Negotiating Across the Pacific Case Study 16

Negotiating Across the Pacific Case StudyClashing Cultural, its Effects and its SolutionOscar VoigtUniversity of Houston Victoria MGMT 6377 23704 Chun-Sheng Yu4/26/2015

Executive SummaryDangerous assumptions and costly misunderstandings are symptoms of ineffective communication resulting from the clashing cultural values of Guanxi and practical business methodologies found in the business interactions of NutriNex, Bill Wright, APCG, and BBT. Utilizing Hofstede and Tompennars most pertinent cultural value dimensions it becomes clear that failure was inevitable due to conflicting communication, relationship building, and negotiation styles. As a result these factors ultimately lead to Bills breach of BBTs trust by him withholding the fact that he was not the direct supplier. An action plan consisting of a mixture of dulled cultural sensitivity, cross cultural education and the importance of fostering personal relationships, is the suggested solution to this issue before it escalates in an international lawsuit. 3.1 Major IssuesAs is common when businesses are new to intercultural interactions effective communication between the four parties diminished exponentially with each attempted interaction due to a lack of cultural awareness, sensitivity and understanding. More specifically, the communication process was hindered by the differing relationship building methods when conducting business: Guanxi vs. low relationship orientated approach. Although enlisting the help of a third party was a step in the right direction, the situation quickly soured when a lie by omission, the withholding information, was brought to light which was a devastative breach of faith, or loss of face. Cultural differences lead to each party simultaneously conducting counterproductive business methodologies driven by their clashing implicit vs. explicit communication styles (high context vs. low context cultures). Furthermore, what are considered good negations tactics in America are recipes for failure in China mostly due to their polar opposite expressive vs. instrumental oriented conflict resolution tendencies. All of these factors ultimately lead to dangerous assumptions and costly misunderstandings which resulted in a potentially lose-lose situation. 3.1 Guianxi vs. Practical Business Methodologies Guianxi is the implicit cultural norm which relates to how Chinese businesses build relationships, negotiate, communicate, and in general conduct business, which loosely refers to the intricate, pervasive network of personal relations Chinese businesspeople carefully cultivate (Pg. 159). Chinese put more focus on respectfulness, personal relationships, saving face for all parties involved, communal goals over individual ones, and believe the overall harmony of business decisions is a result of trust, ritual, and a mutual give-and-take. Patience is definitely a virtue in Chinese business with decisions and negotiations taking a longer time because all risks and benefits should be considered carefully. The need for both parties to save face is extremely important in successful relationships, weather its not calling out failure, avoiding saying no, or the over emphases of honor and reputation. Saving Face or giving face is especially high in BBTs communication, negotiations, and relationships since they are geographically located in Beijing. Just like an accent, each Chinese region or city has slightly varying cultural norms with Beijing described as political, bureaucratic, educated, diversified, high relations orientation, more direct, high face (Pg. 157) than its other Chinese city counterparts. Americans on the other hand, take an almost polar opposite approach to communication, relationship building, and negotiation. Having a very practical, matter of fact, attitude towards business is widely acceptable behavior for American businesspeople. Openly bargaining and engaging in head on, direct negotiations are also common practices for Americans. Even though businesses, especially those revolving around professional selling, have realized the potential benefits of building, maintaining and strengthen relationships on both the personal and professional level, with strategic partnerships taking the place of transactional ones, it still is uncommon for emotions, sensitivity, and friendship to play any role in business discussions and transactions. So much so that businesspeople in America pride themselves on being dominant, those who take risks are idolized, and making on the spot tough decisions is also a desired trait. The biggest cause of confusion was the differing communication styles; Bill utilized an explicit style whereas BBT communicates implicitly. Chinese businesspeople convey their plans in an indirect, implicit manner, softening expecting others to readily understand unarticulated plans, thoughts, and gestures, which is defined as a high-context culture (pg. 126). For Americans an interaction with a Chinese businessperson may come off as nondisclosing, sneaky and mysterious, mainly because America is considered a low-context culture which is driven by its explicit communication style (pg. 127). Bill made incorrect assumptions derived from the mysterious messages of BBT because he simply did not read between the lines. Implicit communication calls for context to be decoded by personal relationships, but explicit communication inserts information directly into the conversation. There is also a degree of compartmentalize of personal and business relationships that play a role in how messages are decoded on opposite sides, which also lead to misunderstandings. Indicative of conflicting business methodologies all parties fell prey to a barrage of noise, resulting in a loose of the intended meaning. Circumventing a core competent in any business discussion and transaction, relationship building, a third party was used to bridge the trust gap between the two cultures, but in the long run the need for a speeding discussion to take place was more harmful then helpful. Asia-Pacific Consulting Group (APCG), is a state side based consulting firm with strong ties to China, more specifically with Beijing Bio Tech Co. Ltd. (BBT), which already had a personal relationship with one another. It is important to build relationships directly with all parties involved, especially intercultural ones, since it is the process of getting to know ones contacts and the foundation on which mutual trust is built before diving into business. Bill Wrights need for efficiency and hes lack of patience interferes with BBTs need for developing a mutually trusting relationship, which obviously takes time. An important step was completely skipped, which lead to costly missteps. Knowing that Bills higher priced bid was only meant to start negations and not show disinterest in furthering this business opportunity is just one example a misinterpretation that took place between the two parties. Even though Bill was briefly educated on the differing cultures by APCG, whenever he was at a cross roads which could have benefited from this knowledge he decided against it and instead went with a factual-based, legalistic and generally straightforward method (pg. 5). Instead of entering into a cultural neutral arena when engaging in business, both parties fell back on their own business methodologies.

3.2 Cultural Theories (Fons Tompennars) Listed from most pertinent to this particular case to the least, we define and describe Fons Tompennars most important value dimensions. These dimensions effect business decisions, discussions, interactions, and partially have a key role in essentially every aspect of daily businesses activities. We focus only on the dimension of neutral vs. affective, but Tompennars also includes the dimensions of achievement vs. ascription, universalism vs. particularism, and specific or diffuse. Neutral versus affective approaches relates to the level of emotional orientation in relationships. A person in a country who utilizes a neutral approach will not let emotions play a noticeable role in their actions, decisions, and rarely let feelings influence their business activities. Factual decisions coupled with reason based influences take precedent over emotional ones. In fact, expressing emotions or feelings during a meeting or interaction is considered unprofessional in nature. If someone wants to find out how a person is feeling, a combination of nonverbal cues and body language may have to be utilized to determine the emotional state individuals are in. With an affective approach, displays of emotions are a common practice with feelings being openly expressed and the displaying of them during ongoing communication is common place. Not only are openly expressing emotions welcomed but are often the building blocks used to gain trust, respect, rapport, and more importantly start, build, maintain, and strengthen personal relationships. If a conflict arises within a conversation, having an affective approach, leads to a more effective and instantaneous conflict resolution since emotions are made evident in a more direct and verbal way. 3.2 Cultural Theories (Hofstede) Hofstedes identified five value dimensions for cultural differences between differing countries. Listed in order of how influential each value dimensions was to this particular case and only mentioning the most important dimensions for this case. Even though China has four distinctly differing dimensions when compared with the USA, namely Indulgence, Long Term Orientation, Power Distance, and Individualism, we will focus only on three dimensions. (Reference chart) Even though Hofesede developed this fifth dimensions after he had already defined the other four dimensions it is the most influential to this case: Long-Term Orientation / Short-Term Orientation. Businesspeople with a long term orientation believe in the importance of long term relationships and prefer to conduct business with previously established relationships with familiarly businesses. Long term oriented companies will choose a known associate or a relative over lesser known or new clients. Individuals will even sacrifice short term profits in order to meet their long term goals. Being future oriented it is easier for long term oriented individuals and companies to accept a delayed gratification of their needs. If a business were to approach a new venture the primarily focus initial communication and the resulting business plan would revolve almost exclusively around long term relationships. Businesses would have a strong propensity to save, invest, encourage thriftiness, and always consider all risks and benefits of before making their decisions. Societies with this dimension prioritize time honored traditions and view societal change as suspect. Short term orientation describes businesspeople who value short term results and profitability over longer term goals. Transactional sales reign supreme over strategic partnerships, where a business usually only conducts business when it is profitable for them, practical, and more importantly short term gains are easily realized. It is extremely common for companies with a short term orientation to conduct business with numerous companies at the same time and only for the duration of that initial deal. Since relationships come secondary to profits for short term oriented firms mixing emotions with business is frowned upon, but being practical and straight forward is a welcomed trait.

Uncertainty is loosely defined as the predicament of outcomes and conditions that are unknown, ambiguous, or unpredictable, so uncertainty avoidance refers to the extent to which people in society feel threatened by ambiguous situations. (pg. 84) High uncertainty avoidance cultures obviously try to avoid ambiguous or uncertain situations and by definition try to also avoid any harsh realities head on whenever possible. They adhere to strict laws and procedures and therefore also usually have a stronger sense of nationalism. Afraid of innovation, businesses lean on formal rules and procedures which in turn result in job security and career sustainability.On the other side of the scale, a lower uncertainly avoidance encourages innovation and independent thinking which usually resulting in a more practical approach towards business. Society rewards high risk decisions and more readily accepts failure from those decisions. On top of that, nationalism is less pronounced, high job mobility is common, and business activities are less formal.

Individualism versus collectivism, refers to the degree of interdependence a society maintains among its members. Individualism in this context refers to the dimension that demonstrates a tendency of people to care for themselves and immediate family and friends over the needs of the society. In societies with an individualism mindset value democracy, individual initiative and achievement highly. Emotional detachment from an organization is fairly common.

On the exact opposite side of the spectrum for this value dimension is collectivism in which cultures act in the interest of the group, or in the interest of the business. Personal relationships will take president over achievement within a company. Especially indicative of a collectivist culture are the characteristics of harmony and saving face. Control over business situations usually manifests itself by passive aggressively enlisting the collective needs, exerting social pressure and/or utilizing the fear of embarrassment. Other key characteristics for individuals or businesses who are classified as collectivism demonstrate respect, a shared responsibility and unwavering loyalty.

3.3 Cultural Characteristics (Fon Trompenaars) Neutral versus affective approaches were made evident during two incidents. Bill having a more neutral way of expressing his emotions did not see the error in his ways when declining Edwards suggestion of lowering the compensation amount which would have been a generous gesture in the eyes of BBT. Another instance of this conflicting cultural characterizes was clearly causing problems was shortly after Bills breach of faith had come to light and BBT asked numerous times for an apologize for his obvious disrespected actions. Indirectly these conflicting approaches may have played a key role in how conflict was resolved, or rather how poorly it was handled. 3.3 Cultural Characteristics (Hofstede) Bill Wright wanted new business and China was rapidly growing with a massive market potential which Bill wanted to take advantage of. BBT was very clear that they would only entertain a long term relationship where the result would be continued and reliable source of high quality lecithin. Bill was short term oriented, whereas BBT was long term oriented. This was made extremely evident when Bill quoted an indecently high price to BBT with the thought that this was the start of negations. BBT took this unacceptably high price as a sign that Bill was not serious about a long term relationships and was more concerned with short term profits. After it came out that the deliveries of the products were going to be delayed it was suggested that in the next dealings compensations would be dropped in order to make up the losses from the current deal. This is a prime example of future oriented problem solving which BBT and APCG would have been open to, but Bill most likely would not be quick to agree to. Although not directly associated with this dimension, time or rather patience did play a key role in this case. When the goal is long term oriented patience is often necessary which of course contradicts those with short term goals taking priority. This was made clear when Bill referenced the fact that it had taken four months to finalize this deal and that he had been always very quick to respond, but BBT had been slower to respond back with decisive decisions. Another interesting interaction between Dr. Fisher and Bill regarding the honoring of a verbal agreement relates to long term orientation. If these two businesses were in China, both firms would have tried to solve this problem together rather than fall back on legal technicalities. This is where other dimensions come in play.

Although the uncertainty avoidance is only slightly higher for Chinese businesses compared to their American counterparts, the lack of face to face interactions, the differing cultures and the relatively high amount of noise during communication attempts made for some undeniably uncertain and ambiguous situations. Not only were there four week response times but uncomfortable pauses between actual telephone conversations. BBT was located in Beijing where businesses are known to be a little more political and bureaucratic in nature, BBT would have a slight high score on the Uncertainty/Avoidance Index (UAI) compared to other Chinese regions. In this assumption Bill was under the impression that Chinese businesses would avoid legal action at all costs since laws and rules were thought to be more flexible and should be customized to the situation. This however was not the case with BBT, which was made clear by their quick decision to call legal action to the situation. Bill being an American, has a relatively low level of uncertainty avoidance so it was much his drive to take risks that pushed him to reach for the stars when he saw the potential to monetize the rapidly growing demand of Chinese firms to find a reliable lecithin supplier. It was also his drive to take risks that drove Bill to the decision to omit the fact that he was not the supplier. Being closer together on the UAI scale did allow both parties to offer up flexible solutions, like the attempt to agree on taking a lower valued order

Looking at the characteristic related to individualism vs. collectivism, we almost immediately understand that Bill and Dr. Fisher were clearly following the individualist approach, whereas BBT was utilizing a more collectivist approach to conducting business. BBT delegated its needs through a trusted third party, APCG, who had an existing personal relationship with the owner Mrs. Kuo. This is very common for businesses with a high collectivist culture and was clearly present in the direct conversation between BBT and APCG when she said I would rather work with someone I know. (negotiating across the pacific) Even APCGs Mr. and Mrs. Tang tried to meet in the middle after conflict had resulted in Bills misleading information. You know Bill, we are a team, and I made mistakes, too. Not only was APCG trying to give face to Bill, but this is further proof that negotiations are a team sport in China. (Forbes, ). Even when both companies utilize the individualistic approach to conduct business, costly conflicts can most certainly arise. The tendency to watch out only for yourself was made evident when a flood delayed production and even though Dr. Fisher and Bill had an existing relationship, Dr. Fisher did not sympathize with Bills predicament and instead defaulted back to making sure his house was in order.

3.3 Cultural Characteristics (Cross Cultural Negotiation Variables) Negotiations styles are highly dependent on the cultures involved in active negotiations. The biggest differences in communication styles at play in this case are high context (BBT) versus low context (Bill) which determine how conflict is resolved, context clues are interpreted, and how negotiations are conducted. BBTs negotiation tactics would be more consistent with expressive oriented conflict approach, where the situation is handled indirectly and implicitly. Bill and Dr. Fisher would negotiation using a more instrumental oriented conflict approach, where factual information and logic was used to resolve issues. For BBT trust was being built by the back and forth dialogue which started during the negotiation process, but was devastatingly broken by Bills failure to mention he was not the direct supplier. Whatever small amount of trust BBT had towards Bill and the actual trust they had with APCG drastically changed once BBT was informed of Bills lie by omission. Bills need for quick responses and his ridiculously high quoted price in the beginning also went against the core concept of negations for BBT, which highly contingent on long term cooperation and not one time resolutions. When negations start in America it almost always revolves around price or financial obligations, but for Chinese businesspeople it is broken down first into the technical details and then the commercial. (pg. 159) In this case we saw both parties meeting in the middle, most likely due to the third party consulting company APCG. BBT had to first negotiation the details, nailing down the product name and packaging, before being able to continue with other negotiations. (pg. 8 negotion pacfici) Another frustration that is linked to negotiation behaviors is that in China the government plans a pretty big role, where it sometimes is the authoritative decision maker of a deal. BBT being named Beijings Most Admirable Foreign-Funded Enterprise allowed for some autonomy but BBT still enlist the services of Beijing International Trading Co. Ltd to handle the import process. Governmental interaction or hindrance is common place for BBT but not for Bill who was surprised by the delay. (pg. 158). Negotiations for Chinese businesses do not stop when the contract is in, but formally begin ongoing negotiations. (china business review) 3.4 Solution and Action PlanWhats done is done, so listing how things should have been done will not be a productive. Taking a step back to actually follow the negotiation process, will be key to the potential success of future negotiations. It is extremely important for both parties to realize that their negotiation tactics are polar opposites. Bills methodology is built around individualistic tendencies and is by nature short term oriented. His methods can be interpreted as impatient and his to the point, straight forward attitude towards conflict resolution can be considered confrontational. If each party would move forward with only the negotiation process, starting at preparation and ending with concessions and agreement, without factoring in varying negotiation styles, they would most likely end in a very similar predicament again. Another solution might be to enter into an atmosphere where there is an understanding of the cultural differences and cultural sensitivity is dulled to the point of accident insults or faux pas being acceptable. In order to eliminate miscommunication completely this solution would be financially expensive since both BBT and Bill would need to enlist third party consultation firms. Not only would this save face, increase the overall harmony and resolve translational noise, but would also allow for both parties to voice their disagreements in a non-threatening manner to one another (connecteast). This solution might allow for a one time compromise but will hinder the development of personal relationship which is key to successful business with BBT. Different solutions become clear choices for each party when considering an individualistic approach. If BBT only cared about its own interested they would continue with the lawsuit and start a relationship directly with the supplier, NutriNex. Disadvantages are plentiful since there will be even more of a divide due to direct contact of these clashing cultures. In order to not let this situation spin out of control into an international law suit, which neither side undoubtable wants to do, both parties need to agree to a transparent and equally beneficial action plan. BBT, having called Bill arrogant, will need a heartfelt apologize on Bills part in order for discussions between the two parties to resume. Although Bill will have to face his mistakes and swallow his pride, this attempt at giving face will help mend the broken trust between BBT and Bill. APCG had cleverly devised a scenario in which the compensations from both APCG and Bill would be dropped during the next contract, so as to make up for the financial losses of the current dealings. Unfortunately, by the looks of it, this suggested deal had not reached BBT desk. After Bills step in the right direction, BBT might be receptive of this middle ground offer seeing as how they would still be thinking of long term goals and this would most definitely work out in the long run. Bill would have to forego short term gains and instantaneous gratitude for a piece of the preverbal pie. In the beginning communication should be conducted in a cultural neutral environment as to avoid any further miscommunications. In order to continue this new action plan some changes need to be made in the way all parties communicate, negotiate, and build relationships with one another. The most direct and effective way, although it may take the longest, would be to a continuous giving and receiving of face. Small gifts, praise where it is due, respect of each others character, and the pursuit of fostering a mutually personal relationship with Bill and BBT will go a long way. Cross cultural education of all parties should be viewed as mandatory and a certain degree of cultural neutrality should exist when direct interactions are conducted. Bill needs to understand that him being patient and understanding of elongated responses and decisions means BBT is weighing all risks and benefits, but on the other hand BBT needs to realize they are dealing with a cultural that emphases effect use of time, hence the saying time is money. Clearly defining the start of the negotiation process and for the sake of BBT an easily way out of a conversation or business deal should be included in the future contracts in order for all parties to save face. Saying no is a seldom used word for Chinese businesspeople, even though Bejing companies tend to be more direct. The factors needed to ensure a successful strategic partnership between BBT and Bill, will be highly dependent on patience, cultural sensitivity, respect, cross cultural knowledge, preparation, and the evolution of a personal relationship.

BibliographyDeresky, H. (2010). International management: Managing across borders and cultures. New Jersey: Prentice Hall. Hoftede, G., http://www.geert-hofstede.com/china, accessed on 25 April 2015.Hoftede, G http://geert-hofstede.com/united-states.html, accessed on 25 April 2015.Huang, J. (2013, May 13). Four Strategies to Negotiate with the Chinese. Retrieved April 25, 2015, from http://www.connecteast.net/blog/four-strategies-to-negotiat.html Lin, X., & Guan, J. (2001). Negotiating Across the Pacific. In Case research Journal (4th ed., Vol. 21). North American Case Research Assocation.Neidel, B. (2010, November 1). Negotiations, Chinese Style. Retrieved April 1, 2015, from http://www.chinabusinessreview.com/negotiations-chinese-style/ Perkowski, J. (2011, March 28). Negotiating In China: 10 Rules for Success. Retrieved April 25, 2015, from http://www.forbes.com/sites/jackperkowski/2011/03/28/negotiating-in-china-10-rules-for-success/

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