Negotiation and Culture A Framework At the height of foreign investment in Russia, BP PLC spent $484 million to buy 10 percent of Sidanko, one of the five largest Russian oil companies. Eighteen months later, BP was enmeshed in a bankruptcy proceeding and takeover fight that resulted in the loss of BP's investment. What went wrong with this deal? In the race to have a foothold in an emerging market, BP apparently overlooked negotiating fundamentals and cultural issues. A young pro-Western banker with excellent political connections ran Sidanko. He had taken the company private for $470 million, only slightly less than what BP paid for 10 percent ownership, 20 percent voting rights, and a few senior management positions. BP clearly wanted access to Sidanko's oil fields but unfortunately did not negotiate enough leverage to take over the direction of the company and make it profitable. According to one commentator who follows foreign investment in Russia, the BP executives' instructions were not carried out either because Russian management culturally would not do so or because Russian management was getting orders from somewhere else. BP ended up facing off with a recalcitrant creditor who owned part of Sidanko's $450 million in outstanding debt and wanted the oil fields itself. Culture is often the culprit when deals that cross national borders, like the one between BP and Sidanko, lead to disputes and unanticipated costs. This chapter lays the groundwork for understanding how culture affects negotiation. It begins by describing negotiation fundamentals, those elements of negotiation that are the same across cultures. It then describes culture and explains how culture affects negotiations. Negotiation Fundamentals When you ask people all over the world what comes to mind when you say negotiation , most describe some sort of a market in which two people exchange a series of offers. Implicit in their answer is the assumption that a deal is in the making, that the two are speaking directly (though the medium may be electronic), and that they are bargaining to divide a fixed pie of resources. Yet negotiations are not limited to direct deal making over fixed resources. In all cultures, people negotiate to resolve disputes and to make decisions in teams. When negotiators reach agreement, resources are always distributed, but the amount of resources available for distribution is not necessarily fixed. Fundamental to negotiation are the circumstances in which people negotiate and the types of agreements they reach. Types of Negotiations All types of negotiations occur because people perceive that their goals are incompatible. When people see themselves as interdependent (or potentially so) but in conflict , they naturally negotiate to try to deal with the conflict. Negotiators from BP trying to buy Sidanko wanted to pay as little as possible. Negotiators from Sidanko trying to raise capital by selling a stake to a foreign oil company wanted to gain as much as possible. Their deal-making negotiations sought terms that were better than either party could negotiate elsewhere despite their conflicting goals. Conflict is frequently the subtext when groups or teams are trying to make decisions. BP placed managers in top executive positions at Sidanko, but these managers did not have sufficient leverage to influence decision-making negotiations at the top. When BP realized that its goals were not being met, it made a series of claims for more management control. When its claims were rejected, dispute resolution negotiations ensued. Deal-making, decision-making, and dispute resolution negotiations occur in all cultures. However, because culture affects how negotiators reach deals, resolve disputes, and make decisions, it also affects their agreements. Distributive and Integrative Agreements Negotiation is about claiming value : how much of a set of resources you are going to get and how much the other party gets. Successful value-claiming negotiation leads to a distributive outcome that divides a fixed set of resources such that your interests or the needs underlying your positions are met. But negotiation can also be about creating value: how you and the other party can increase the resources available to divide. Successful value-creating negotiation leads to an agreement that is both integrative and distributive, one that divides an enhanced set of resources. The concept of integrative agreements , much less how to reach them, is not intuitive. To create value takes transforming what appears to be a fixed set of resources into a set of resources that are differentially valued by the negotiators and then distributing resources to the negotiators who value them the most. There may be opportunities to create value in even the simplest of negotiations. While living in a small village in France, my husband and I offered to organize a traditional Halloween party for the thirty children in the local grade school. Our children had told their French friends about making jack-o'-lanterns (pumpkins are hollowed out, a face is carved, and a lighted candle is placed inside). My job was to purchase enough pumpkins for thirty children to carve. I had difficulty locating any pumpkins but finally found a roadside stand outside a small house with some for sale. I counted; there were exactly thirty. I knocked on the door, and a woman came out. I told her I wanted to buy the pumpkins and asked the price. She named a reasonable figure, and I said, "Fine, I'll take all of them." "Oh, no," she replied, "I cannot sell you all of them." I immediately had visions of making jack-o'-lanterns with pumpkin halves, holding a lottery to determine which children got to carve and which got to take home a jack-o'-lantern, carving melons instead ... But then I thought, wait a minute, you're supposed to know something about negotiation. So I asked, "Why won't you sell me all the pumpkins?" She answered, "If I sell all of them to you, I won't have any seeds to plant next year." I asked her if having the seeds by November 1 would allow sufficient time for planting. She said it would and sold me all the pumpkins on the condition that I return the seeds on November 1, which I did. Madame Petit and I negotiated an integrative agreement. We created value by my asking and her answering truthfully a series of questions that led us to separate the pumpkins and the seeds. There are two sources of integrative potential in negotiations: differences in negotiators' preferences and compatibility of preferences. Madame Petit had a stronger preference for the seeds and I for the rind of the pumpkins. Madame Petit did not need the seeds immediately and I did not want to give them to her right away. Our interests on the timing issue were compatible. Our integrative negotiation took advantage of our different uses for the pumpkins and our compatible time frame. Had I accepted Madame Petit's refusal to sell me all the pumpkins, our agreement would have been distributive. I would have bought as many pumpkins as she would sell, and she would have kept as many as she needed for seeds. Neither of our interests would have been as fully satisfied as they were with the integrative agreement. With the integrative agreement, Madame Petit gained more money by selling me all the pumpkins, and she gained all the seeds. I gained all the pumpkins I needed so that every child could make a jack-o'-lantern. Had I stood on principle, refusing to buy any pumpkins if I could not buy all of them, we would have reached an impasse . I thought my best alternative, if I could not buy pumpkins, was to have the children carve melons, a messier prospect at best. Madame Petit's alternative was to interrupt her housework repeatedly to get rid of her stock of pumpkins. Note that our integrative agreement over the pumpkins was also distributive. Madame Petit got all of the seeds and her full asking price; I got all of the pumpkins. In fact, all integrative agreements also distribute value. This is one important reason to integrate: negotiators who integrate have more value available to distribute and are therefore more likely to claim what they want. A second important reason to integrate is that negotiators who integrate are sometimes able to structure an agreement when otherwise there would be none. Impasses normally occur when a seller asks more than a buyer can pay. However, if the seller learns why the buyer cannot pay the asking price or the buyer learns why the asking price is so high, the negotiators may be able to structure the deal-for example, with creative financing or with nonfinancial compensation that corresponds to both parties' interests. The term integrative is frequently used with a great deal of imprecision to mean an agreement that is mutually satisfactory. Mutual satisfaction, however, is an evaluation of an agreement, not a type of agreement. Negotiators who have failed to look for or find an integrative agreement may be quite satisfied with a distributive agreement. For example, if I were only able to buy twenty-six pumpkins and evaluated that outcome against the alternative of carving melons, I might have been satisfied. Madame Petit, who had no intention of selling all her pumpkins anyway, would also have been satisfied. Distribution and integration have to do with the amount of resources, not with the evaluation of them. When I tell the pumpkin story in class, someone invariably suggests that I did not get such a great deal because I did not negotiate a discount for buying all the pumpkins. It is possible that had I pushed for a better price, I might have gotten one. Yet I did not for several reasons. First, I knew that haggling over price is not common in the open-air food markets in that part of France. Second, I was concerned that if I did haggle, Madame Petit might refuse to sell me any pumpkins, and my melon alternative was not particularly attractive. Third, I thought it possible that the school might want to continue the Halloween tradition and I might have future interactions with Madame Petit. My poor alternative and my concern for the relationship affected my distributive outcome. In the negotiation literature, especially the cross-cultural literature, the relationship is sometimes represented as an outcome. Yet as the example illustrates, relationship is an issue in negotiation and can be one element of a distributive or an integrative agreement. Negotiation Fundamentals Affected by Culture: Interests, Priorities, and Strategies All negotiators have interests and priorities, and all negotiators have strategies. Interests are the needs or reasons underlying the negotiator's positions. Priorities reflect the relative importance of various interests or positions. My interest in the negotiation with Madame Petit was having a pumpkin for each child. As we negotiated, we realized that we had different priorities: hers was for seeds and mine for the rind. A negotiation strategy is an integrated set of behaviors chosen because they are thought to be the means of accomplishing the goal of negotiating. My strategy negotiating with Madame Petit included confronting her directly and asking for information. I could have sent a third party, but I did not. I also refrained from using influence because my alternative was so poor. Negotiators' interests, priorities, and use of strategies are affected by culture. So it is useful to have an understanding of culture before considering how and why culture affects interests, priorities, and strategies. Culture and Negotiation Culture is the unique character of a social group, and in this book the focus is on national culture. Cultures consist of psychological elements, the values and norms shared by members of a group, as well as social structural elements: the economic, social, political, and religious institutions that are the context for social interaction. Cultural values direct attention to what issues are more and less important and influence negotiators' interests and priorities. Cultural norms define what behaviors are appropriate and inappropriate in negotiation and influence negotiators' strategies. Cultural institutions preserve and promote values and norms. Cultural values, norms, and ideologies serve as shared standards for interpreting situations (this is a negotiation, therefore I ought to ...) and the behavior of others (she threatened me, therefore I should ...). When two parties negotiate, both bring culture to the table with their interests and priorities and their negotiation strategies. Exhibit 1.1 illustrates how culture affects negotiation. It shows culture affecting the interests and priorities that underlie negotiators' positions on the issues. That is, culture may affect why the negotiators have taken the position they have or why one issue is of higher priority than another is. The fit between negotiators' priorities and interests is what generates the potential for an integrative agreement. Culture may also affect the strategies that the negotiators bring to the table-for example, the way they go about negotiating, whether they confront directly or indirectly, their motivations, and they way they use information and influence. Exhibit 1.1 shows that negotiators' strategies cause patterns of interaction in negotiation. Those interaction patterns can be functional and facilitate integrative agreements, or they may be dysfunctional and lead to suboptimal agreements in which integrative potential is left on the table. Effects of Culture on Interests and Priorities Cultural values may reveal the interests underlying negotiators' positions. Negotiators from cultures that value tradition over change, for example, may be less enthusiastic about economic development that threatens valued ways of life than negotiators from cultures that value change and development. This was the situation in which Disney found itself after purchasing a large tract of land south of Paris to construct EuroDisney. Although EuroDisney promised jobs and economic development to an area that had high unemployment and few nonfarm jobs for youth, the local populace valued its traditional agricultural lifestyle. EuroDisney management, with its American values for economic development, had difficulty reconciling the local population's preferences for tradition over development. The example also points out that the same values that generate cultural differences in preferences may also act as cultural blinders. Negotiators from one culture, expecting preferences to be compatible, cannot understand the rationality of negotiators from another culture whose views on the same issue are at odds with their own. Continues... Excerpted from Negotiating Globally by Jeanne M. Brett Copyright (c) 2001 by John Wiley & Sons, Inc. Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.