Negotiating in China

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The global economy is the result of millions of small and large cross-cultural negotiations. It took negotiations for U.S. consumers to have access to Chilean and Mexican fruits and vegetables in the winter months. It took negotiations for Spanish engineering construction companies to get the contract to build new subway tunnels in New York City. It took negotiations for Walmart to enter South Africa. It took negotiations for the Qatari Investment Authority to buy the Paris Saint-Germain Football Club. This chapter discusses culture and strategy for negotiating deals. It describes two basic types of strategy nego- tiators use when pursuing deals: asking and answering questions, which we call Q&A, and offers and influence attempts, which we call “substantiation and offers” or S&O. The chapter builds on the research on negotiations first introduced in Chapter One and the dignity, face, and honor prototypes of culture introduced in Chapter Two to explain how and why negotiators’ choice of strategy is linked to culture. It describes how culture affects negotiators’ use of strategy in different parts of the world. It reviews the limited research on intercultural negotia- tion and ends with advice for negotiating across cultural boundaries, particularly boundaries between dignity, face, and honor cultures.

3 Culture and Strategy for

Negotiating Deals

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 16:09:10.

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50 Negotiating Globally

Why be concerned about negotiation strategy, if so many global deals are being completed successfully? The main reason is these deals leave outcome potential on the negotiating table for neither party to claim. When this happens, neither party’s interests are met as well as they might be. In their haste to get access to markets, labor, or resources, foreign direct investors commit to agreements prematurely that make implementation difficult or even to agreements that they probably should have said no to. These poor agreements frequently happen because negotiators assume that their strategy will work regardless of culture. Then, when they find themselves at the negotiating table and they realize that their strategy is not working very well, they do not know how to adjust to their counterpart’s strategy without giving up value.

The inter cultural simulation data in Exhibit 3.1 illustrate this point about leaving value on the table that no one party gets. The data in Exhibit 3.1 are from the same set of studies of managers first introduced in Chapter One in Exhibit 1.2. Recall that maximum joint gains in this negotiation simulation are $5.08 million. Exhibit 1.2 showed that U.S. and Japanese intracultural negotiations (negotiations between managers from the same culture) generated about the same level of joint gains, $4.2 million. Exhibit 3.1 shows that U.S.-Japanese intercultural negotiations

Exhibit 3.1. Individual and Joint Gains in Intercultural Negotiations.

M il

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Israel / Hong Kong

United States/ Japan

United States/ Hong Kong

United States/ Israel

United States/ Germany

Seller Buyer

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Culture and Strategy for Negotiating Deals 51

(negotiations between managers from different cultures, also called cross-cultural negotiations) generated significantly lower joint gains, $3.5 million—a substantial loss for both U.S. and Japa- nese negotiators than when they negotiated intraculturally. In Exhibit 1.2, Israeli intracultural negotiations generated about $4.2 million, whereas Hong Kong Chinese intracultural negotiations generated only about $3.2 million. However, Exhibit 3.1 shows that when the Hong Kong Chinese were negotiating intercultur- ally with the Israelis, joint gains were $4 million—only slightly worse from when the Israelis were negotiating intraculturally and much better for the Hong Kong Chinese than when they were negotiating intraculturally. The data in Exhibits 1.2 and 3.1 show that context matters: intracultural negotiations are not the same as intercultural negotiations. Negotiating across cultural boundar- ies typically hurts but in some instances may help negotiators generate joint gains, depending on how their strategies fit together. The data in these two exhibits also raise the important question of why and how negotiators’ strategies vary with culture.

Deal-Making Negotiation Strategy

In this section we introduce two types of negotiation strategy: question and answer (Q&A) and substantiation and offers (S&O). Then we turn to how and why culture affects negotiators’ tenden- cies to rely more heavily on one strategy or the other. This takes us to a discussion of how trust and mindset—holistic versus analytic—associated with cultural differences affect negotiation strategy, and will bring us to a model of culture and negotiation strategy that ties all the ideas together.

Negotiation strategy is goal-oriented behavior focused on gen- erating individual and joint gains.1 Negotiation research has identified two distinct types of strategy: Q&A is all about informa- tion exchange regarding interests and priorities. S&O is all about attempts to influence the counterpart to make concessions.

The Q&A Strategy

Negotiators who rely on Q&A tend to generate value for them- selves and the other party.2 They try to get information sharing

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going by asking their counterparts questions about interests and priorities and being willing to answer similar questions when posed by their counterparts.3 They give each other feedback: “Yes that will work for me” or “No, that won’t work for me because . . .” They share knowledge about interests and priorities that are similar and discover those that are different: “We both have a common goal here, but to reach that goal, I’m going to need . . .” Note that these negotiators are not asking and not sharing infor- mation about reservation prices or bottom lines. They are not asking questions that they do not want to answer themselves and that they know the other party does not want to answer. They avoid asking in the early stages of the negotiation questions such as, “What is the least you are willing to take and say yes?” “What is the most you are willing to offer?” They also avoid making offers.

Once the Q&A strategy has generated insight into the counterpart’s interests and priorities, negotiators can make multi-issue offers that bridge interests4 or trade off priorities.5 Bridging is what Mme. Petit and I did when negotiating for pumpkins (in Chapter One). After we had shared interests, we were able to identify a solution that “bridged” those interests— she got the seeds and I got the rinds. Our bridging agreement actually involved a trade-off; seeds were less important to me than to her and rind was less important to her than seeds. Around the world the Q&A strategy is effective in generating insight into counterparts’ priorities and interests and generat- ing joint gains.6

However, if you are worried that to use the Q&A strategy negotiators have to trust each other, your concerns are appropri- ate. Trust in negotiation is the belief that shared information will be used to identify mutually beneficial opportunities.7 In the absence of trust, Q&A invites exploitation.8 Questions invite vul- nerability by revealing gaps in the questioner’s knowledge. Answers create vulnerability if they reveal truthful and sensitive informa- tion about the answerer’s priorities and interests.9 Trust, grounded in the belief that shared information will be used to identify mutu- ally beneficial opportunities, enables negotiators to use Q&A. Uncertainty about trust is a major reason why negotiators use the S&O strategy.

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Culture and Strategy for Negotiating Deals 53

The S&O Strategy

Negotiators relying on S&O tend to be ones who are intent on generating value for themselves. They do so by engaging in all sorts of influence attempts to try to get the counterpart to make concessions. Substantiation includes all types of influence and pressure tactics, such as arguments and threats —what will happen if the negotiator does not make concessions;10 normative appeals such as sympathy ploys—what the counterpart should be doing;11 and displays of anger and frustration.12 At the same time as they substantiate, negotiators intent on claiming value for themselves also make lots of offers, particularly single-issue offers early in the negotiation.13 Offers are proposals or suggestions to resolve issues. Offers and substantiation share a theoretical orientation.14 They also co-occur empirically—negotiators who make more offers tend to engage in more substantiation.15 This makes sense intui- tively because by using one or another form of substantiation, the negotiator is trying to get the counterpart to concede and accept the negotiator’s offer.

S&O solves Q&A’s trust problem in a peculiar way. Rather than opening a window into a negotiator’s interests and priorities, offers emphasize negotiators’ positions. Although offers may be exaggerated, offers do not require trust in order to be believed. Substantiation, too, does not make a negotiator vulnerable in the same way that sharing information about priorities and interests does. Substantiation may reveal little about the self; it often focuses on the counterpart, indicating why the counterpart should accept an offer. Thus S&O helps negotiators avoid revealing information that could be exploited.

Ironically, however, although the S&O strategy avoids exploi- tation, it is not necessarily very effective in generating individual net value. There are three reasons. First, the S&O strategy typi- cally does not develop the insight into parties’ preferences and priorities that Q&A does (we will discuss an important exception to this later when we talk about using these strategies in a cul- tural context).16 Without insight, negotiators generate lower joint gains and thereby, ironically, lower value for themselves— the point made in Chapter One and illustrated in Exhibit 1.2. Take another look at Exhibit 1.2. Remember that the dark

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shading in the bars represents the seller’s net value; the light shading, the buyer’s net value. Compare the Brazil and China bars. The Brazilians negotiated higher joint gains on average than the Chinese and so there was more net value for both the Brazilian buyers and sellers to claim than for the Chinese buyers and sellers to claim.

The second reason why the S&O strategy is not very effective in generating net value is that it can backfire, causing people to walk away from offers that are better than their BATNAs.17 Research is just beginning to understand the circumstances under which threats, sympathy ploys, and displays of anger encourage and discourage concession making. A recent theory suggests that it depends on whether the substantiation cues an emotional reaction, for example, “I’ll not be threatened,” that is likely to discourage concession making, versus a cognitive inferential response, for example, “this counterpart must be serious,” that is likely to encourage concession making.18 Recent research suggests that the response that gets cued depends on how competitive versus cooperative the negotiation is.19 In highly competitive negotiations, for example the dispute resolution negotiations that we will discuss in Chapter Four, substantiation is expected and discounted; it typically provides no new information. In more cooperative negotiations, for example to develop a joint venture, when there is the potential of a long-term relationship, substantia- tion may be unexpected and generate an emotional reaction: “if this is the way you act in negotiation, how are you going to act as a partner, no thanks.”

The third reason why the S&O strategy is not very effective in generating net value is that it does not address explicitly the one factor that research shows does facilitate claiming individual net value: extreme first offers. Negotiators who make extremely favorable-to-themselves first offers have an advantage claiming value in negotiations.20 First offers anchor negotiations. What this means is that a negotiator’s first offer affects the other party’s counteroffer by pulling it toward the first offer and away from where the counteroffer would have been if it had been the first offer. This is called anchoring (the first offer) and insufficient adjust- ment (the counteroffer). This narrows the range of possible agreements and causes first offers to predict final agreements

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Culture and Strategy for Negotiating Deals 55

extremely well. Because counteroffers are typically insufficiently adjusted for anchors, there is a first-offer advantage in claiming individual value in negotiation, so long as the first offer is not so extreme as to stop the negotiation before it has started.

Many negotiators often are reluctant to make the first offer, because they hope that the counterpart will open first with an offer that is superior to their own target. This outcome is unlikely unless the counterpart lacks information (about the other side’s BATNA) to properly set a target. If you are reluctant to make the first offer, you are going to need an antidote to keep from being anchored by the counterpart’s first offer. So, before negotiating, write down what your own first offer would be. Use it as your counteroffer unless the counterpart’s opening offer is better than your target.

Culture and Negotiation Strategy

Negotiators all over the world use both the Q&A and S&O strate- gies, but they use them with different frequency and effects.21 Although negotiators from dignity cultures—for example, the United States, Israel, Germany, and Sweden—tend to rely more heavily on Q&A than S&O, negotiators from face and honor cultures—such as China, Russia, Japan, Thailand, India, and Qatar—rely more heavily on S&O than Q&A.22 We believe there are two primary cultural reasons why: trust and using a holistic versus an analytic mindset.

Using Q&A, as we have pointed out, requires trust. Both asking and answering questions gives the counterpart an oppor- tunity to take advantage.23 Questions invite vulnerability by revealing gaps in the asker’s knowledge. Answers create vulnera- bility if they reveal truthful and sensitive information about the answerer’s priorities and interests.24 A new meta-analysis is defini- tive: trust, grounded in the belief that shared information will be used to identify mutually beneficial opportunities, enables nego- tiators to use Q&A.25

Trust appears to mean the same thing to people around the world,26 but trust is higher in some parts of the world than others.27 This means it is going to be a lot easier to get Q&A going in negotiations in some parts of the world than in others.

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Why and Where Is Trust Likely in Negotiations?

Trust in deal-making negotiations seems to be more likely in loose (dignity) than tight (face or honor) cultures. Recall from Chapter Two that norms governing social behavior can be tight or loose. In tight cultures norms are relatively inflexible and formal. Tight cultures tend to have institutional mechanisms, such as family, community, state and religion, to enforce behav- ioral expectations through monitoring and sanctioning of deviance. In contrast, in loose cultures the norms governing social behavior are relatively flexible, generating improvisation and interpretation and greater variation of behavior. Loose cul- tures communicate expectations, but social behavior is governed by interpersonal mechanisms. Typically, there is a broader range of socially tolerable behavior and people are responsible for monitoring their own behavior.28

These two different social systems have different implications for trust in deal-making negotiations. In loose cultures, because interpersonal mechanisms govern behavior, people have to rely on social intelligence to determine who is and who is not trust- worthy. As a result people tend to make the culturally normative “swift trust” assumption: others deserve to be trusted until they prove otherwise.29 If their trust is reciprocated, they will continue to trust, intuitively understanding that interpersonal trust is fragile and will not withstand defection. In tight cultures, because institutions monitor and sanction everyday behavior, people tend to rely on institutional trust more than interpersonal trust. What this means is that they act as if they trust and expect others, too, to act in a trustworthy manner, so long as institutional monitoring and sanctioning are in place. Although people may act as though they interpersonally trust, their behavior largely reflects assur- ance in institutions to control their own and others’ behavior. When institutional monitoring and sanctioning are not in place, people in tight cultures may not act in a trustworthy manner and may not expect others to do so.30

This distinction between interpersonal and institutional trust is very important because global surveys that measure trust do not make the distinction between the two types of trust. In both the World Values Survey and the Pew Global Attitudes Survey, Sweden

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Culture and Strategy for Negotiating Deals 57

and China both score high on measures of trust.31 We suspect, however, that what underlies trust in tight cultures such as China is institutional trust, and what underlies trust in loose cultures such as Sweden is interpersonal trust. The catch is that there is little to no institutional monitoring of deal-making negotiations in either tight or loose cultures.32 This leaves the tight-culture negotiator with no guarantee of protection from exploitation and (some scholars add) without much experience in developing interpersonal trust.33 Although there is most definitely more scholarly work to be done on this topic, the data suggest that interpersonal trust in deal-making negotiations is more likely in loose than tight cultures.

At the same time, low trust appears to encourage use of the S&O strategy, probably because S&O does not reveal sensitive information about interests and priorities.34 Recall that although people routinely exaggerate offers, they do not typically make offers that they would not be perfectly satisfied with if the coun- terpart would only accept their offer. Offers can be believed. Substantiation, too, is believable. It is all the reasons why the party making the offer believes that the counterpart should accept the offer. Negotiators routinely discount their counterparts’ offers and substantiation as self-serving, but norms of reciprocity encour- age an S&O response. Thus low trust encourages a vicious cycle of S&O, which has the marginal benefit of keeping negotiators from revealing information about priorities and interests that could be exploited, but the disadvantage of sharing information that could be used to create value.

Summing Up Trust and Negotiation Strategy

So far we have discussed two negotiation strategies, Q&A and S&O. We have realized that Q&A requires interpersonal trust, but that such trust is not likely to be present in deal-making negotia- tions, especially in “tight” cultures, because the institutional monitoring and sanctioning that make social interaction in those cultures function smoothly are largely lacking in deal-making negotiations. S&O is the default negotiation strategy when trust is low. But S&O does not generally develop the information about priorities and interests that negotiators need to bridge interests

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and trade off priorities to create joint gains. And, because most negotiators using S&O do not do well creating joint gains, using the S&O strategy limits individual net value. With this understand- ing, the chances of creating joint gains negotiating globally would appear to be rather bleak—except for some intriguing Japanese data that suggest negotiators with a holistic mindset may be capable of inferring information about interests and priorities from S&O, thus enabling joint gains in value.

S&O Strategy and the Holistic Mindset

Recall our discussion in Chapter Two of the holistic versus the analytic mindset. We said people in face cultures tend to be holis- tic thinkers—that is, they focus both on the problem and on the context in which it is embedded—whereas people in dignity cul- tures tend to be analytic thinkers—that is, they focus on the problem and its attributes. In negotiations this could mean that people in holistic cultures can analyze the relative importance of issues in the context of other issues, and so understand priorities. In contrast, people in analytic cultures are more likely to analyze the attributes of individual issues and so understand underlying interests.35

Data from our studies of face and dignity culture negotiators, particularly our studies contrasting Japanese and Americans, suggest that negotiators from these two different cultures are using strategy differently to negotiate equivalently high joint gains.36 We found that the Japanese were relying heavily on S&O while the U.S. managers were relying primarily on Q&A but that their joint gains were equivalent.37 This observation led us to investigate four questions:

1. Did the Japanese negotiators using S&O have similar levels of insight as the Americans using Q&A, or was insight not the path to the Japanese negotiators’ high joint gains?

2. If Japanese and American negotiators had similar insight, how were the Japanese getting insight from S&O?

3. How important was it for Japanese negotiators to use S&O and American negotiators to use Q&A to achieve high joint gains?

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Culture and Strategy for Negotiating Deals 59

4. Is this ability to generate insight from S&O unique to the Japanese?

Insight and S&O Japanese negotiators using S&O had insight similar to that of the Americans using Q&A. We tested insight immediately following the negotiation simulation by asking negotiators how important each issue had been to the other party and then how important each issue was to themselves. We then looked closely at how the negotiators rated the trade-off issues in the simu- lation. Negotiators who could report correctly which trade-off issue was more important and which trade-off issue less important to themselves, we labeled as having “self-insight”; those who could report correctly which trade-off issue was more important and which was less important to the counterpart had “other-insight”; and those who had both self-insight and other-insight had “rela- tive insight.” Through this process we determined that the Japanese negotiators’ insight was equivalent to that of American negotiators, and that insight predicted joint gains for both Japa- nese and American negotiators.38 Now we really wanted to know how the Japanese were generating insight from S&O!

What the Japanese Were Doing At the time we were working on this question, we were relying on Hall’s cultural theory that distinguishes between high- versus low- context communication to explain cultural differences between Japanese and U.S. negotiators. An anthropologist, Edward T. Hall distinguished cultures by the way people communicate. In low- context cultures, he said, people communicate directly and explicitly, with the result that they have little need to engage their high-level inferential skills to understand the meaning of com- munications. In high-context cultures, he said, people communicate indirectly and implicitly, and as a result they need to engage their high-level inferential skills to infer meaning, because the same words can have different meaning depending on the context.39 Negotiators with experience in Japan, for example, know that hai doesn’t necessarily mean “yes.” It can mean “I’m listening,” it can mean “I understand,” and it can mean “no.” Research by Hall and

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others suggests that communication norms in Western cultures emphasize low context communication but that communication norms in East Asian cultures are high context.40

More recent cultural studies suggest that East-West differ- ences in patterns of high- versus low-context communication are consistent with the cultural differences in holistic versus analytical reasoning. Holistic reasoning with its emphasis on context is an approach to analysis that people in high-context- communication cultures can use to infer meaning. Analytic reasoning with its emphasis on linear logic is the inferential approach used primarily by people in low-context-communica- tion cultures.41

We looked more closely at the Japanese and U.S. negotiators’ transcripts to try to understand how they were generating insight from their different strategic approaches.

We found that the Japanese negotiators who negotiated high joint gains made a lot of offers from the very beginning of the negotiation. They introduced an issue by making an offer, not by asking a question about it, as the Americans were prone to do. They then tended to build on the first offer by adding another issue, but without resolving the first. The Japanese negotiators also used plenty of all kinds of substantiation relative to the Ameri- cans, but unlike the Americans, who tended to substantiate specific offers, the Japanese tended to separate offers and substantiation.42

The Value of Negotiating Normatively The transcripts suggest that the Japanese were treating the mul- tiple issues in the negotiation holistically. They seemed to use the pattern of offers, counteroffers, and substantiation for infor- mation gathering in the way that the Americans used Q&A. Interestingly, in our research, the longer the Japanese negotiators held off making their first offers, the lower their joint gains, but the longer the U.S. negotiators held off making their first offers and the more information the U.S. negotiators exchanged before making the first offer, the higher their joint gains.43 When U.S. negotiators and those from other analytically oriented cultures, for example, India, open with offers they get anchored, tend to address one issue at a time, and fail to explore priorities and

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Culture and Strategy for Negotiating Deals 61

interests as they do when they use Q&A.44 In contrast, the Japa- nese negotiators do not get anchored using the S&O strategy.45 This final analysis implies that it is important for negotiators to use the strategic approach that is culturally normative to them- selves—“stick with what you know”—which is why intercultural negotiations are so challenging.

Can Others Do It? Of the negotiators we have studied, the Japanese show this ability to infer insight from S&O more consistently than nego- tiators from other East Asian cultures.46 Among some Chinese negotiators we have seen a slightly different but still holistic approach to generating insight from S&O.47 Some Chinese negotiators will open with a multiple-issue offer and then trade multiple-issue offers back and forth until they have extracted all the potential joint gains. Their approach is not just trial and error. These negotiators are intentionally keeping all the issues linked in multiple-issue offers, and they do gain insight from the exchange of offers, suggesting there is more than one way to create joint gains taking a holistic approach and using S&O strategy.

Summing Up Mindset and Negotiation Strategy

This analysis of the implications of holistic versus analytical mindset for insight in negotiation leaves us in a slightly more optimistic place than we were at the end of the previous section, on trust. If the Japanese can gain insight from patterns of S&O, maybe other negotiators can too; that is, if they turn on their holistic mindset and avoid anchoring. Our brains after all are quite amazingly malleable. People who intuitively rely on their holistic mindset are no doubt capable of analytic thinking, and people who intuitively rely on their analytic mindset are probably capable of holistic thinking, although they may need a little help doing so. That help, as well as a lot of other advice about execut- ing a negotiation strategy in different cultural contexts, is coming up in the next section.

Now that we understand how and why negotiators in different cultures use Q&A and S&O, we can use a model of culture and

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negotiation strategy to show how trust and mindset, Q&A and S&O, and insight and joint gains interrelate. Then we’ll turn to how to use our knowledge of culture to manage strategy at the global negotiation table.

A Model of Negotiation Strategy

The model in Exhibit 3.2 shows how Q&A and S&O are related to cultural differences in trust and mindset and to joint gains via insight. The shortest and most reliable route to joint gains opens up when interpersonal trust allows negotiators to use Q&A to gain insight, which they then use to construct offers that make trade-offs. Our research suggests that negotiators all over the world can take this route to joint gains, and do so when interpersonal trust is high. At the same time, our research suggests that because of the lack of interpersonal trust in nego- tiations, this Q&A route is understandably not often taken. When interpersonal trust is low, the alternative route of S&O typically does not generate insight, except in the hands of Japa- nese and possibly other holistically minded negotiators. To make the S&O route work requires that negotiators mine offers and substantiation holistically for information about priorities and interests.

Exhibit 3.2. A Model of Culture, Negotiation Strategy, Insight, and Joint Gains.

Questions and Answers

Insight Joint Gains

Interpersonal versus

Institutional Trust

Substantiation and Offers

Holistic versus Analytic Mindset

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Advice for Deal-Making Negotiations

The model in Exhibit 3.2 suggests that the place to start preparing a negotiation strategy is to know your own and your counterpart’s trust and mindset profile in the context of negotiations. Ask your- self the following questions:

• Do I tend to trust my negotiation counterparts, generally, in certain situations?

• How comfortable am I asking and answering the why question that reveals interests?

• How comfortable am I asking and sharing information about priorities?

• Do I like to negotiate one issue at a time or am I comfortable making multiple-issue offers?

• Do I tend to focus on individual issues and their characteristics, or do I prefer to look at the issues as a whole package?

• Do I tend to use rules to categorize negotiation issues (such as distributive, trade-off, compatible) and then use more rules to negotiate the resolution of the issues (for example, looking for trade-offs)?

• Do I tend to use associations among issues (such as relative importance among issues to you and to the other party) to negotiate the resolution of issues?

Now ask the same questions about your counterpart. You may need to use the counterpart’s cultural prototype to help you address these questions from the counterpart’s perspective. Con- sider the following:

• What cultural prototype—dignity, face, or honor—is likely to have influenced the counterpart?

• What is your trust relationship with the other party? • Which strategy (Q&A or S&O) is the counterpart likely to be most

comfortable using and why?

With this analysis you are ready to begin to consider your strategic approach depending on whether trust is likely.

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When Trust Is Likely—Use Q&A

When trust is likely, consider these tactics and initiate Q&A.

• Build trust outside the negotiation. Get to know the counterpart, let them get to know you. In face culture, it may help to be introduced or vouched for by a third party or a mutual acquaintance. In dignity culture, research shows “schmoozing” or small talk can lead to learning that parties have common interests, which in turn helps to build cooperation in subsequent negotiations.48 Having a meal together may challenge some people’s dietary restrictions, but some fun recent research in a dignity culture shows that people negotiate higher joint gains when eating than not.49 But be careful about the alcohol! Again dignity culture research indicates that moderately inebriated negotiators (this was done under experimental conditions so people were not falling down drunk) behaved more aggressively during negotiations (for example, used more threats), made more mistakes (gave away information they shouldn’t have), failed to follow up on a lead), reached less integrative agreements (left value on the table), and were unaware alcohol affected their behavior.50

• Set a positive tone in the negotiation. Substantiation does not have to be negative. There is research showing that setting a positive tone at the negotiation table helps to build rapport and creativity, which in turn helps to avoid impasses.51 Remember you are at the table with your best potential partner. You know this because you have carefully analyzed your BATNA. Remind the counterpart why you are both there. Discuss what the future would look like working together after the negotiated agreement.

• Test trust. Give away a little information about your interests. This gives the counterpart information in advance of your asking them to be revealing, and it cues reciprocity. If you have given information, be sure to ask for information in return. Try to get reciprocal Q&A going about interests and priorities. Hold off on making offers.

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• Be trustworthy. Reciprocate information sharing. If you do not, the counterpart will notice and quickly stop answering your questions. Demonstrate that you are listening. Paraphrase your counterparts’ statements about interests and priorities. Behave consistently and predictably. When you cannot answer a question because it would give away too much strategic information, be honest about it and give some other information that you can share: “I’m sorry, I cannot give you that information at this point, but I can tell you . . .”

• Avoid agreeing on one issue at a time. Keep any agreements tentative until all the issues have been discussed and you can bundle them into a multi-issue offer.

• Use multiple-issue offers to consolidate information gathered via Q&A. Multiple-issue offers give you control over value creation as they build in trade-offs, but they also give you control of value claiming, as they specify what you get and what the counterpart gets.

When Trust Is Unlikely—Use S&O

To use offers to collect information about interests and priorities, try these tactics:

• Test trust. Use one or more of the techniques above to test trust; you might be surprised.

• Look for information in offer patterns. If you are confident of your holistic mindset, you may simply be able to see patterns in offers that reveal interests and priorities. If you are not confident, you should chart offers, yours and theirs.

Take a look at the offer chart in Exhibit 3.3. Like the Negotia- tion Planning Document, the offer chart has a row for each issue and a column for each offer regardless of whether the offer men- tions a single issue or multiple issues. Make sure you indicate who made the offer. You can put a superscript “S” next to offers that were substantiated. Analytic mindset people like to organize information according to rules, and the offer chart guides them to do so.

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Next comes the harder part for people with well-developed analytic mindsets. You need to look across the offers and substan- tiation in the offer chart for the pattern that uncovers the rules of creating value in negotiation. Those rules we know are identify- ing trade-offs and interests. Exhibit 3.3 presents a hypothetical exchange of multi-issue offers and counteroffers in the simulation we’ve been studying, about buying episodes of a television show, in which there is one zero-sum or win-lose issue, “price,” and two trade-off issues, “runs” and “financing.” “Runs” refers to how many times an episode of a television series can be shown during the contracted period. Financing refers to the scheduling of when the contract money is to be paid. “Runs” is a more important issue to the buyer, and financing is a more important issue to the seller. Take a look at the first offer. This offer represents the most favor- able outcome for the buyer: the lowest price, $30,000, the highest runs, eight, and payment percentages distributed over five years, 0, 25, 25, 25, 25. The second offer represents the most favorable outcome for the seller, the highest price, $70,000, the lowest number of runs, four, and a payment of 100 percent in the first year. The third offer is the buyer’s first counteroffer. The buyer is signaling that the buyer is flexible by conceding on the price, moving from $30,000 to $35,000, and on the financing from 0 to 25 percent payment on the first year. That the buyer is not con- ceding on runs signals that runs must be important to the buyer. Now look at the fourth offer. Here the seller is signaling flexibility

Exhibit 3.3. Reading Information About Priorities and Interests from Offer Patterns.

Issue Buyer Offer

#1 Seller

Offer #2 Buyer Offer

#3 Seller

Offer #4 Buyer

Offer #5

Price $30,000 $70,000 $35,000 $65,000 $40,000

Runs 8 4 8 5 8

Financing 0% up front, 25% years 1,2,3,4

100% up front

25% up front, 25% years 1,2,3

100% up front

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by conceding on price, going from $70,000 to $65,000, and on runs, moving from four to five. By not conceding on financing— payment is still at 100 percent in the first year—the seller is signaling the seller’s preference structure for financing. When the offer chart reveals that the counterpart is not making concessions on one particular issue, or is substantiating one issue more than others, the inference should be “that issue must be important to the counterpart.” Although it may take you more than two rounds of offers and counteroffers to understand your counterpart’s pref- erence structure, you might be surprised by how much you can learn from plotting offers. Once you have a good idea about the counterpart’s preference structure, you can make a multi-issue offer incorporating the trade-offs, as in the buyer’s fifth offer in Exhibit 3.3. Here is some advice about using offers:

• Post offers visually on a flipchart or board or write them on paper that you can hand to the counterpart. Make it easy for the counterpart to understand what you are offering. Visuals also help if you are trying to anchor the negotiation.

• Don’t make offers that are unacceptable to you. Counterparts assume that the offers you make are acceptable to you. If you back away from an offer, you lose credibility and confuse your counterpart who, too, is trying to make sense of the offer pattern. Take the time to construct and check your offer.

• Plot your offers and your counterpart’s offer. If it is a single-issue offer, assume that any offer on a previous issue remains the same. Give the single-issue offer its own column. Evaluate the set of offers and counteroffers from a holistic perspective. You know what you are looking for: concessions, signaling flexibility, and no concessions, signaling high-priority issues and options.

If you are still having trouble getting information from offers, you can try to use MESOs and contingent contracts.

MESOs

Exhibit 3.4 illustrates MESOs (multiple equivalent simultaneous offers). MESOs are two or more multiple issue offers that are

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presented at the same time. Exhibit 3.4 pairs offer A with offer B. Both offers need to be of equivalent value to you. This is very important! If they are not of equivalent value to you, you will not be able to interpret the counterpart’s choice. When the counter- part chooses one of the equivalent-to-you offers, you can tell what his priorities and interests are. By the way, be sure to anchor those equivalent offers high. Even if the counterpart does not like either choice, she should like the one that meets her interests better than the other, and you have gained insight.

Equivalent offers are useful for getting information from negotiators who are reluctant to share information and from negotiators who don’t fully understand their own priorities. They are also very useful for addressing negotiators whom you think may be lying about their priorities and those who surprise you with “Oh, there’s just one more thing!” when you thought the negotiation was over. In either case, make one offer that you think should be acceptable and another equivalent-to-you offer that integrates the new issue or gives more on the issue for which you think the other party has falsified a priority. Make sure the offers are equivalent to you and anchored to give you a high value. Whether the counterpart did not understand her own priorities or was lying about them is really irrelevant because, once she has made a choice between your equivalent offers, you understand her priorities.

Consider these important cautions before using MESOs. First, the counterpart may try to “cherry pick” the best options for

Exhibit 3.4. MESOs: A Seller’s Equivalent Offers for a Cartoon Show.

Offer

Net Value Buyer/Seller (in millions)

Price of Ultra

Rangers Runs Financing

A $2.67/$1.32 $45,000 8 80% up front, 20% first year

B $2.76/$1.32 $43,200 8 100% up front

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himself out of the multiple offers. To counter this you must make clear that each offer is a package that cannot be taken apart. Second, when you introduce MESOs, the counterpart will choose the offer that generates higher joint gains, but all those gains will go to the counterpart! This is the reason for the advice above to anchor high when making multiple equivalent offers. Finally, be aware that opening the negotiation with multiple equivalent offers has some positive and some negative effects. First, the posi- tive: new research shows clearly that opening negotiations with MESOs that are extreme in the favor of the offerer is better for the offerer in terms of claiming net value than opening with a single multiple issue offer (in the research one of the two or three offers in the multiple offer package). This effect benefits the party making the opening MESOs, and the reason is quite interesting. Opening with an extreme set of MESOs led to less aggressive counteroffers than opening with a single multi-issue offer selected from the set of MESOs, because the multiple offers were perceived as more legitimate than the single offer and led recipients to see offerers as more cooperative. The study’s authors believe that this is because recipients were given a choice, and they could choose the offer that was best for them. This makes sense, because recall that the offers in MESOs are equivalent to the offerer but differentially configured for the counterpart, so that one multi-issue offer in the set is likely to be of greater net value to the recipient than the others. Second, the downside of opening with MESOs is the same as opening a negotiation with a single-issue offer. Opening with MESOs pretty much anchors the negotiation to the joint value of the offer within the set that is best for the recipient. MESOs are very “sticky” anchors, accord- ing to the authors of this set of studies. MESOs seem to focus the negotiation on value claiming and the S&O strategy.52 We don’t yet have enough research to predict how opening with MESOs might work in face or honor cultures. Can holistic thinking be stimulated by MESOs in face cultures? It is certainly possible, but given the penchant for S&O strategy, in both face and honor cultures, and the stickiness of MESOs, it would seem unlikely that MESOs would to lead to value creation in face and honor cul- tures, either.

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Contingent Contracts

A contingent contract is an agreement to change the negotiated outcome in a specific way on the basis of the occurrence of a future event. For example, in May 2008 in the midst of the financial crisis, Disney bought the kids Internet play site called Club Penguin. Club Penguin is an online game in which players use cartoon penguin-avatars to play in a virtual world. The parties agreed to the price of $700 million, 50 percent down and 25 percent each in 2009 and 2010, contingent on member- ship growth goals being met, which, given the economy, they were not.

Contingent contract offers can be based on the buyer’s and seller’s differing expectations of the future, different time sensi- tivities, and different risk propensities. Contingent contracts are essentially a bet, and as such they are a good way to elicit informa- tion. In the Club Penguin example, if Disney made the contingent offer, Club Penguin’s response provided insight into the Club Penguin creators’ confidence in their ability to grow under Dis- ney’s umbrella. Contingent contracts like this one essentially force optimists to bet on deferred compensation, and pessimists to share upside potential.

Here are a few cautions about contingent contracts:

• Contingent contracts affect the distribution value. They do not directly create value in the same way that trading off a low- priority issue for a high-priority issue does. Contingent contracts stipulate that if the future value is “x” it will be divided according to one rule, if the future value is “y” it will be divided according to another rule.

• Contingent contracts can indirectly affect value creation to the extent that they align both parties’ interests. For example, it was in both Disney’s and the Club Penguin creators’ interests to grow the number of Club Penguin memberships. In many negotiations interests are not so well aligned. For example, a party buying patents to use new technology in its products is not likely to want to enter into a contingent contract with the patent seller, who is to have no involvement in the integration of the patent technology into the buyer’s products.

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• Contingent contracts become problematic when they are contingent on a criterion that is not objective. When negotiations are cross-cultural and companies have different accounting methods, finding an objective factor on which to make contracts contingent may be difficult. When contingent factors are not objective, parties can legitimately have different opinions on whether or not the contract has been met, and a dispute can ensue. In general, it is unwise to negotiate a deal that you fear may generate future disputes. Club Penguin membership seems to be a pretty objective criterion, so this contingent contract avoided the criterion pitfall.

Using Offers Effectively Here is summary advice:

• Open first; anchor high. There is a first mover advantage in single-issue negotiations.

• Avoid being anchored by the counterpart’s offer. Recognize the tendency to overadjust to the counterpart’s extreme offers. Make sure to write down your first offer, so that you can counter with it if the counterpart opens first.

• Make concessions reciprocally, not unilaterally. If the counterpart is not satisfied with your offer, don’t negotiate with yourself! Ask the counterpart what’s wrong with your offer. Ask the counterpart to make an offer. Don’t forget to chart those offers and look for insight in the offer patterns!

• Avoid negative emotional spirals. Introduce data, logic, and objective standards that could help break the logjam. You do not have to respond to each of the counterpart’s influence attempts. Here is where you do not want to engage in reciprocity. Recognize that using emotional tactics is normative in deal making in face and honor cultures. It’s not personal. Understand that there is a status contest going on. Protect your interests, maintain your composure, do not compromise your integrity!

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Using Substantiation

Substantiation is a broad category of negotiation influence tactics that have in common the intent to elicit concessions. Substantia- tion can be positive, extolling the benefits of conceding, but it is generally negative information—the consequences of not conceding.

When substantiation is emotional and positive it seems to be effective in eliciting concessions and in motivating joint gains. Setting a positive tone (in one study negotiators first watched a funny movie) helps to build rapport, and promotes creative think- ing and innovative problem solving.53

When substantiation is emotional and negative, it may or may not be effective in eliciting concessions. Effective substantiation should influence the counterpart to reevaluate his BATNA and your reservation price, and concede. The problem is that negotia- tors routinely discount negative substantiation because they know that the counterpart’s motive is to persuade and win concessions. At its worst, substantiation can backfire, causing a negotiator who was willing to make a concession to change his mind.

For negative substantiation, for example an expression of anger, to elicit concessions, it needs to stimulate strategic infer- ence about the counterpart’s motives, for example, the idea that you are reaching your reservation price.54 The very real risk is that expressions of anger will backfire, discourage concession making, and even lead to impasse, because the anger cues emo- tional reactance. The research suggests that this can happen when negotiating a new relationship in which negotiators are looking to build a partnership, when negotiating the resolution of a dispute in which the negative substantiation only reinforces the underlying reasons for the dispute, or when negotiating a deal in an Asian culture.55

It is not clear from the research that counterparts concede to angry negotiators just to turn off the anger.56 The counterpart may become reciprocally angry (“How dare you!”) and retaliate by reducing concessions.57 What we know about reinforcement sug- gests that conceding to anger would be counterproductive in that it reinforces the angry behavior and encourages the angry party to keep the pressure on. We do know that when anger does not

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carry new information, but just reinforces old slights or prior reputations, negotiators who are angry with each other are less compassionate toward each other and generate fewer joint gains than the negotiators who are not angry.58 This review of substan- tiation research suggests three general principles:

• Using positive substantiation by setting a positive tone in negotiation cannot hurt and might help negotiators build a relationship, search for creative ideas, create joint gains, and avoid impasse.

• For negative substantiation to elicit concessions, it needs to cause a negotiator to infer that the counterpart is reaching his reservation price.

• Negative substantiation is unlikely to elicit concessions when (a) it provides no new information and (b) it causes emotional reactance.

Summing Up Strategy for Deal-Making Negotiations

Negotiating deals is a dynamic process. Even when trust is unlikely for cultural or other reasons, wise negotiators should not give up on the opportunity to create joint gains. Understand- ing that joint gains come from trading off interests and priorities leaves negotiators free to find those trade-offs in a variety of ways. Understanding cultural differences in use of Q&A and S&O negotiation strategy and the reasons for those differences in underlying trust and mindset means negotiators can use strategy creatively to further their interests. It takes practice. It takes per- severance in the face of counterparts from different cultural backgrounds.

Intercultural Negotiations

Intercultural negotiations typically generate lower joint gains than intracultural negotiations due to strategic misalignment between the parties.59 This overall conclusion is consistent with what we know conceptually from the model in Exhibit 2.4, which shows that culture affects negotiators’ strategies and that the resulting pattern of their interaction affects whether they actually are able

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to capture the potential value in their outcome. It is also consis- tent with what we have learned in this chapter about how cultural differences in trust and mindset affect reliance on Q&A versus S&O, and the difficulty in realizing joint gains when negotiators rely heavily on S&O.

Several other factors contribute to the poor outcomes of inter- cultural negotiators. For one thing, intercultural negotiators are less likely to be cooperative and more likely to be competitive than intracultural negotiators, causing them to lack the motivation to work cooperatively to identify joint gains.60 This difference in motivation can be traced to the fact that intercultural negotiations pit out-group members against each other, whereas intracultural negotiations are between two in-group members. Since in-groups confirm social identity,61 facing an out-group member in an inter- cultural negotiation is more likely to threaten social identity than facing an in-group member in an intracultural negotiation.

Intercultural negotiators also tend to start out further apart in the way they view the negotiation than intracultural negotia- tors.62 This gap may be due to cultural differences in holistic versus analytic mindset and trust leading to different strategic perspectives. Whatever the reason, the fact is that intercultural negotiators have a bigger challenge than intracultural negotiators in developing a common way of thinking about the negotiation. Intercultural negotiators also have greater difficulty synchroniz- ing and reciprocating information exchange about preferences and priorities than intracultural negotiators.63 This makes it harder for them to share information, and it should be no sur- prise that they are less likely to generate insight and understand what the counterpart is trying to convey than are intracultural negotiators.64

These performance gaps between inter- and intracultural negotiators can be traced to negotiators’ cultural differences leading to misalignments in their strategic approaches.

Strategic Misalignment Between Intercultural Negotiators

A good place to start to identify strategic misalignments is to look again at Exhibit 2.2, which describes how cultural factors such as

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self-worth, power and status, sensitivity to insults, confrontation style, trust, and mindset vary in dignity, face, and honor cultures. All these factors are relevant to deal-making negotiations, but as we have seen in this chapter, two are particularly important in influ- encing strategy in deal-making negotiations: trust and mindset.65

The three columns on the right side of Exhibit 3.5 summarize what we can expect in terms of trust and mindset when our three types of cultures negotiate intra- and interculturally. (The left- hand column carries forward information from Exhibit 2.2.) Exhibit 3.5 summarizes what we have learned so far in this chapter about which strategy, Q&A or S&O, is more likely to predominate in negotiations and how much net value gain is likely. Remember that the empirical studies on which these conclusions are based describe central tendencies—prototypes—and there is always variation around the mean. Just because the central tendency in

Exhibit 3.5. Trust and Mindset in Intra- and Intercultural Negotiations: Dignity, Face, and Honor Cultures.

Cultural Prototype Dignity Face Honor

Dignity

Trust–swift

Mindset–analytic

Dominant strategy–Q&A

Joint gains–high (U.S. Israel, Germany)

Face

Trust–slow

Mindset–holistic

Dominant strategy–results vary

Joint gains low (U.S.–Japan, U.S.–China)

Dominant strategy–S&O

Joint gains– variable

(Japanese high, Chinese low)

Honor

Trust–slow

Mindset primarily analytic

Dominant Strategy–S&O

Joint gains–low

(U.S.–Spain, Norway–Mexico)

Predicted dominant strategy–S&O

Predicted joint gains–low

Dominant strategy– S&O

Joint gains– low (India, Qatar)

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India, an honor culture, is to rely on S&O and generate low joint gains, does not mean all Indian negotiators rely exclusively on S&O and generate low joint gains. All negotiators engage in a mix of strategy.

The off-diagonal cells in Exhibit 3.5 summarize the even more limited research on intercultural strategy and joint gains. The cultural mismatch is substantial between dignity and face culture. Joint gains in dignity-face negotiations are typically low compared to intracultural negotiations.66 However, the research is not entirely clear on what strategy is likely to dominate when dignity and face negotiators are at the table. The Japanese- United States and Hong Kong Chinese-Israeli data show face culture negotiators using Q&A strategy but not integrating infor- mation into offers and so leaving value on the table.67 We do not have com parable strategy data for United States-China intercul- tural negotiations, but it seems highly likely that S&O strategy predominates and explains the data that do indicate low joint gains.68

Two studies contrast dignity and honor cultures in terms of strategies used and joint gains achieved in intracultural negotia- tions.69 They report that negotiators from dignity cultures (United States and Norway) use more Q&A and achieve higher joint gains in intracultural negotiations than do negotiators from honor cultures (Spain and Mexico), who rely on S&O in intracul- tural negotiations. Intercultural joint gains were at the same low level as the intracultural negotiations between Spanish and Mexican honor culture negotiators. The Norway-Mexico study does not report strategy, but the United States-Spain study reports heavy use of S&O strategy, suggesting that the dignity culture negotiators retreated from using their culturally dominant Q&A strategy.

Because no one has yet systematically studied intercultural negotiations between face and honor culture negotiators, the entry for that cell in Exhibit 3.5 is only a prediction. Given that S&O strategy dominates in both face and honor cultures, it seems highly likely that it will also dominate in intercultural face-honor negotiations. Joint gains are likely to be low too.

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High Joint Gains May Be Possible

Exhibit 3.5 suggests a pretty bleak prospect for joint gains in intercultural negotiations, regardless of whether negotiators across the table are from dignity, face, or honor cultures. But it is worth taking a look at a few dignity-face studies that identify factors that can promote joint gains in dignity-face intercultural negotiations. Be advised, these studies were all conducted in English, and the face culture negotiators were all Chinese or Korean students who had been living, working, and studying in the United States between three and five years.

The studies were quite varied but uniformly showed that high joint gains are possible in intercultural negotiations between dignity and face culture negotiators when the strategy turns to information sharing about interests and priorities, and when negotiators are motivated to reach interest-based agreements. For example, social distance refers to the degree to which two people are consciously aware and sympathetic to each other; and one study reported that when intercultural Korean and U.S. negotiators used the pronoun you in questions such as “What are your priorities?” and “Why are you taking that position?” to reduce social distance, their gains were higher than either the Americans negotiating intraculturally or the Korean students negotiating intraculturally, both groups of which used you less frequently.70 Another study found that when communica- tions were clear (understood), responsive (reciprocating and empathic), and comfortable (viewed as pleasant), students from China studying in the United States were able to negotiate higher joint gains with American students than either group could achieve in intracultural negotiations.71 Both of these studies reveal that bridging the strategic gap between dignity and face culture requires communication between negotiators about interests and priorities.

Another intercultural study, again using Chinese students studying in the United States and American students, focused more on negotiators’ motivation than their communications by measuring need for closure and concern for face. “Need for closure” refers to the motivation to reach conventional and stable

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judgments.72 “Concern for face” refers to the motivation to enhance one’s self-image and avoid loss of reputation.73 In this study intercultural negotiators who were high on need for closure were less successful, but those who were high on concern for face were more successful in negotiating high joint gains.74

Another intercultural negotiation study between Chinese stu- dents studying in the United States and American students focused on “cultural intelligence” (CQ), which is defined as a person’s capability to successfully adapt to new cultural settings. People whose CQ motivation is high are those who enjoy interacting with people from other cultures and are confident that they can deal with the stresses of living in another culture.75 Here joint gains were predictable from knowing the CQ motivation of the least motivated negotiator. When CQ motivation was high, negotiators engaged in sequences of information sharing that led to joint gains.76

Advice for Negotiating Interculturally

Fundamentally, to be successful negotiating joint gains intercul- turally requires the same strategic focus and motivation as negotiating joint gains intraculturally. Using one strategy or another intercultural negotiators need to gain information about each other’s interests and priorities. Q&A is the simplest strategic approach when it can be done without exploitation, and the few intercultural studies in which joint gains were high showed nego- tiators using variants of the Q&A approach. But simply switching to Q&A as the Japanese did in negotiating with the Americans is not enough. The Q&A strategic approach needs a midpoint tran- sition at which information about interests and priorities is turned into multi-issue offers with trade-offs.77 The intercultural negotia- tion studies between Chinese or Korean students studying in the United States and American students also suggest that the more experience face culture negotiators have in a dignity culture, the greater the likelihood that they will use the Q&A strategy and generate joint gains.

It remains to be seen if negotiators in a low-trust environment but with a holistic understanding of how to extract information from offer patterns can turn the S&O strategy into one that

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generates high joint gains in intra- and intercultural negotiations. Simply switching defensively from Q&A to S&O as the Norwegians likely did in negotiating with the Mexicans and the Americans clearly did in negotiating with the Spanish in the studies reviewed earlier is not enough. Once again, negotiators need to turn infor- mation into multi-issue offers with trade-offs.

Moving on to Resolving Disputes

In the next chapter we leave deal making behind and move on to a somewhat different type of negotiation, dispute resolution, in which parties typically come to the table in a frame of mind quite different from the one that deal makers typically bring. Parties embroiled in a dispute quite frequently are emotionally distraught, seeking to minimize losses, and have BATNAs that are tightly linked. It is quite a different environment for negotiating than deal making, and there is another big cultural divide for us to understand: the difference between direct and indirect confrontation.

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