Overcoming cultural barriers is just as important as details of deals

In 1998, the partnership between Chrysler and Daimler-Benz, based on the condition it be a “merger of equals” was doomed from the outset. After a series of roller-coaster years, Chrysler posted a US$1.5 billion loss in 2006.

By 2009, Daimler had completely divested itself of Chrysler, which briefly sought bankruptcy protection before being bailed out by the US government.

Cultural differences were not the main reason the Daimler-Chrysler merger proved disastrous. Differing goals and reputations, decisions Chrysler made that predated the merger, and cost savings that failed to materialize played a larger role.

But the culture clash unquestionably got the partnership off to a rocky start. Different norms and styles made the transition difficult. As each side adjusted to the other’s practices, high-level employees were often distracted from their goal of building a strong, unified brand.

According to analyst and author Peter Schneider, Daimler and Chrysler
 employees were slow to adjust to each other’s different business practices and customs during and after the merger. The Germans were more hierarchical, formal, and methodical than the more casual Americans. Daimler employees showed up at meetings with thick folders and kept detailed minutes; Chrysler employees preferred not to have an agenda and were satisfied with summary memos.

Stereotypes promote competition

Taking your counterpart’s perspective can 
help you negotiate higher-quality agreements. Is cultural perspective taking — considering the typical approach to negotiation your counterpart might take based on his/her culture — just as effective as looking at details of the negotiation from your counterpart's point of view?

By highlighting cultural stereotypes rather than individual similarities, cultural perspective taking may prompt negotiators to compete to claim value at the expense of creating new sources of value, according to researchers.

The message? Go ahead and study your counterpart’s cultural norms so you’re not surprised by unfamiliar practices — but spend even more time analyzing the intricacies of the negotiation at hand.

As Daimler and Chrysler employees discovered, people sometimes conform to stereotypes — except when they don’t. An over-reliance on stereotypes will keep you from noticing important nuances in the other side’s negotiating strategy. In addition, the fear of embodying negative stereotypes about your own culture could lead you to act unnaturally or even unethically, as may have been the case for Daimler-Benz CEO Jurgen Schrempp.

Fostering cultural intelligence

In a Harvard Business Review article, P. Christopher Earley and Elaine Mosakowski describe the value of improving your cultural intelligence, or the ability to make sense of unfamiliar contexts and adapt to them. Some people are naturally skilled at determining whether a person’s behavior is unique to him or determined by his culture. For others, this process requires more effort.

Take Earley and Mosakowski’s story of Peter, a Los Angeles-based sales manager for Eli Lilly pharmaceuticals who was transferred to the company’s Indianapolis headquarters. In LA, Peter’s confrontational, high-pressure style was the norm and effectively motivated his sales staff. In Indianapolis, his
 new team disliked his hard-charging ways and avoided the challenges he set for them.

Think about the snap judgments you made about people you’ve since gotten to know better. Chances are, you’ll see now that your initial judgments relied heavily on stereotypes that proved to be inaccurate. Remember this the next time you’re tempted to pigeonhole a fellow negotiator.

Building a long-term agreement

As compared with the 1998 merger between Daimler and Chrysler, the partnership negotiated the same year between French automaker Renault 
and Japan’s Nissan has proven much more durable. In large part, this has been because of an “almost miraculous complementary relationship.” Renault’s focus on product innovation fit Nissan’s desire to shed its reputation for boring cars; Nissan wanted to make headway in Europe, while Renault wanted to expand into Asia.

In addition, the methodical, slow approach the companies took to their partnership helped lay a foundation for trust and creativity that made cross-cultural differences less of an obstacle than they were in the Daimler-Chrysler merger.

In contrast with Schrempp’s willingness to lie to snare a Chrysler deal, Renault and Nissan paid keen attention to each other’s interests and to building a lasting partnership. Rather than trying to conform to typical notions of a merger or an acquisition, they developed a new type of partnership that drew from each other’s cultures rather than attempting to blend them.

Here are four tips for durable cross-cultural partnerships:

1. Earn trust. Telling the other side that you respect their culture may secure you a contract. But to build a promising relationship, you’ll need to back up your words with respectful actions after the contract is signed.

2. Respect differences. When it comes to business partnerships, merging distinct cultures can be a confusing, lengthy process. A better approach may be to maintain your unique identities and borrow from the best of both.

3. Expect to be surprised. Because national culture is just one facet of our identities, try to view negotiating counterparts as unique individuals rather than cultural ambassadors.

4. Prepare to adapt. Don’t assume that the business strategies you’ve cultivated on your home turf will work in a new culture. Arrive ready to listen and adapt your style.

The ‘endowment effect’

Simply owning an object causes us to value it more than if we did not own it. This phenomenon, known as the endowment effect, can create trouble for sellers
 in negotiations. We’re all familiar with stories of home sellers setting unrealistic asking prices and then watching their homes sit on the market for months or years.

Researchers tied this finding to the Western tendency to place special value on objects related to oneself. Western cultures tend to value independence and the self-more highly than Eastern cultures do. By contrast, Eastern cultures tend to place more value on interdependence and self-criticism.

William Maddux, of France’s INSEAD business school and his team theorize that a lower susceptibility to the endowment effect could explain why East Asian consumers tend to be faster to adopt new technologies (and abandon old ones) than Western consumers.

Overall, the study provides evidence that cultural differences affect the strength of the biases we bring to our negotiations, including the endowment effect.

Bridging the cultural divide

Differences in culture complicate business negotiations and relationships in many ways. First, they can create communication problems. For example, if in response to one of your proposals your Japanese supplier says “that’s difficult,” you might erroneously assume that the door is still open for further discussion. In fact, your supplier, coming from a culture that avoids confrontation, may have been giving a flat no.

Second, cultural differences also make it difficult to understand each other’s behavior. Americans may view the hiring of relatives as dubious nepotism, but Lebanese counterparts may consider the practice to be necessary to securing trustworthy, loyal employees.

Third, cultural considerations influence the form and substance of the deal. For example, when McDonald’s first franchised its operations in Thailand, it insisted on strict adherence to its traditional American menu. Later, under pressure from its Thai franchisee, it permitted the sale of noodles, a dish traditionally served on auspicious occasions. Sales increased as a result.

Finally, culture can influence the way people behave and interact at the bargaining table. In some countries, such as Spain, business negotiators’ primary goal may be to achieve a signed contract, whereas negotiators in other cultures, including India, may be more focused on establishing an effective long-term relationship.

Here are a few simple rules for coping with cultural differences in international negotiations and transactions:

1. Do your homework about your supplier’s culture. Through reading and conversations with those who know the country concerned, you can learn a lot. Don’t overlook your suppliers as sources of information about their culture. They will usually welcome your interest.

2. Show respect for cultural differences. Inexperienced negotiators tend to belittle unfamiliar cultural practices. It is far better to seek to understand the value system at work and to construct a problem-solving conversation about any difficulties that unfamiliar customs pose.

3. Be aware of how others may perceive your culture. You are as influenced by your culture as your counterpart is by his. Try to see how your behavior, attitudes, norms, and values appear to your foreign supplier.

4. Find ways to bridge the culture gap. Cultural differences create a divide between you and your suppliers. Constantly search for ways to bridge that gap. A first step in bridge-building requires you and your suppliers to find something in common, such as a shared experience, interest, or goal.

Learn from differences

As part of your preparation
 for negotiations, research potential cultural differences that could arise.

During negotiations, consider whether a flare-up could be rooted in a threat to dignity, face or honor.

Remember that your counterpart is a unique individual, not a cultural ambassador.