The Success of International Mergers and Alliances - Article Example

Assessment of the Significance of Cross-cultural Negotiation Skills for the Success of International Mergers and Alliances Decades ago, the level of cross-cultural business dealings were limited to import-export transactions. But with the rapid phase of globalisation; growth in Free Trade and the relaxation of Foreign-Direct-Investment policies of many of the previously closed economies; today’s business executives are required to deal with counterparts from different countries on a regular basis (Hill, 2003). In such business relationships, a high level of cross cultural negotiation skills becomes prerequisite for success. While many companies may attempt at setting up International Joint Ventures (IJV’s) or enter in to strategic alliances and mergeres, many such attempts do not progress even further than the negotiation process, mainly due to the challenges in managing cross-cultural communication process (Killing, 1982). While there is varying views of national culture and the degree of its impact on organisational behavior, there is much consensus that it embodies norms, values, artifacts and symbols, which results in diversity in communication and interaction process within a cross cultural setting (Charles Hampden-Turner & Fons Trompenaars, 1998). It is also a key factor in gaining an insight in to how people behave in different countries, their preferences, attitudes, values and beliefs (Fathehi, 1996). While it is mostly the social and anthropological meaning referred to in culture that has implications for cross cultural business (Tayeb, 1988), other manifestations of culture in terms of how people dress, greet others and eat are all at the tip of the “cultural iceberg” which needs to be considered in understanding national cultures (Briscoe & Schuler, 2004). It is also true that different histories shared by nations affect their national cultures and a good example is the frugality and long term orientation which are hallmarks of Japanese culture stemming from their struggle to rebuild their nation after the World War II over a prolonged period of time (Ford & Honeycutt, 1992). As national cultures carry a direct impact on organisational behavior, the business practices, business relationships, and all other areas of organisational activities tend to be influenced by the differences in national cultures. Although some multinational companies may have implemented standardized organisational practices in their subsidiaries across the world, the acceptance and effectiveness of such implementations tend to be superficial and differences in national cultures tend to affect the core values of the people at more fundamental level. (Schneider & Barsoux 1997). Thus the importance of understandng national cultures become critical if businesses are to understand how and why people from different cultures will behave differently affecting business dealings (Francesco &Gold, 1998). This understanding would be the foundation of gaining effective cross cultural negotiation skills that would facilitate success in establishing international mergers and strategic alliances. When the significance of cross cultural negotiation skills for business success is being considerd, it is important to understand what actually entails cross cultural communication. “Cross cultural communication occures when a person from one culture sends a message to a person from another culture” (Adler, 1991 cited in Weiss, 2003, page. 185). To make this communication process effective the communicating party should have a clear knowledge of the cultural values and assumptions which reltaes to each other’s national cultres. Some well established explanations of cross cultral differences such as Fons Trompenaar & Charles Hampden-Turner’s model of Seven Dimensions of Culture; Geert Hofstede’s Indices of Work Related Values and The theory of Silent Languages of Culture proposed by Hall are useful in gaining some level of understanding on how cultures differ on different dimensions which affects the communication process. Silent languaes provides a useful insight in to how communication is not only related to verbal expressions but also to silent aspects which needs to be observed and responded during negotiation process (Hall, 1963). How people negotiate, communicate and agree or disagree across different cultures differ markedly and this can be explained by Neutrality vs. Affectivism dimension (Trompenaars and Hampden-Turner, 1998), which refers to the degree to which people display their emotions. For example, Japan is a neutral culture with somber mannerisms especially in formal business dealings. In contrast, Americans, or British although rather neutral compared to highly affective cultures as Italian or French, can be seen as highly expressive by Japanese counterparts. In negotiations, Americans are direct in expressing their disagreement (Hall, 1963 cited in Weiss, 2003). For a comparative example of how American and Japanese negotiation styles vary on different aspects, please refer to Appendix I. In this view, if two companies from neutral and affectivist countries attempt to establish a business merger, the a successful cross cultural negotiator would realize that lack of enthusiastic responses from the neutral country personnel may not necessarily indicate lack of interest on what is being proposed but rather their style of pondering and giving thought to the propositions. If one party does not respect the other party’s differences, in communication process, it is likely that the attempts at setting up a strategic alliance or a merger may fail at the very outset itself. Choice of delegates and representatives for negotiation process would also play a key role in the success of the cross-cultural communication process. Cultural dimensions such as Achieved Status vs. Ascribed Status, that assess whether a person’s status in the society is achieved through own effort or whether it was ascribed or inherited (Trompenaars and Hampden-Turner, 1998) bears impact on how capable the representative is seen in the eye of the other negotiating party. For example, America has a highly achieved status compared to Japan or China. Even Britain with its highly class stratified social history is moderately ascribed in comparison to new world countries where social mobility is possible and stratification is less stringent. In ascribed cultures seniority, age and gender is important in determining the status. Such cultural differences carry implications when choosing the correct representatives for negotiation process. US business delegations are mostly made up of young persons and consist of a range of personnel from different levels of the organisational strucutre. Females are included in most instances if they are already involved in the project without a bias for their geneder. However when such a team arrives in a country such as China, Japan or India for negotiating a prospective merger or a strategic alliance, the responses may be mixed and due importance may not be received by the delegation. People from societies such as India have much respect for women culturally but their role is seen to be at home as a mother and wife and not recognized in busienss although trends are now changing. In Japanese culture, the respect a woman receives in both cultural and business sense is low. Therefore the significance of cross cultural negotiation skills in international business is not only restricted to the actual communication process but also in terms of choosing and setting up the negotiation personnel. Different cultures go about in different manners in establishing business relationships (Brown, 1988). This cross-cultural difference is explained through the dimension of Specific vs. Diffused orientation (Trompenaars and Hampden-Turner, 1998) of culture as well as the collectivist or individualist orientation (Hofstede, 2001) of the culture. Those cultures, which are Specific, will have little private space and greater public space. In contrast the Diffused cultures will allow for greater private space. Countries in Arab world for example are highly diffused and will only get down to real negotiations once a reasonable level of informal relationships are established with the negotiating parties. They prefer to think that they are doing business with a particular person than a business organisation and as such a long-term key representative has to be appointed to negotiate with a prospective Arab business partner (Tayeb 2005). Even the Japanese and Indian business people wish to get to know people before entering business dealings. Americans on the other hand tend to be more specific and gets down to business directly which they consider is the professional approach to work (Ford & Honeycutt, 1992). Therefore, in this aspect too the importance of cross cultural negotiation skills becomes significant to the success of the business relationship as it is necessary to set aside own values and preferences of how to establish business relationships and act with tolerence and empathy to the other party’s way of doing business. Cross cultural communication skills also plays a critical role in understanding and tolerating different busines rituals and practices. For example, traditional tea ceremonies of Japanese culture is a ritual which most busines delegates are exposed to in their negotiating trips to the East. A skilled negotiator will recognize that the tea ceremoney symbolize the importance the Japanese places on process over outcome and will not mistake the ritual for merely a boring and tedious cultural display. Similar to their tea ceremoneies, the Japanese will take a long period in negotiating contracts and visiting sites etc prior to agreeing on a business deal. This may also have its roots in the high uncertanity avoidence nature of the cultue. Japanese score the highest in Uncertinity Avoidence dimension in Hofstede’s study of Work Related Values across 66 countries in the world. (Please refer to Appenidx II for score table). Among other business ritual which has major cross cultural differences the introductions, greetings and exchange of contact details are fraught with cross cultural miscommunications. For example, in Japan and in India, greetings are done with much decorum and respect with bowing and exchanging visisting cards with both hands and placing them importantly within ornately decorated card holders. In contrast, business people from the west will exchance visiting cards only if contact details are required and will do it rather informally and place it probably in their wallets and replace the wallets in their back pockets which may be interpreted as a slighting by Japanese, Chinese or Indians. Silent languages of culture as identifies by T Hall refers to language of time, space, material goods, friendship, and agreements. Issues can easily arise when cultural deviations lead to misinterpretations of these languages. Some cultures see time as synchronic while others perceive it as monochromic and in secular manner. Countries such as USA or Britain see time as sequential and places greater importance on punctuality, sequence of operations and speedy actions (Trompenaars and Hampden-Turner, 1998). However those culture as Italy, Spain, or Latin American countries as well as countries in the East see time as the backdrop for the “great circle of life” interpret time in secular, seasonal perspective and sees possibility of attending to multi tasks at the same time. Where time is considered as highly important, being late and wasting time on tedious processes may be seen as useless. On the other hand curtness and prompt manners may be interpreted as disrespectful and aggressive. Language of space too differs across cultures. In Japan the offices may be open and even senior executives will have their workstations among the rest of the staff. In the American culture, corner offices are a status symbol and space signifies privacy and status. Language of material goods is another area that can be misinterpreted. In the Japanese society, frugality is a virtue and material goods are not pursued. In the American culture the material goods are used to denote status. The language of friendship refers to how people form and maintain relationships. The Americans tend to make friends easily and quickly but these are of transient nature. People from far Eastern countries or Arab region tend to take time in forming relationships but their commitment to the relationship is high. Even if disputes arise, these cultures try reconciliation process while western cultures resort quickly to litigation process (Weiss 2001). Language of agreements is another area prone for issues and difficulties. This is because different cultures have different manner of agreeing and disagreeing (Hall, 1963). Some business cultures insist on explicit and written contracts while other cultures as Japan value the trust and commitment. In negotiation process too, disagreements and agreements can be explicitly expressed or more subtly expressed. For example, when dealing with Japanese firms, most foreigners face issues in understanding whether the Japanese are actually disagreeing. Americans, British, or Germans on the other hand are direct in expressing their disagreement. A skilled cross-cultural negotiator will understand these differences and use such insight to guide and direct the negotiation process with minimum level of miscommunications and misunderstandings so that not only the verbal communications but other silent aspects of communications also convey the correct and desired message to the other party. It is most important to be aware of the level of structure and hierachy prevailing in the cultures so that unintended offenses are avoided during negotiations. Few, if any, societies are more structured than Japan (Ford & Honeycutt, 1992). Different levels of language is used to denote strucutre and hierachy and bowing reflects status in society. Certain actions as removing ones shoes when entering houses or even offices is common in Japan to show proper respect. In negotiations, the proper hierachy should be followed and line of command should be obsreved and kept well informed formally. Otherwise dealing with just one or few in the hierachy can be deemed as suspicous and jepordize the whole business prospect. In certain societies such as Japan or China, once an attempt at a business relationship fails, the chances of attempting to establish another option is also very slim because the Japanse and Chinese mainly base their decisions as not to enter a venture on factors such as company culture or cross cultural incompatibility than the actual business contract details which they see as surmountable obstacles with long term commitment. One of the key considerations in establishing International Alliances would be the degree of commitment to the partnership. Culture influence this aspect of business too and people from different cross cultural settings may take a short or long term orientation of projects. For example, busines people from the west will be more short term oriented with a greater focus on profitability of venture in short run in comparison to Japanese counterparts. When dealing with American firms, the expectation should be to demostrate short term profitability. Indian management style too is dominated by such short term orientation where the main attraction of a venture will be the short term profit generation. Japanese firms are more willing to lose money on the short run to establish themselves in a market. “This was the Nissan strategy for the Infiniti automobile in the American market. It was also demonstrated in Toyotas commitment to the Lexus in the U.S., even though the initial sales results were very unfavorable” (Ford & Honeycutt, 1992 ). It its therefore necessary that the negotiating teams are well aware of the expectations of the other party and be prepared with the levels of compromise which will be granted during the negotiating process to accomadate the thinking of the propsective business partner. It is essential that the limits of compromise are discussed among the negotiating team members and agreed upon so that the team or the single representative is clear in what propositions can be offered to the prospective business partner than appearing unsure or exhibiting disagreement among own team members. Cross cultural negotiation skills also play a key role in concluding business talks and signing the final contracts. The decision making process of managers vary widely across nations and in countries such as America, or UK the decisions are made quickly and often by singular persons. Contracts are even brought in to the first round of negotiations. They may pressure for a final decision and most likely the Amrican or a British CEO or negotiator may make decisions on their own during the negotiation process. Even the Arab business persons tend to make own decisions without much group consultation. However in Japan or in China, the CEO will rarely make a decision on his own and will take a considerably longer time in entering contractual agreements. Indian culture is such that they too tend to make quick decisions which may be reflected in their very low tendency of uncertinity avoidence compared to very high uncertinity avoidence of Japanese (Hofstede, 2001). Pressiuring for a signature will be seen as offensive and may disrupt the negotiation process (Hill, 2003) altogather even if the propsective business partner has arrived at a favourable decision to enter in to the agreement prior to being pressured to sign the dotted line. Lastly, having discussed the importance of cross cultural negotiation skills in successfully understanding the cultural differences and how such understanding should be used to facilitate effective communication and negotiation process one key point should not be left out of mentioning. The success of any negotiation process, whether or not of cross-cultural nature will largely depend upon achieving a “win-win” situation where both parties are mutually satisfied with the outcome. Therefore, skillful negotiations will involve knowing where to draw the line in terms of compromising to other party’s wishes. After all, international mergers and strategic alliances will need long-term commitment and a high level of cross-cultural integration when actual projects are implemented. Therefore if negotiators at the initial negotiation stage aims only to close the deal at any cost and disregard any vast cross cultural differences which they may observe between themselves and prospective business partners, the future of the venture is unlikely to be successful. It is therefore the responsibility of the negotiators to understand, respect and be flexible to a limit which they can actually extend to their prospective business partner, not only at the negotiation table but if the alliances takes effect and business operations are established. This will not mislead either party in terms of the level of cross-cultural match or mismatch between them, which is an essential aspect for the long-term success of an international joint venture. Appendix I Table 1 – Negotiation Styles from a Cross Cultural Perspective Dimension North American Japanese 1 Emotional sensitivity not highly valued. Straightforward or impersonal dealings. Emotional sensitivity highly valued Hiding of emotions. 2 Litigation; not as much as conciliation. Subtle power plays; Conciliation. 3 Lack of commitment to employer; breaking of ties by either if necessary. Loyalty to employer; employer takes care of employees. 4 Teamwork provides input to a decision maker. Group decision-making by consensus. 5 Decisions made on a cost-benefit basis; face saving does not matter. Face-saving crucial; decisions often made on basis of saving someone from embarrassment. 6 Decision makers influenced by special interests but often not considered ethical. Decision makers openly influenced by special interests. 7 Argumentative when right or wrong, but impersonal. Not argumentative; quiet when right. 8 Great importance given to documentation as evidentiary proof. What is down in writing must be accurate, valid. 9 Methodically organized decision-making. Step-by-Step approach to decision making. 10 Profit motive or good of individual ultimate aim. Good of group is ultimate aim. 11 Decision making impersonal; avoid involvement, conflicts of interests. Cultivate a good emotional social setting for decision making; get to know decision makers Source: Weiss, J.W. (2001) Organisational Behavior & Change, 2nd ed. Ohio: South-Western Collage Publishing. p16. Appendix I Table 1 – Work Related Values for 20 Selected Countries Country Power Distance Uncertainty Avoidance Individualism Masculinity Argentina 49 86 46 56 Australia 36 51 90 61 Brazil 69 76 38 49 Canada 39 48 80 52 Denmark 18 23 74 16 France 68 86 71 43 Germany 35 65 67 66 Great Britain 35 35 89 66 Indonesia 78 48 14 46 India 77 40 48 56 Israel 13 81 54 47 Japan 54 92 46 95 Mexico 81 82 30 69 Netherlands 38 53 80 14 Panama 95 86 41 44 Spain 57 86 51 42 Sweden 31 29 71 5 Thailand 64 64 20 34 Turkey 66 85 37 45 United States 40 46 91 62 Hofstede, G. (2001). Cultures Consequence: Comparing Values, Behaviors, Institutions, and Organisations across nations. London: Sage Publications Ltd. References Adler, N. (1991). International Dimensions of Organisational Behavior. 2nd ed. Boston: PWS-Kent. Briscoe, D. R. & Schuler, S. R. (2004). International Human Resource Management: Policy and Practice for the Global Enterprise. London: Routledge. Brown, A. (1988). Organizational Culture. 2nd ed. England: Prentice Hall Pearson Education Limited. Fatehi, K. (1996). International Management: A Cross Cultural Approach. New Jersey: Prentice Hall Inc. Francesco, A.M. & Gold, B.A. (1998). International Organisational Behavior. 2nd ed. Upper Saddle River, New Jersey: Person Education Inc. Ford, J.B. & Honeycutt, E. D. Jr. (1992). Japanese national culture as a basis for understanding Japanese business practices [online]. Available from: http://www.findarticles.com/p/articles/mi_m1038/is_n6_v35/ai_13246882 [31.12.2005] Hofstede, G. (2001). Cultures Consequence: Comparing Values, Behaviors, Institutions and Organisations across nations. London: Sage Publications Ltd. Hill, C.W.L. International Business. (2003). 4th ed. New York: McGraw-Hill. Tayeb, M. H. (1988) Organizations and National Culture a Comparative Analysis. London: Sage Publications. Killing, J. P. (1982) "How to Make a Global Joint Venture Work.” Harvard Business Review, Vol. 60 (May/June), 120-­27. Schneider, C. & Barsoux J. L. (1997). Managing Across Cultures. London: Prentice Hall. Tayeb, M. H. (2005) International Human Resource Management. New York: Oxford University Press. Trompenaars, F. & Hampden-Turner, C. (1998) Riding the Wave of Culture: Understanding Diversity in Global Business. 2nd ed. New York: McGraw Hill Companies. Weiss, J.W. (2001) Organisational Behavior & Change, 2nd ed. Ohio: South-Western Collage Publishing. Assessment of the Significance of Cross-cultural Negotiation Skills for the Success of International Mergers and Alliances Name : Course Title : Date : Read More