures remain very hierarchical.

Interactions in Face Cultures Because self-worth in face cultures is a function of a person’s relative social position in a group, it is not too easily threatened unless the status of the group also is threatened. Japanese, for example, view conflict as violations of duties and obligations.24 In addition, three characteristics of face cultures help to preserve the social status quo: norms for harmony, norms of indirect con- frontation, and that ubiquitous hierarchy.25 Norms for harmony increase the threshold of people’s tolerance for insult or conflict. Norms of indirect confrontation deter aggressive retaliation of insults and conflict. Hierarchy provides an institutionalized, although indirect, channel for face-saving resolution of conflict. The Chinese manager in the example in Chapter One was likely motivated by all these norms when she took her American col- league’s request for data to her boss rather than telling the American directly she would not provide the data. From her per- spective, directly rejecting the American manager’s request for data would have been disrespectful and would have threatened their harmonious peer working relationship—he would have lost face. In contrast, by taking the request to her boss, she was engag- ing in an appropriate indirect response and use of the social hierarchy. In face cultures, due to deference to hierarchy there is no loss of face when being told no by a higher-status member of the society.

Although these norms for harmony, indirect confrontation, and deference to hierarchy bring stability to ongoing social rela- tionships in face cultures, as we will see, they do not govern the process of negotiating new social relationships. New social rela- tionships require determining parties’ status vis-à-vis each other. Negotiation is the opportunity to make that determination. In a face culture, once an agreement with its implications for roles and responsibilities has been reached, the relationship is likely to be

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Culture and Negotiation 35

very stable. Do not be surprised that in face cultures negotiations of new social relationships are highly contested. (We’ll talk much more about this in Chapter Three.)

Trust in Face Cultures Trust functions differently in face and dignity cultures, even though it means the same thing. Pretty much everywhere in the world, a trustworthy person is viewed as someone who is reliable, benevolent, responsible, and dependable, and has integrity.26 However, the environmental factors that make a person trustwor- thy are quite different in the two types of cultures.27

Smooth social interaction depends on people being able to predict with some accuracy how others are going to behave. In face cultures, monitoring and sanctioning by institutions such as family, community, church, and state mean that people generally can predict how others will behave. Scholars have data to show that such institutions serve as reliable external guarantors of individual behavior.28 So as long as institutional surveillance is in place, there is little need to rely on interpersonal trust.29 Knowing that surveillance is present is enough to cause people to act as if they trusted each other.30 But scholars argue that although people’s resulting trust-like behavior reflects their faith in conformity in the presence of institutional surveillance, it does not portend a willingness to extend trust indiscriminately and across situations.31 Thus face and dignity cultures bring very dif- ferent perspectives on trust to the task of negotiating new social relationships.

A Holistic Mindset People in face cultures tend to reason and analyze problems holistically as a result of their Confucian cultural heritage.32 When they analyze a problem, they focus both on the problem and on the context in which it is embedded. They are highly likely to consider what changes in the context may have caused the problem, and they are likely to search for solutions to problems by comparing a problem and its context’s similarities and differ- ences to other problems and contexts they may have encountered before. A holistic mindset relies more strongly on experience- based knowledge than does the analytic mindset.

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One interesting test that distinguishes between the two types of mindsets involves showing people pictures of animals in incon- gruent contexts, for example a sheep in the lobby of a building. When asked to describe the picture, face culture (holistically minded) people tend to talk about both the sheep and its discrep- ant context; by contrast, dignity culture (analytically minded) people tend to describe the attributes of the sheep, largely ignor- ing the incongruous context.

I see this holistic mindset in action in the papers that my Asian graduate students write when they first begin studying in the United States. They write well and their ideas are good, but their papers gradually build to their key insight, exploring various per- spectives before proposing a thesis of their own. My American students start the paper with their own key insight and then sys- tematically and linearly unpack it (much as I am doing in this book).

Another place I see this dignity and face difference in mindset is when negotiators address multiple issues. An American manager told me about negotiating in Korea. At the end of the first day, he said, “We were elated! We had covered four of the issues on our agenda. We thought we were on a roll! On the second day the Koreans wanted to start over discussing the issues we’d already discussed. We wanted to move on.”33 The Americans in this negotiation were working with that linear mindset and swift trust. The Koreans were approaching the nego- tiation in a much more holistic and slow trust manner. In wanting to revisit issues already discussed, the Koreans were signaling that having talked about an issue did not mean having resolved it out of context from the other issues. They may possibly also have wanted to hear how consistently the Americans would talk about the issues the second day.

Honor Cultures

Honor culture societies are distributed geographically around the world and constitute our third prototype. Honor culture is char- acteristic of Middle Eastern and North African cultures, Latin American cultures, and to some extent, Southern European cul- tures.34 In honor cultures, self-worth is an individual’s estimate of

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Culture and Negotiation 37

his own value as socially claimed from and recognized by society.35 Thus self-worth in honor cultures combines elements of self-worth as defined in dignity cultures with elements of self-worth as defined in face cultures.

Honor cultures generally have hierarchical social structures,36 but for several reasons, those social structures are relatively unsta- ble.37 Historically, honor cultures developed in areas with poor agricultural resources, economies based on herding, and weak central governments that were not able to protect people’s prop- erty rights.38 In these economically challenging and unstable environments tribes, clans, and families competed and contested with each other to establish social dominance and exert control over resources.39 The modern history of several Middle Eastern and Latin American countries reveals such contests: cycles of dictatorship and repression, followed by revolutions or reforms; brief periods of political openness, followed by coups or other events that establish new structures of power and politics that are strongly hierarchical.40

Interactions in Honor Cultures In honor cultures, where social hierarchies are unstable and fre- quently contested, self-worth can manifest in rather different ways depending on whether honor is being attacked or acknowledged. There is substantial recent research showing that people in honor cultures respond to insult aggressively, defensively, and directly to protect their self-worth.41 Yet because honor is conferred by others, honor is also displayed to others (particularly strangers) by behavior that is trustworthy42 and gracious.43

Trust in Honor Cultures To be honorable is to be trustworthy. However, the contested social relations that characterize many honor cultures mean that trust may not be supported by social norms or institutional struc- tures, or justified by norms of positive reciprocity. Trust is restricted to the chosen few. Fear of being taken advantage of means that people in honor cultures tend to be slow, not swift, as in dignity cultures, to extend interpersonal trust to strangers. And honor cultures lack the stable institutional structures that provide the reliable external guarantors of trustworthy behavior characteristic

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of face cultures. In social situations in which it is difficult to antici- pate whether or not the other party will be trustworthy, the defensive response in honor cultures is to mistrust.

In honor cultures, trusting means putting your self-worth in the hands of others. If you trust and your trust is reciprocated, then you gain honor because your self-worth is ratified. But there is the huge risk associated with trusting. If your trust is not recip- rocated, there is both a social loss of social face and also a personal loss of self-worth—I must not have deserved to be trusted. How different lack of reciprocation is in honor culture than in dignity culture. In dignity culture the failure to reciprocate a trust initia- tive reflects poorly on the recipient, not the initiator.

A Mindset More Analytic Than Holistic Logically, the prevalent mindset of negotiators from honor cul- tures should be more analytic than holistic, although frankly there is not yet good research on this issue. The reason is that the modern educational systems in Latin America, North Africa, and the Middle East, and on the Indian subcontinent, are steeped in the European tradition, not these cultures’ ancient civiliza- tions. The Spanish and Portuguese brought Aristotelian logic to Latin America. The current Mexican school system is patterned on France’s. The British were in Egypt, Palestine, and India, and the French in North Africa and Lebanon until the middle of the twentieth century. Young men and some women from these parts of the world are routinely sent to universities in Europe, Canada, and the United States.

Most, but not all, of the people from honor cultures you encounter across the negotiating table are likely to be very famil- iar with analytic thinking. At the same time they will also be influenced by the philosophical and moral worldviews of the ancient civilizations of the Middle East and Latin America that flourished economically and politically in these regions long before the Europeans arrived and that were in many ways more similar to civilizations in China than to those in Europe. You will see social vestiges of this heritage in the strength and importance of families and religious institutions and the spirituality of the people in these modern societies. You also may see intellectual vestiges of the way people thought holistically about problems.

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Culture and Negotiation 39

For example, these ancient Middle Eastern and Latin American civilizations shared pictographic writing with the Chinese.

The Value of This Three-Culture Framework

Understanding self-worth, power and status, sensitivity to insults, confrontation style, trust, and mindset from the perspective of dignity, face, and honor culture means that when you see people acting quite like one of these cultural prototypes, you can avoid interpreting their behavior through the lens of your own culture and see it instead as an expression of their own culture. This has at least three very positive benefits for the global negotiator.

First, you can reduce the risk of jeopardizing the negotiation due to misinterpretation of your counterpart’s behaviors. For example, in Japan it is not the norm to look a counterpart directly in the eye. Western culture negotiators, used to eye contact and unaware of this Japanese social norm, can easily fall into the cul- tural misinterpretation trap, inferring that their Japanese counterpart is not trustworthy.

Second, recognizing the cultural source of your counterpart’s extremely frustrating behaviors should increase your tolerance for those behaviors. When you understand that the behavior is cultural, you can see that (a) your counterparts are acting nor- mally for their culture, (b) they are not acting specifically to frustrate you, and (c) they may not even know how your culture would interpret their behavior. This awareness is what Infosys engineer Junichi Yoshida was trying to accomplish when he shared the comparisons in Exhibit 2.3 with Indian and Japanese software project engineers who were trying to improve their communica- tions with each other.

Third, when you can recognize that the counterpart’s behav- ior is cultural and not personal, you should be able to be more flexible in your choice of negotiation strategy. For example, a U.S. software engineer working on a project for an Israeli client reported how frustrated he was by the Israeli’s different way of approaching issues and discussing them. “There is something pretty common to the Israeli culture, they like to argue. I tend to try and collaborate more and it got very stressful for me until I figured out how to kind of merge the cultures.”44

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Exhibit 2.3. Assumptions of Indian and Japanese Software Engineers.

Assumption Indian Engineer Japanese Engineer

Self-concept I am superior. I am inferior.

Customer Partner, Adult God, Child

Words Words are not final. Some are less important.

Words are final. They are commitment.

Commitment I cannot say I do not know.

I cannot say I know.

Communication I talk. I listen.

Expertise I am an expert after ten days.

I am an expert after ten years.

Teamwork The team is there for me.

I am here for the team.

Decision Making

I make a decision. The team makes a decision.

Time I value my time. I value your time.

Negotiation I convince you. I present my position.

I sympathize with you. I represent your position.

Silence Silence is emptiness of the mind. (weakness)

Silence is consolidation of the mind. (strength)

Comprehension I focus on the big picture.

I focus on the details.

Rules Rules can be applicable. Some are less important.

Rule is a rule. No exception. All are important.

Suggestion No. This is a better way. I will give you solution.

Yes but . . . maybe, this is a better way. How do you think?

Risk To manage. To avoid.

Emotion To share. To hide, or explode.

Quality I achieve the goal. 90 percent is completed.

I achieve the goal. 120 percent is completed.

Relationship I spoke to him once. He is a friend of mine.

I spoke to him ten times. I just know him.

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Culture and Negotiation 41

With the ability to see culture in the characteristics that dis- tinguish dignity, face, and honor cultures, we are now ready to consider how culture affects negotiation.

A Model of Intercultural Negotiation

The model in Exhibit 2.4 illustrates how culture affects negotia- tion. It shows two negotiators from different cultures. Arrows indicate that each negotiator has a set of interests and priorities that can be affected by culture as well as other factors, and that these interests and priorities determine outcome potential. This rather abstract term is easier to understand with a concrete example. Recall that when I was buying pumpkins from Mme. Petit in Chapter One, her interest was in the seeds and mine in the rinds. Our different interests generated the potential for an outcome that completely met her interests and mine. Yet to realize that potential outcome we had to learn about each other’s inter- ests. This is where negotiators’ strategic behavior (which is determined partly by culture) comes in. When the pattern of interaction between two negotiators is effective in eliciting infor- mation about the other party’s interests and priorities, they should

Assumption Indian Engineer Japanese Engineer

Schedule It takes five days. Therefore, it takes a week.

It takes five days. Therefore, it does not take a week.

Explanation It is information. It is an excuse.

Hierarchy I obey my boss and act accordingly.

I obey my boss, but may act differently.

Arguing It adds values. It is enjoyable.

It damages the relationship. It is uncomfortable.

Information I share any information. I like quantitative information.

I share necessary information only. I like qualitative information.

Source: Used with permission of Junichi Yoshida and Infosys.

Exhibit 2.3. (Continued)

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42 Negotiating Globally

be able to reach an agreement that captures the outcome poten- tial. Although Mme. Petit and I came from different cultures, both France and the United States are dignity cultures that, as shown in Exhibit 2.2, share some common characteristics such as direct confrontation, swift trust, and an analytic mindset. When I asked Mme. Petit directly why she would not sell me all her pump- kins, she answered directly and honestly regarding her interests; this quickly made it clear to both of our analytic minds that selling me all her pumpkins did not necessarily mean giving up all the seeds. Thus, although cross-cultural, our pattern or interaction was nevertheless successful in eliciting information about the other party’s interests and priorities and allowed us to reach an outcome that captured the outcome potential.

Take another look at the dignity, face, and honor cultural prototype chart in Exhibit 2.2. It does not take too much imagina- tion to see how the pattern of strategic interaction between negotiators from, say, face and honor, or dignity and face cultures would be challenged by cultural differences in status and hierar- chy, response to insult, confrontation style, trust, and mindset. The example of the American asking his Chinese counterpart for infor- mation is a good illustration. He asked her directly as was normative in his egalitarian, direct-confrontation culture. She responded indirectly by involving her boss, as was normative in her

Exhibit 2.4. Culture in a Two-Party Negotiation.

Environment of the Negotiation

Interests and Priorities

Outcome Potential

Interests and Priorities

Outcome

Strategic Behavior

Patterns of Interaction

Strategic Behavior

Party from Culture 1

Party from Culture 2

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Culture and Negotiation 43

hierarchical, indirect-confrontation culture. She never found out why he wanted the data; he never found out why the data were not in the report or why the data might or might not be difficult to generate. It is possible that these two managers’ interests had outcome potential similar to that of Mme. Petit and me. It is just that their pattern of strategic interaction never uncovered their interests.

Environment of the Global Negotiation

Exhibit 2.4 identifies one more element that we need to address: the environment of the negotiation. Global negotiations occur in environments that may be more hostile to or more supportive of one party than the other. For example, as we will discuss more thoroughly in Chapter Seven, cultures that lack a strong founda- tion in the rule of law may be particularly risky environments for foreign direct investors. Global negotiations also frequently extend over a significant period of time, during which conditions that initially were conducive to the negotiation may become hin- drances. Environmental factors may have a strong influence on negotiators’ interests and priorities. Changes in or reassessment of the environment are probably the most important reason for reassessing a BATNA.

For a good example of how the environment of a negotiation influenced changing partners, interests, priorities, and BATNAs, let’s look at the three-and-a-half-year-long battle for control and ownership of the Madrid-based Spanish energy company Endesa. On September 5, 2005, Gas Natural, Spain’s leading gas utility, headquartered in Barcelona, announced an unsolicited tender offer for 100 percent of Endesa. At the time, Gas Natural’s market capitalization was about 50 percent of that of Endesa—rather like a minnow trying to swallow a whale. Importantly, the takeover was supported strongly by the recently elected Spanish government led by the Socialist Workers Party, which was much beholden to the Catalan (Barcelona area) voters. Endesa, not wanting to be swallowed by a minnow, went looking for a BATNA in the form of another buyer, or “white knight,” as it is called in the world of mergers and acquisitions. Six months after Gas Natural made its first bid for Endesa, E.ON, Germany’s largest utility, made an offer

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44 Negotiating Globally

for Endesa. At that point, the Spanish government, not wanting Endesa taken over by a German company, authorized the Spanish agency regulating the energy industry to block the takeover of any Spanish energy companies by foreign companies. This move by Spain got the EU’s attention and elicited a warning to Spain that it could not make regulatory changes that contravened European law regarding mergers and acquisitions. The Spanish government backed off, approving the E.ON offer, but stipulating nineteen conditions that neither Endesa nor E.ON would accept. There was a stalemate until the fall of 2006, when in a surprise move Acciona, a Spanish family-controlled construction, infrastructure, and engineering conglomerate, bought 10 percent of Endesa, which it later extended to 24.9 percent. E.ON’s response was to increase its bid, but it subsequently discovered that Enel, an Italian energy company, was also buying Endesa stock in league with Acciona. E.ON, now realizing that with Acciona and Enel coop- erating it would have trouble acquiring a controlling 50 percent of Endesa, started negotiating to get Acciona and Enel to buy its shares, so it could walk away from its offer for Endesa, which it did in April 2007. Acciona and Enel finally acquired Endesa in February, 2009.45

Consider the changing array of buyers and Endesa’s changing array of BATNAs. Consider how the involvement of the different bidders and different government agencies caused shifts in the legal environment in which this acquisition was occurring. Envi- ronment is not static, and its shifts made a difference in a constantly increasing price for Endesa’s shareholders.

Planning for Culture’s Effects

Now that we have a model of how culture affects negotiation, we are ready to build a Negotiation Planning Document that takes a cultural perspective. The model in Exhibit 2.4 shows that culture affects negotiation in three important ways. First, it affects all the negotiation basics: who the parties are and what the issues are, their priorities and interests, and their BATNAs, reservation prices, and targets. Second, it affects the strategic behaviors that negotiators use at the table. Third, it affects the environment in which the negotiation occurs. All these effects need to be

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Culture and Negotiation 45

considered when building a Negotiation Planning Document that takes a cultural perspective.

The planning document at the end of Chapter One provides a column for each of the parties to the negotiation. A very common mistake when negotiating globally is limiting the columns in the planning document to the parties who will be at the negotiating table. Other groups may need to be included, such as government agencies, principals, holding companies, and other organizations that have hierarchical or interlocked shareholder relationships with whatever entity is at the table. Adding parties to the planning document means adding those parties’ issues, considering how those additional parties can affect BATNA, and how they might affect the timing of the deal. Walmart’s experience in South Africa provides a good example.

Walmart in South Africa

Walmart entered South Africa in 2011 by acquiring 51 percent of Massmart, a large retail company with stores throughout South Africa and twelve other sub-Saharan countries.46 At the time of this acquisition, the South African government was friendly toward foreign direct investment (FDI), as shown by the fact that FDI in South Africa increased by 87 percent between 2003 and 2010.47 Suppose we are Walmart, completing a planning document for the negotiation. First, we would want it to have at least three columns, for Walmart, for Massmart, and for the South African government. Second, we would want it to reflect that government’s strong interest in FDI. But we should also be able to anticipate that the South African govern- ment’s interests are complex and reflect that in the planning document. As it turned out, although the elected South African government was keen on FDI, government bureaucrats in agen- cies responsible for protecting local suppliers to the retail sector were opposed. So were the South African labor unions that wanted to maintain local jobs and protect wages and working conditions. Adding these parties to the planning document also would mean adding their issues and anticipating what effect these parties and their interests might have on Walmart’s smooth acquisition of Massmart.

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46 Negotiating Globally

South Africa has a Competition Tribunal, which has the authority to approve or place conditions on mergers and acquisi- tions, and its decisions can be appealed. Again, no surprise, several government agencies and the coalition of unions opposed the merger at the Competition Tribunal. Walmart suggested two con- cessions. On the labor front it promised no layoffs for two years and current union contracts extended for three years. On the supplier front Walmart offered to fund a supplier development fund for 100 million Rand (approximately $10 million). The Competition Tribunal quickly approved, but the government agencies and their union allies appealed. The Appeals Court was tougher on Walmart than the tribunal had been. It upheld per- mission for the acquisition, but required that Walmart rehire 503 workers who might have been fired due to the acquisition. It also increased the supplier fund to 200 million Rand (approximately $20 million) and created an oversight board consisting of two members from Walmart, two from the trade departments, and one from the unions to monitor the fund. Importantly, the Appeals Court held that if in the oversight board’s opinion the fund was not being operated in such a way as to assist micro, small, and medium suppliers, approval for the merger could be withdrawn!48

There is no evidence in the public record that Walmart nego- tiated directly with the coalition of unions and government agencies during its acquisition of Massmart. Walmart actively resists unions in the United States, although it has relationships with unions in some of the other countries where it has stores, for example, Chile, Brazil, and the United Kingdom.49 Whether or not Walmart intended to sit at the table with the coalition of South African unions and government agencies, a Walmart Nego- tiation Planning Document for the acquisition of Massmart should have contained columns for those parties, who had the power to influence the nature of the acquisition. Strategically, Walmart may have decided not to set a global precedent by negotiating directly with these parties and to take the risk that their BATNA— conditions imposed by the Competition Tribunal and Appeals Court and the delay in completing the acquisition—would not be onerous. We don’t know what Walmart spent on the Competition Tribunal and appeal process; South Africa estimates it spent about

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Culture and Negotiation 47

half a million dollars.50 We do know that the process delayed Walmart’s acquisition of Massmart by eighteen months from shareholder approval.

Moving on to Strategy

Now that we know how culture affects negotiations by influencing parties’ priorities and interests, the strategies they use, and the environment of their negotiation, we are ready to take a hard look at culture and negotiation strategy in the specific contexts of making deals, resolving disputes, and making decisions in multi- party situations. Our goal in the following chapters is not just to see and understand culture’s effects but to address them. Doing so will give us a deeper appreciation of how the factors introduced here that distinguish dignity, face, and honor cultures—the nature of self-worth, power and status, sensitivity and response to insult, confrontation style, trust, and mindset—play out when cultures collide.

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