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It is estimated that worldwide electric generatingcapacity will grow by approximately 906GW by2006. Roughly 18% of this capacity will be builtin China alone and some posit that the powersector in India will transform itself from a highlystate-regulated one to a free market environmentincorporating the independent power producer(IPP) business model.Asian power producers are competing forcapital on global markets. As capital is agnosticand will flow towards the best Pareto optimal pointon the risk-reward curve, IPPs must attract capitalon the global markets and convince investors thatreturn on investment (ROI) scenarios are moreattractive that competing firms. On the otherhand, investors must understand the level of riskthey are accepting and mitigate accordingly.Risk mitigation, for both parties, beginsduring the
deal
negotiation process. Negotiatingmajor international deals is a challenging processwith a level of complexity that does not exist whendeal-making in one’s own country. If expectationsare not set at the beginning, if an understandingof cultural and individual diversity is not arrivedat, and if flexibility is not inherent to the “deal”,then the risk of failure is high.Throughout Asia, power sector organisations,their suppliers and financiers are seekingrelationships with companies who cancomplement their expertise and fiscal capability.Often this will mean looking globally fortechnology, management, and funding. To theextent that these companies can negotiate long-term, productive relationships with their partners,will determine the success of these companies inthe international marketplace.Successful deal making requires thatexecutives become experts in internationalbusiness negotiations and that globalnegotiations be seen as fundamentally differentfrom the negotiations of domestic deals. Thisthinking implies that international business dealsare extensions of international relations as muchas they are business negotiations – and a muchdifferent skill set is required.Most understand that there are cultural andsocietal differences between Western and Asianpeople. The differences are often obvious andrelatively understandable and even stereotypical,such as the need for consensus in many Asiancultures versus a more rapid-fire Western style.If either group conducts negotiations usingsimplistic stereotypes, then the likelihood of success goes down.This author has significant experienceputting together large energy and technologydeals between Asia-based firms and governmentagencies and Western providers, and has learnedthat deal-making styles vary substantially aroundthe globe. In an attempt to better understand
Cross-Culture Negotiations
The global energy industry has significant opportunities and challenges. Withany large reward, there is an element of risk associated. One risk that mustbe mitigated is misunderstandings resulting from cross-cultural negotiationprocesses.
Dr Scott M Shemwell
, Chairman and CEO of data management firm,Strategic Decision Sciences, examines how cultural differences can influencebusiness negotiations in the power sector.
P h o t o : B l o o m b e r g
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negotiating styles with a view towards winningmore business, the writer’s doctoral dissertationassesses divergent styles between Japanese andAmerican business executives from a systemicapproach.There are clear and subtle differences innegotiation styles that must be addressed if an acceptable projected rate of return for eachparty is to be obtained. Executives shortcutthis process at great peril. Hofstede Geert, in“
Culture’s Consequences: International Differencesin Work-Related Values (1980)”,
developed fourindices categorised as
universal categories of culture
– Power Distance (social stratification), UncertaintyAvoidance (need for structure), Individualism(relationships), and Masculinity (social role of sexes). A sampling of indices of key Asian countriesand the United States is reflected above.Is it possible that these universal categoriesof culture may find their way into the deal-makingprocess? Most likely, and if so, is it any wonderthat the end result of business deals betweenAsian IPPs and Western financial firms do notmeet the expectations of either parties?There is a better way. Management tools arereadily available to facilitate better outcomes.One such methodology is straightforward, easyto use and works not just for Asian-Westernnegotiations but even inter-Asian or any othercultural combination. The “RBC framework” is well-established and proven to aid better deal-making.
The Role of Negotiation in “Deal-Making”
International deal-making by its very nature iscomplex. Fundamentally, they are the interactionof three key facets: parties’ RELATIONSHIPS,parties’ BEHAVIOURS, and influencingCONDITIONS (RBC) and the basic interactionbetween these aspects
1
.The concept of international negotiationhas been expanded to include environmentalfactors previously only touched on. Not only doesthe perception consist of political, economic,institutional-legal, and cultural issues, but the newparadigm also consists of “negotiation context,negotiator characteristics, strategic selectionsand process, and negotiation outcome”.Strongly implied in the above discussionis the fact that how differences in culture aredealt with will significantly dictate the success orfailure of the negotiation of international deals.Furthermore, the environmental conditions inwhich negotiations are conducted will have someinfluence on the results of these negotiations.Finally, behaviour patterns and priorities of the different parties are an important consider-
Indices of Universal Categories of Culture:CountryPDIUAIIDVMAS
Hong Kong68292557India77404856 Japan54924695Philippines94443264Singapore7482048Taiwan58691745Mean614027 52USA40469162
* 1980 data* Power Distance Index (PDI), Uncertainty Avoidance Index (UAI), Individualism Index (IDV) and Masculinity Index (MAS)
1
Weiss, Stephen E, Analysis of Complex Negotiation in International Business: The RBC Perspective, Organization Science, 4(2) page 269-300, 1993.
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ation for the negotiator in his or her deliberations.In other words, human behaviour is an importantaspect of any negotiation process. It is even moreimportant when the other negotiator’s behaviourmay be driven by another culture or religiousbelief.
Win - Win
Americans, as well as other cultures, are taughtthe art of bargaining. In other words, duringnegotiation,
I attempt to maximise
MY
positionat your expense
2
. This is the common approachof the merchant-buyer relationship in a bazaar.The implication is that this is a one-time deal andthat the buyer and seller will not have a long-termrelationship as a result of the transaction.Unfortunately, this is the approach thatmost businessmen take in the negotiation of long-term contracts. Generally, there is a feelingthat if the other party wins something in thenegotiation, then I must be giving something up.Unfortunately, this is the attitude that negotiatorshave during the negotiation of internationalstrategic alliances.For example, Americans often develop abehavioural sequence that sets an objective,develops a plan to reach that objective, andattempts to change the environment toaccommodate that plan. In the negotiation of an international strategic alliance, this approachmay be at odds with the Japanese negotiationstyle where the relationship is the importantingredient in the deal.In order for a strategic alliance to have valueto each party, it is necessary that each partybelieve that the relationship is meeting his or herneeds
(win-win).
This suggests that the Americanapproach of attempting to set the agenda andnegotiate accordingly may be counterproductiveto the goals of an international strategic alliancewith a Japanese firm.
Cross-Cultural Considerations
The different social behaviour patternsinternational negotiators encounter have beenbroadly and loosely defined as cultural differences.Furthermore, there is limited research on therelationship of culture to negotiation, mostprobably because of the inherent difficulties inthe methodology of studying these problems.There are, however, four approaches taken bynegotiation literature implying a connectionbetween culture and behaviour :
culture as alearned behaviour, culture as shared value, cultureas dialectic, and culture-in-context
. Each approachis conceptually different, and this implies that it isimportant to understand these differences duringthe conduct of negotiation of internationalpartnerships.Learned behaviours focuses on negotiatingetiquette, that is the use of proper socialcustoms, such as whether or not negotiationsare conducted over dinner or not. Most books on“how to negotiate abroad” are written based onthis approach to international negotiations.Culture as a shared value focuses on thenegotiation process. That is, one’s thinkingprecedes action, and that these thinking patternsare derived from one’s cultural context. The sharedvalue approach typically assumes homogeneity inthe culture’s dominant or commonly-held clusterof values. This approach can potentially lead tofailed negotiations if the negotiators themselvesdo not follow the rules of perception in the eyesof their counterparts on the other side of thebargaining table.A different model of the make-up of cultureis derived from the work of Erik H. Eriksonin
Childhood and Society
explaining childdevelopment. Using Erikson’s work, MichaelKammen asserted that a set of “dyads” or values indialectic tension is common throughout America’snational experience. That is to say, homogeneityrequired by shared values is non-existent, andthat tension, not consistency, is the componentparts of any given culture.The culture-in-context model is a complexquintessential integration of the currentunderstanding of human behaviour by “systemstheorists”, such as Max Weber and TalcottParsons, that human behaviour is not dictated bysingle cause explanations. Therefore, according tothis model, the international negotiator needs tounderstand that even within such homogeneouscultures as the Japanese, complex humanbehaviour should be expected.
2
Ury, William, Getting Past No, 1991.
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Cross Culture Negotiations
The global energy industry has significant opportunities and challenges. With any large reward, there is an element of risk associated. One risk that must
be mitigated is misunderstandings resulting from cross-cultural negotiation processes.
be mitigated is misunderstandings resulting from cross-cultural negotiation processes.
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