THE ROLE OF CULTURAL DISTANCE IN INTERNATIONAL NEGOTIATIONS

THE ROLE OF CULTURAL DISTANCE
IN INTERNATIONAL NEGOTIATIONS
A working paper by:
Paul Drnevich
Doctoral Student – Strategic Management
Purdue University - Krannert Graduate School of Management
P.O. BOX 2744
West Lafayette, IN 47906
(765) 430-6900
dren@purdue.edu


ABSTRACT

This paper attempts to examine the issues surrounding the role of national culture bias
and the concept of distance among Hofstede's (1980) cultural dimensions on the ability
to reach integrative agreements in international business arrangements between firms.
Relational models of negotiating and the role of culture are presented as well as several
managerial implications and propositions for future research.


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INTERNATIONAL BUSINESS, NEGOTIATING, & CULTURE

International business, on a macro level, is conducted within a framework of trade
agreements derived from negotiations among governments. When a government, in
such a negotiation, wins concessions from another government, these concessions are
typically harmful to consumers in the country whose government "won" the concession.
Such concessions are usually agreements by other countries to limit the intensity with
which foreign firms will compete in the export market. These concessions help special
interests such as domestic firms by shielding them from competition, but harm the
majority interests of the nation by imposing higher costs on domestic consumers. This is
demonstrated through sugar prices in the U.S., or the retail price of rice in Japan -- both
of which are well in excess of world market rates (Boudreaux, 1995). A negotiation
model which encompasses cultural dimensions could be an appropriate means for
effectively obtaining a balance between special and majority interests of each nation in
international business agreements. Ideally, a global trade framework should take into
account differences in cultural dimensions, and attempt to use them as a negotiating
asset in the pursuit of mechanisms to facilitate an integrative outcome oriented system
of international business.

Culture, defined as "the collective mental programming of people in an environment,"
(Hofstede, 1980), refers to a conditioning of a group of people which will influence a
lifetime of thought processes, behavior, and actions. Culture is an ingrained behavioral
influence which affects the way collective groups approach, evaluate, and negotiate
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opportunities for international business. This paper attempts to examine the issues
surrounding the impact of national culture on the ability to reach an agreement in
international business negotiations. It is my hypothesis that national culture will produce
certain predetermined biases which, when combined with the degree of distance
between cultural dimensions and the negotiating style employed, predictably affect the
negotiator's ability to reach integrative (win/win) agreements.

National culture resides in deeply-rooted values (Hodgetts 1993), and its distinctions are
found to vary widely. The pursuit of establishing characteristics to define and measure
these distinctions has been an ongoing focus of many research efforts. Geert Hofstede
(1980) developed a pioneering and widely accepted classification scheme which breaks
national culture into the dimensions of power distance, uncertainty avoidance,
individualism-collectivism, and masculinity-femininity. Hofstede's (1980) first dimension,
power distance, examines a culture's tolerance for accepting unequal dispersions in
power between members of organizations. The second dimension, uncertainty
avoidance, is based upon a society's degree of uncomfortability with ambiguous,
unpredictable situations, and its pursuit of stabilizing activities to avoid such situations.
The individualism-collectivism dimension measures a society's degree of identification
with, and level of dependence on social frameworks. Hofstede's final dimension uses
the terms masculinity and femininity to describe groupings of characteristics such as
assertiveness, wealth, people, and quality of life that a society places value on
(Hofstede 1980, 1991).

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Negotiation, a process through which agreement may be reached on matters of mutual
interest, is essentially the art of persuasion (Pruitt, 1981). As such, persuasion can
result in one of three distinct negotiating outcomes -- integrative agreements,
distributive agreements, or no agreement. Integrative outcomes result in the production
of increased benefits through the negotiation process which are in excess of the sum of
inputs. An example of this is the generation of new solutions through the negotiation
process which satisfy or exceed each party's interests. This outcome is contrasted by
distributive outcomes which simply result in a division of the original inputs among the
negotiating parties. Here, no new solutions are produced through the negotiation
process. This is usually due to the fact that each party is preoccupied with defending or
expanding its position.

Numerous cross-cultural endeavors end in failure -- due mainly to a negotiator's inability
to accept and adapt to the underlying beliefs of the other party (Currie 1991). Since
international business negotiations are more complex than domestic, due largely to this
added dimension of cultural diversity, one proposed solution to the limitations of
principled negotiating is the synergistic approach (Adler 1991). The culturally
collaborative synergistic style of negotiating emphasizes that understanding the other
parties, their interests, and their assessment criteria, becomes more difficult due to
cultural and communication differences. However, the diversity of culture may enhance
the generation of creative options for mutual gain. Based on these assumptions,
synergistic negotiating suggests that if cross-cultural differences are recognized, clearly
communicated, and understood by the negotiator, they can be the basis for constructing
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win-win agreements (Adler, 1991). The synergistic negotiating process includes the
stages of preparation, relationship building, information exchange, negotiation,
progression, and agreement. Of these stages, research indicates that information
exchange, which is directly affected by cultural dimension differences, is one of the
most influential factors in achieving integrative solutions when attempting to negotiate
international agreements (Walton & McKersie 1965).


RELATIONSHIP BETWEEN CULTURAL DIMENSIONS AND INTERNATIONAL
NEGOTIATIONS

While we have examined the evolution of an approach to achieving integrative
outcomes from international business negotiations, theoretical limitations continue to
exist with cross-cultural applications of principled negotiating and its internationalized
modification of synergistic negotiating. These limitations are rooted in the role of culture
through its influence on communication styles and cognitive biases. These two effects
of culture impact the very effectiveness of the negotiating process.

The various dimensions of culture examined previously are fundamental to obtaining not
only a proper understanding of the cultural background of various nations, but also in
determining which biases may be inherent in them. With most international business
negotiations research focusing on the relationship between culture and behavior, few
studies have examined culture in reference to the outcome of negotiations (Natlandsmyr
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& Rognes 1995). This demonstrates a need for additional research in to the role of
culture in international business negotiations. While most models assume outcome is
based upon aspects of negotiation style or preparation, certain negotiation outcomes
may not be obtainable in various situations.

Most past research identifies negotiation as a product of antecedent inputs and static or
synergistic solution production which can result in integrative, distributive, or null
outcomes (Adler 1991; Natlandsmyr et al., 1995; Pruitt 1981;). Antecedent inputs
include cultural biases, which can be perceptual and cognitive, motivation level, and
negotiation behavior (Natlandsmyr et al. 1995). Common biases center on a culture's
ability to perceive integrative outcomes and tolerate risk (Bazerman & Carroll 1987). A
culture which is highly risk averse and which perceives negotiations as static (zero-sum)
will have great difficulty in participating in synergistic negotiations (Natlandsmyr et al.
1995). In contrast to this static/averse cultural perception, research indicates that
cultures with a less competitive / individualistic, problem solving orientation are more
predisposed to synergistic negotiating (Schultz & Pruitt 1978). This role of
competitiveness as an issue in the pursuit of integrative outcomes is further supported
by some of Pruitt's (1990) more recent work on competitive orientation as an obstacle to
integrative solutions.

This review of culture and its role in negotiation behavior leaves us in need of a more
encompassing cross-cultural framework for negotiation. We have examined the
existence of dimension distance differentials across national cultures, and the effects
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these produce. Prominent researchers point to the economic utility of knowledge
regarding national culture profiles (Franke, Hofstede, & Bond 1991). We have learned
from previous studies that cultures with high masculinity, (assertive and competitive
behavior), seek distributive outcomes and will have great difficulty with a synergistic
negotiation process. Cultures with high uncertainty avoidance and power distance will
be likely to accept distributive outcomes and less likely to be comfortable with a
synergistic negotiating process. This impact of culture through the influence of cognitive
bias creates a challenge to negotiating strategy and a void which seeks a model that
can predict and obtain integrative outcomes.


QUESTIONS FOR FUTURE RESEARCH

What role can previous negotiation models such as the synergistic negotiating style play
in achieving integrative outcomes given the impact of cultural bias? Such a challenge
provides many avenues of approach. One approach which could be pursued is to
examine the relationship among the inputs of the cultural dimensions of the negotiators,
the negotiation style utilized, and the type of outcomes achieved. Another approach
could examine the relationship among the distance between cultural dimensions of the
negotiating parties, negotiating style, and the type of agreement outcome. Due to the
diversity of approaches and the wealth of research questions within this area, I will limit
this paper to examining the role of inter-nation cultural dimension distance and
negotiating style upon the type of outcomes produced. The formal research question
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may be "Is there a relationship between cultural distance and negotiating style upon the
type of outcomes produced in cross-cultural negotiations?"

Initially I propose that firms from nations that are similar on Hofstede's dimensions will
come to agreement in a shorter period of time than firms from dissimilar nations.
Nations high in masculinity, uncertainty avoidance, power distance, and individualism
will be unable to, or have great difficulty engaging in synergistic negotiations and
achieving integrative outcomes. Nations which are collectivist, feminine, have a low
uncertainty avoidance, and a lower tolerance for power distance will be more
predisposed to synergistic negotiating and to achieving integrative outcomes. Note this
relationship between group type and synergistic negotiating ability is diametrically
opposed to the relationships which occur in traditional (positional) negotiating for these
groups.

Proposition 1: As a nation's rank increases on the cultural dimensions of power
distance, uncertainty avoidance, masculinity, and individualism, there will be less
synergism and a decreased likelihood of integrative agreements.

Negotiations between nations with low inter-nation cultural dimension distance will
reach agreement with integrative outcomes more often. Negotiations between nations
with low cultural distance will have shorter time spans. Proximity of cultural dimensions
mean similarities in the cognitive and perceptual biases, communication style, and
negotiation behavior of the parties involved in the negotiation. These similarities will
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produce a higher level of comfort among the negotiators which will serve to facilitate an
enhanced negotiating process.

Proposition 2: Nations similar in cultural dimensions will reach integrative outcomes
more frequently and in shorter time spans than nations of dissimilar cultural dimensions.

Negotiations demonstrating high levels of synergism will produce integrative outcomes
more often than negotiations without. Negotiations demonstrating high levels of
synergism will reach integrative agreements in shorter time spans than traditional
negotiations. Negotiations which have strong relationship building will reach integrative
agreements more often and in shorter time spans than negotiations without.

Proposition 3: Negotiations high in synergistic dimensions, particularly relationship
building, will produce integrative outcomes more frequently and in shorter time spans.


CONCLUSIONS

In this study we have examined the various dimensions of culture and international
business negotiations. I have attempted to demonstrate how culture interacts with the
negotiation process to produce integrative, distributive, or null outcomes. These ideas
may serve as a useful tool for negotiators at both the national and firm level to facilitate
cross-cultural arrangements which produce integrative outcomes. Further research is
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clearly needed to empirically test the hypothesized relationships among the constructs
in this paper, and to determine the accuracy of the speculative propositions. This stream
of research is fundamental to the expansion of world trade and the enhancement of
international trading arrangements. Further evolution of our system of international
business, to a framework which facilitates integrative outcomes, has the potential to
eventually alleviate the economic concerns and solve the challenges among the various
national cultures of the world.


REFERENCES
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