Cross Cultural Negotiation Process Are More Complex and Difficult, but Will Surely Help in Overcoming Barriers and Failures in the International Business Arena

Journal of Business Management and Economics 3: 11 November (2015).

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Case Studies: Resolving cross-cultural issues in doing Business in China. Dr.Saikat Gochhait Assistant Professor-Marketing, Asian School of Business Management, Bhubaneswar Email: [email protected] DOI: http://dx.doi.org/10.15520/jbme.2015.vol3.iss11.159.pp41-46 Abstract: The impact of international business in domestic markets compels us to ask a question: "How can we survive in this global playing field, and what can we do to run our businesses more effectively?" Nowadays, businesses of all sizes search for suppliers and customers on a global level. International competition, foreign clients and suppliers may become bit cautious, but they may also create huge opportunities in developing our business. The increasingly global business environment requires managers to approach the negotiation process from the global business person's point of view. This approach may not be relevant in domestic negotiations. Some of the components of a cross cultural negotiation process are more complex and difficult, but will surely help in overcoming barriers and failures in the international business arena. When doing business internationally, we need to consider (Salacuse, 1991): 1. The negotiating environment 2. Cultural and sub-cultural differences 3. Ideological differences 4. Foreign bureaucracy 5. Foreign laws and governments 6. Financial insecurity due to international monetary factors 7. Political instability and economic changes If we consider the fact that negotiating with our fellow citizen is not an easy task due to many individual differences, it would be reasonable to suggest that negotiating with foreigners may be even more difficult. The way we perceive and create our own reality may be completely different to our counterpart's way of thinking, behaving and feeling. Unfortunately, knowledge of any foreign language is not enough to face and solve the problem. Language is a cluster of codes used in communication which, if not shared effectively, can act as a barrier to establish credibility and trust. We need more effective tools, and the most important is knowledge of all factors that can influence the proceedings. Nations tend to have a national character that influences the type of goals and process the society pursues in negotiations. This is why specifying and understanding cultural differences is vital in order to perform successfully in inter-cultural communication (Schuster-Copeland 1996, 33). As we better understand that our partners may see things differently, we will be less likely to make negative assumptions and more likely to make progress when negotiating. “When crossing Cultures, it is essentials that the source of the Communication think of the product in terms of the culture to which the communication will be directed rather than the home culture”.(Cateora and Keavency, 1987)

Keywords: Cross Cultural Competence, Cultural Orientations Model, Culture Shock, Cultural Characteristic, Cross Cultural Attributes

THEORY OF CROSS CULTURAL MANAGEMENT: • Environment: How individuals view and relate to the CULTURAL ORIENTATIONS MODEL people, objects, and issues in their sphere of influence • Time: How individuals perceive the nature of time and Here we will introduce the cultural orientations model. This its use model includes ten cultural dimensions while applying the • Action: How individuals view actions and interactions following three criteria: (1) Each dimension needs to • Communication: How individuals express themselves recognize an important aspect of social life; (2) Each • Space: How individuals demarcate their physical and dimension needs to be something to which any socio- psychological space cultural environment gives its members a basic orientation • Power: How individuals view differential power as the shared rationale for behavior; (3) Each dimension has relationships practical value to managers, leaders, and anyone else who • Individualism: How individuals define their identity needs to reconcile, integrate, or transcend cultural • differences in order to obtain a desired outcome. (Walker, Competitiveness: How individuals are motivated D.M, Walker, Thomas, Joerg, Schmitz, 2002). • Structure: How individuals approach change, risk, Definitions of ten dimensions: ambiguity, and uncertainty • Thinking: How individuals conceptualize

COMPARATIVE CULTURAL ORIENTATIONS MODEL

China Germany Japan USA Environment Harmony Control Harmony Control Time Past Future Future Present Action Being Doing Being Doing Communication High Context Low Context High Context Low Context Space Public Private Public Private Individualism Collectivist Individualistic Collectivist Individualistic

41 Saikat Gochhait al, Journal of Business Management and Economics, 3 (11), November, 2015,

Competitiveness Cooperative Competitive Cooperative Competitive Structure Order Order Order Flexibility Thinking Systemic Linear Systemic Linear See: Doing Business Internationally: The Guide to Cross-Cultural Success Presence of Tata Group in China: • Tata Sons has a representative office (Contact: James Zhan, Group chief representative at China is a critical and growing market for the Tata Group, [email protected]) which has a bit of history to fall back on with regard to • doing business with the Middle Kingdom. In 1859, a young Tata Consultancy Services has signed a joint venture Jamsetji Tata, the founder of the Tata Group, was sent to to develop a software business in China in Hong Kong to open a branch for his father’s banking firm. collaboration with the Chinese government and He relocated a few months later to Shanghai, where he Microsoft. remained till 1863. • Tata Steel has two rolling mills in China following its acquisition of NatSteel. The Tata Group currently has a more modest presence in • Tata Refractories has opened a plant in Liaoning China than in the US and the UK, but its companies are Province, the Group’s first Greenfield project in developing plans to expand their presence in the country China. dramatically. The Group recognizes the potential for high • TACO has a factory in Nanjing to make auto growth in existing businesses and opportunities for new components for General Motors and Ford. ones. (Source: www.tata.com)

Case studies: managing director of TRL, C D Kamath on December 28, 2006, coinciding with the birthday of group chairman Ratan. Case Study-1 N Tata. TRL China Ltd: The plant has been commissioned at a record time of exactly Tata Refractories has set up a new plant in China to eight months, a record in project completion even by manufacture Magnesia Carbon Refractories. With a capital Chinese standards. Similarly, TRL has set up a production investment of Rs. 37 crore. and a production capacity of facility in Gujarat to manufacture bauxite-based 30,000 MTPA, this strategic initiative has been taken to Refractories. These strategic initiatives, aimed at making leverage the proximity to raw material sources and to avail TRL a global Refractories company, are a part of company's of the low-manufacturing-cost structure of the Chinese expansion and modernization drive launched two years back economy. This would not also facilitate smooth supply of at a capital investment of Rs 282 crore. This drive has cost-effective products to customers across the globe. resulted in making the company one of the most modern

plants, and has enhanced its capacity to 2,50,000 MTPA, the The Greenfield plant, located at Bayuquan in Lioning highest for any Refractories unit under one roof in the province situated in the north eastern part of China, is the world.(source:www.steelworld.com, 2009) first Greenfield manufacturing unit of TRL as well as of Tata group in China. The plant was inaugurated by the

42 Saikat Gochhait al, Journal of Business Management and Economics, 3 (11), November, 2015, Performance: Compared with the local Chinese service providers, TCS The Company has two Subsidiary Companies viz. TRL Asia considers its main advantages to be size and scale, global Private Limited (a Special Purpose Vehicle in Singapore) and regional reach and international quality standards. Such and TRL China Limited, a 100% Subsidiary of TRL Asia attributes have helped in winning business from such large Private Limited. Company’s holding in TRL Asia Private clients as General Electric Co., Motorola Inc. and Cummins Limited is 88%. TRL China started commercial operations Inc. from 28th December 2006. TRL China has earned a profit during the first full year of its operation , It has achieved a Moving deeper into the Chinese market, TCS recently won a turn-over of Rs.67 Crores and PBT of Rs.0.63 Crores. significant multi-million dollar contract to implement a Profitability of TRL China has been, however, seriously comprehensive international trading system for China affected due to withdrawal of VAT benefits by the Chinese Foreign Exchange Trade System, part of the People’s Bank Government as well as by the strengthening of Chinese of China. While language barriers have not proven to be a Currency (RMB) against the Dollar. In order to meet market barrier, TCS deals with noticeable cultural differences. “We demands, TRL China is undertaking the Phase-II expansion find that our people in India are more global,” says Pande, of its production facilities at an estimated capital adding “China will become to be more regimented. “In expenditure of Rs.14.95Crores. India, if you ask, ‘when will you finish,’ the answer might (Source:www.tataref.com) be seven or eight days,” observes Pande. “In China, you get a precise time.” Case Study-2: Certainly, there are trade-offs in finishing for lucrative Tata Consultancy Services, China: contracts in rapid growth market of China. Continuing upstream, Pande says TCS has a goal of building up its When India’s Tata Consultancy Services set up in China, it workforce in China to 5,000 in the next five was mindful to develop a strategy that took the country’s years.(source:www.tcs.com) heritage and customs into account. METHODOLOGY Part of the huge Indian conglomerate Tata Group, TCS entered the Chinese outsourcing arena by tapping The design of the present case studies on “Overcoming multinational corporations in China, before focusing on Across-cultural Negotiation in doing business in China” was regional companies and finally the domestic Chinese a descriptive one. Data was collected from both primary and market. secondary sources. Books, Journals, Magazines, “We have grown steadily and profitably since inception,” Newspapers, Booklets and Websites etc were referred for says Girija Pande, executive vice president and Asia Pacific collecting data from secondary sources. Primary data was head for TCS. “We did not believe in spending millions collected through the help of structured questionnaires and before getting to the first customer. TCS in china is a very personal interview based on 1) What was Tata’s experience profitable operation.” of doing business in China, where non-democratic The Indian company’s history in china is a reflection of governance set up is prevailed? 2) As we have not found the governmental support and collaboration. In 2002, TCS same pluralistic culture in China and Singapore like India. became the first Indian Software company to establish a How Tata did’s managed with cross cultural issues? wholly owned foreign enterprise in china. It followed quickly in 2005 with plans to establish a landmark software RESULTS joint venture in Beijing with the Chinese government’s National Development and Reforms Commission and In this chapter we will present the results of the case studies Microsoft Corp. The JV was inaugurated in February 2007 considering the data collected based on the above two in a high-profile ceremony. parameters: 1. Tata’s experience of doing business in China, where non- Today, TCS has a 65 percent stake in the entity while the democratic governance set up is prevailed. How? Chinese government holds 25 percent and Microsoft the remaining 10 percent. In a sign of growing Sino-India The Chinese Government extends all facilities including teamwork, TCS is merging its subsidiary with the joint infrastructure to attract foreign invested companies to ensure venture, a move that will dilute the government’s share to 10 quick project execution and smooth operations after the percent. plant starts. In fact local mayor takes it as his credit to have investment done in his district. Also good infrastructure, Like other Indian companies that have entered the Chinese highly productive work force and a helping local market, TCS has a growing footprint in the market. It has government makes it easy to do business in China multiple offices in China (including new premises at sometimes easier than India. In fact the plant, TRL, China Beijing’s sprawling Zhongguancum Software Park), 1,200 was set up in record timing of 6 months because of TRL, employees and a mix of global and local customers. Seventy China developed a strategy for dealing with key government percent of revenues come from U.S. but it also has a constituencies. The foundation of this strategy is meeting smattering of domestic clients including Chinese banks. and cultivating relationships with government officials at all Finance is the strongest sector, representing 40 percent of levels. The next TRL, China took the advantage of bringing volume, while telecom is eyed as the next promising vertical something of value China such as job opportunities, sector. technology or investment. Government agencies will automatically take interest in the foreign entity if the

43 Saikat Gochhait al, Journal of Business Management and Economics, 3 (11), November, 2015, company is bringing something of value to their The need to adopt international business practices to country.(Li,J.T ,2001) compete with other countries that are members of WTO; build a better image for products and services to enter the Lastly TRL, China developed relationship with the State global marketplace. As well as free trade of products and Administration for Industry and Commerce (“SAIC”) services based on competitive advantages have motivated representatives who helped them in combating intellectual Chinese enterprises to become more culturally aware. property infringements. 2. How Tata’s managed with cross cultural issues against Today consideration of self (Chinese) as an international the pluralistic culture in China? citizen, consumer cultures are different resulting in more Finally, a key element of the strategic plan for China must “open” minds. The competitive atmosphere in business be the recruitment of strong local leadership in China to rather than the cooperative international business execute the plan. The best practice is to initially select a environment is profit oriented; not planned; forcing Chinese great local team and keep it intact from the initial planning enterprises to change their previous business models. stages through the start-up of operations and growth phase. “Most of the employees in TRL, China are local people (out Chinese business organizations are how not so dependent on of 124 employees 120 are Chinese). They are very soft and top down instructions from a central governmental agency. open to change and they adopted Chinese culture in TRL, Organizations are becoming more democratic in decision China,” says Dr.A.K Chattopadayay, Managing Director, making styles resulting in increased accountability. The TRL continued positive attributes of Chinese enterprise operations continue to be a willingness of employees to help TCS, China (out of 1200 employees 1000 are Chinese). each other and the leaders continued feeling of paternal "Our strategy has always been to recruit locally. Wherever responsibility for his employees. we go we ensure we hire local people. It is a key to Accepting Cross Cultural Challenges: leveraging the talent pool that exists in that country," says Atul Takle, Vice-President (Corporate Communications), In this section we will propose some suggestions for TCS. increasing the cross cultural competence regardless of current cultural orientation. These will be focused on Suggestions for Successful Navigation of Cross Cultural personal attributes that may assist individuals to better Challenges:( www.indik.de): navigate cross cultural situations. Adaptation of International Business Orientation To begin a tolerance for ambiguity i.e. the unclear or the unknown is a helpful attribute when faced with a new cross Today there is more awareness in China of cross cultural cultural situation. Individuals are advised to develop a issues and their affect on the economic development and confidence in the face of new situations that are outside their success of Chinese enterprises. The Chinese population is home country experiences. Next openness both of behavior observing the cultural similarities and differences among and cognitive functioning will greatly assist an individual in their indigenous ethnic groups and those of the large number reaching a comfort zone within a foreign culture. A of foreigners coming into the country largely for willingness to be flexible in one’s own behavior and commercial purposes. thinking will lead to more productive cross cultural

experiences. One strong viewpoint of the local Chinese population is that it is the foreigner not the Chinese individual or organization Individuals with a strong sense of self awareness and that needs to be more culturally aware. Most times it is a personal identity will do well in cross cultural situations. foreigner coming into a commercial enterprise in a They will be able to maintain their identity with little management position over Chinese employees. This is a confusion when faced with new cultural customs. In short sighted approach that today through increased conjunction with this, a core of cultural self awareness and education and awareness, is changing. There is a realization recognition of how one’s own culture has influenced their that cultural awareness is a two way communication and value systems, behavior, and problem solving abilities will relationship issue. contribute to success in a foreign culture. Building Communication and Management Systems with Cross Cultural Attributes: Patience with oneself in new situations that may be Today China is an open economic development zone which uncomfortable is a valuable attribute for people exposed to has become intertwined with global business development. cross cultural situations. Interpersonal sensitivity to others Informed Chinese will tend to copy what they view as will also smooth communications and interactions among “successful” business practices regardless of cultural people of different cultures. orientation. There is a realization that Chinese enterprises cannot compete based solely on the attribute of the “lowest Being open to new experiences and appreciating the cost” product/service alternative. Today’s global customers differences will lead to more comfortable integration consider many attributes other than cost when making between two or more cultures. A sense of empathy in purchasing decisions. This has required Chinese enterprises understanding other cultures will also be helpful. Finally a to spend more time observing and understanding their substantial dose of humility will serve anyone is a cross business partners and customers i.e. culture. cultural interaction well. The ability to be modest and have an honest respect for cultures other than one’s own will lead to more satisfying cross cultural relationships.

44 Saikat Gochhait al, Journal of Business Management and Economics, 3 (11), November, 2015, Successful Navigations across Cultures in Global 4 .How would you rate the level of interaction between Companies Operating in China: locals and foreign workers? In this final section we will make some general suggestions a. High: local and foreign people work in the same team on considerations related to cross cultural issues when b. Moderate: local and foreign people work for inter-related attempting to do business in a Chinese environment. (1) teams Hire people that have interest in China and Chinese culture c. Low: local and foreign people work for non-related teams, or industry experts; (2) Hire mirror leaders: one and have rare opportunities to work together international leader/ one local Chinese leader; (3) 5. How is composed the top management of your Understand and be educated about target country culture; (4) subsidiaries in china? Appropriate preparation and training of both expatriate and a. All members are local local employees; (5) Determine the best method of merging b. All members are from the headquarters cultural attributes of the people and organizations. Internal c. Mostly local with some international members company training to communicate the big picture for each d. Mostly international with some local members employee in the company is the first step. Utilize experts for e. A balanced mix of local/international members cross cultural training. 6. Which is the dominant culture atmosphere in your local company? As to hire people that have interest in China and Chinese a. Mother culture-centered culture, there are three ways to hire people. (a) Center of b. Local culture-centered nation policy using only headquarters people who familiar c. Compromise with national policy and power structures; (b) Use local d. Others people or overseas Chinese; (c) Global employees. 7 .To what extent do you think the culture difference between China and mother country have impact on business CONCLUSION in China?

From the narrative of these case studies, we have concluded Significantly Fairly A little Not any that choosing to enter the Chinese market is a big challenge A B C D for many foreign companies such as those Indian 8 .What do you think the relation between the most equity companies, entailing a difficult process of learning, joint ventures and government? overcoming challenges, adjusting to new circumstances and a. Close b. Good c. Moderate d. Not very well accomplishing localization and integration. Rigorous and professional consulting services are invaluable for facing Close Good Moderate Not very well A B C D these intangible obstacles. 9 .Does your company have right to formulate human

resources policy? Since there are great differences between China and other countries such as India in their culture and thinking habits, No Partly Yes except important events To some extent together with the asymmetry on their respective strength and A B C D information, those Indian SMEs have been faced with many 10. If human resources policies are defined by the difficulties and problems when they try to sell their products Headquarters, the information on the local culture/workforce in China. Clearly, relying solely on their own efforts to build is obtained by: (Select all that apply) a presence in China would represent a great challenge for these companies. Tata Group has opened a door for other Consultants Employees Books Other source (Please industries in setting up smooth and successful business in give details:) China. A B C D 11. Which of the following events are commonly promoted Attachment : Questionnaire of Cross Cultural by Chinese subsidiaries to facilitate the integration of Management: employees (Select all that apply): The questionnaire contains 14 scenarios about cross cultural a. Luncheon management. We would like you to select the one or more b. Dinner that most closely correspond to what you would do or what c. Off-site meetings happens in your organization. d. Sports events 1. Are you really familiar with cross culture management? e. Sponsored events a. Much f. Annual party b. A little g. Barbecue c. Never heard h. Other (Please give more details: ______) 2. How many employees who have overseas experiences in 12. What do you think is the most urgent aspect that should your company? be improved in cross cultural communication? a. Speaking local language more fluently mostly About a half A few No b. Understanding and accept the local culture more deeply A B C D c. Behaving more positively in adapting the local culture 3. What is the proportion of middle-top managers who can d. Settling the dispute due to culture difference more communicate proficiently in English in your company? effectively e. Other (Please give more details______) 80-100% 50-80% 30-50% Below 30% A B C D

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13. How was your Company’s experience of doing business [3]. Walker, D.M, Walker, Thomas, Joerg Schmitz (2002). Doing in China, where non-democratic governance set up is Business Internationally: The Guide to Cross-Cultural prevailed? Success. University of California. McGraw-Hill 14. How your Company managed with cross cultural issues [4]. http:/www.tata.com against the pluralistic culture in China? [5]. http:/www.steelworld.com,2009 REFERENCES [6]. http:/www.tataref.com [7]. Li, J.T, (2001) . Managing International Business Ventures [1]. Salacuse, Jeswald W. (1991). Making Global Deal – in China, pp-7. Negotiating in the International Market Place. Boston: Houghton Mifflin. [8]. http:/www.indik.de/aktvelles/papers/CCM_Chinalast_versio n_in_berlin_huang.pdf [2]. Cateora, P.R and Keaveney, S(1987) Marketing: An International Perspective Homewood, II: Richard D.Irwin.