The Role of Culture in International Business Negotiations

In today’s business world, managers increasingly engage in international business negotiations due to globalization and economic openness (Tu, 2013). The associated international trade is a large part of the total world trade and increases annually (Simintiras & Thomas, 1998). When this occurs, borders are crossed, as well as cultures. As organizations are driven to negotiate with foreign partners, they should realize that differences in cultures may lead to outcomes. Unlike intra-cultural negotiations of organizations (negotiations within one culture), inter-cultural negotiations (with business associates from different cultures) have more at stake and are highly complex (Weiss, 2006), and have massive rates of failure. The failures in inter-cultural business negotiations are associated with higher sunk costs and a stagnant profit and scope potential (Reynolds et al., 2003). This paper intends to explain how and why countries with different cultures negotiate. The United States and Japan have two unique cultures, and the cultural friction affects the business negotiations in multiple ways.

Culture is known as the shared set of norms, beliefs, values and behavioral patterns of a social group or entity. It prescribes an image of what appropriate behavior is or what is accepted by other social actors. Regarding international negotiations, culture may tell that hard bargaining is not tolerated or may stimulate an enduring relationship instead of one-time deals (Dür & Mateo, 2010). Culture affects negotiation strategies, tactics, styles, communication, and goals (Salacuse, 2004). This programming of the mind unconsciously controls the individual and is so entrenched that it complicates negotiations, as a cognitive representation of multiple facets of negotiations is not uniform across cultures (Adair & Brett, 2004). Therefore, international negotiators have a higher chance of facing disagreements or misunderstandings (Gulbro & Herbig, 1998). Usually, they leave more money on the table due to a lack of understanding of the other party’s interest (Brett & Okumura, 1998). International business negotiations are characterized by at least two parties from different nations who attempt to construct the terms of interdependence with deliberate interaction (Weiss, 2006). In these settings, each party brings its cultural predispositions to the negotiating table, which can culturally resist the other party in the process. This ‘cultural friction’ or the lack of cultural fit are often mentioned as a primary reason for the high failure rates in international business negotiations (Luo & Shenkar, 2011).

Culture is known as the shared set of norms, beliefs, values and behavioral patterns of a social group or entity. It prescribes an image of what appropriate behavior is or what is accepted by other social actors. In relation to international business negotiations, culture may tell that hard bargaining is not tolerated or may stimulate an enduring relationship instead of one-time deals (Dür & Mateo, 2010). Culture affects negotiation strategies, tactics, styles, communication, and goals (Salacuse, 2004). This programming the mind unconsciously controls the individual and is so entrenched that it complicates and jeopardizes international business negotiations, as the cognitive representation of multiple facets negotiations is not uniform across cultures (Adair & Brett, 2004). Therefore, international negotiators have a more significant potential for misunderstanding or disagreement (Gulbro & Herbig, 1998). Usually, they leave more money on the table due to a lack of understanding of the other party’s interest (Brett & Okumura, 1998). International business negotiations are characterized by at least two parties originating from different nations who attempt to construct terms of interdependence with deliberate interaction (Weiss, 2006). In these settings, each party presents its cultural predispositions to the negotiating table, which can culturally resist the other party’s in interactions. This ‘cultural friction’ or the lack of cultural fit are often mentioned as a primary reason for the high failure rates in international business negotiations (Luo & Shenkar, 2011).

The culture in the U.S. is characterized by a reasonably low power distance, low uncertainty avoidance, extreme high individualism, high masculinity and an orientation which is based on short-term values. The Japanese culture does not exhibit the ultimate opposite but shares a relatively low power distance in a slightly collectivistic people. Japan is one of the most masculine, most uncertainty avoiding, and most long-term oriented culture on earth (Hofstede, 2014). Adair et al. (2001) found empirical evidence that inter-cultural negotiations for these countries were significantly less integrative than intra-cultural negotiations, implying a significant role for culture.

The relatively small difference in power distance between the Japanese and the American cultures, but still, this results in substantial differences and friction in negotiations between Japanese and Americans. In preparing international business negotiations, Japanese negotiators were more likely to discuss how powerful their company is and the potential for the current negotiating position (Adair et al., 2001). During negotiations, hierarchical Japanese negotiators report back for an authorized decision at the frustration of egalitarian American negotiators (Hurn, 2007). Gefland & Cai (2004) confirmed that American negotiators are far more familiar with autonomous decision-making than their Japanese counterparts. This implies that it would be pointless to highlight the personal outcomes when targeting a Japanese individual as it would not have any impact on the negotiation. The inherited individualistic approach also ensures that Americans perceive negotiations as fixed-pie bias involving winning or losing rather than compromising or creating a win-win situation, which is called the (Gefland et al., 2007). Due to the collectivistic culture, the Japanese try to maximize the welfare of the group and therefore negotiations can be time-consuming. Graham (2004) empirically proved that negotiations with Japanese take longer. Furthermore, more constituencies are involved and consulted. Salacuse (2004) state that international business negotiators should not expect a definitive commitment or rejection by Japanese negotiators in the first meeting.

The aggregated effect of several cultural dimensions explains the behavior of the Japanese. The group-focused orientation in combination with their extremely high score on masculinity lead to extreme competitive teams. Japanese are driven by status, and this may cause problems with Americans, who may not recognize or respect the higher ranked counterpart. Considering the long-term orientation, Japanese negotiators value relationships over contracts, while for Americans this is exactly the opposite. Americans simply trust contracts while Japanese negotiators take time to know their partners to gain trust and weigh whether they wish to embark on an enduring relationship, while (Metcalf et al., 2007). Consequently, this difference that the Japanese negotiators prefer discussing them through settlement While Americans expect the details in contracts will be discussed explicitly while (Brett & Okumura, 1998). The Japanese rationale is that contracts do not carter for unexpected changes in the future and trust will be a persistent force. The dependence on personal relationship leads to differences in the amount of time spent in different negotiation phases, which lead to conflicts, breakdown, and failures (Gulbro & Herbig, 1999). These differences in negotiation phases are related to differences in uncertainty avoidance and are believed to cause substantial cultural friction.

The Americans have low-context culture while Japanese share a typical high-context culture. Regarding communication, the Americans prefer direct and clear messages and more often probe by asking direct questions, which can be misconstrued as a lack of respect (Simintiras & Thomas, 1998). They appreciate openness in initial negotiation stages, which potentially backfires. On the other hand, Japanese will exchange less information and primarily gather information (Weiss, 2006), which can be perceived as the unwillingness to continue negotiations. Brett & Okumura (1998) state that Japanese exercise the power of information in international business negotiations by not disclosing it. The Japanese carefully direct their messages and seem to listen to fully comprehend the other party’s interests before they start negotiating. The monochronological-polychronological dichotomy decreases friction, as both cultures would expect other cultures to honor deadlines and agreements (Hurn, 2007).

Francis (1991) showed that moderate adaptation could be considered an optimal strategy when Japanese negotiators exhibited American negotiating strategies because it shows respect and sensitivity to the other cultures without appearing presumptuous. If negotiators actively consider stereotypical information about the foreign negotiator’s behavior, they claimed more value but did not create more value (Lee et al., 2013). When Asian and American participants took this into account, Asian participants claimed more value (Lee et al., 2013). Culture plays a role in the proportion of claimed value when both parties adapt their negotiation behavior to the other party.

Culture is an aggregated phenomenon, which is complicated to decompose. However, revealing which cultural dimensions influence the negotiations of American parties and Japanese may discover underlying strategies which can be used for other inter-cultural business negotiations. This could be useful for international firms to assign negotiators to specific countries. A specific negotiator with a cultural profile may yield better negotiation outcomes than others. The extent to which this is accepted may also be dependent on the cultural composition. Research concerned with the individual’s ability to adapt to the new cultural setting is a promising avenue, which could foster negotiation performance.

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