The Nature of Cross-Cultural Negotiation Components and Protocols
Businesses to business (B2B) negotiations between organizational leaders from different cultural backgrounds are often subject to cultural tensions. Most researches on cross-cultural B2B negotiations have acknowledged that managers’ sensitivity to cultural differences and effective cross-cultural communication greatly affects the outcomes of such negotiations (Guang and Trotter 6459; Okoro 134). The most groundbreaking study in the field of cross-cultural negotiations was by Geert Hofstede, who came up with the Hofstede Model (L. Manrai and A. Manrai 72). The Hofstede model suggests that negotiation barriers often result from differences in six cultural attributes between the negotiating parties. The six cultural attributes include power distance, indulgence, long-term orientation, individualism, uncertainty avoidance, and masculinity (Hofstede Insights). Therefore, the six attributes define the various components that influence cross-cultural negotiations.
Additionally, the rapport management theory asserts that the components of cross-cultural negotiations encompass five domains (Zhu 103). First, such negotiations contain an illocutionary domain, which is the members’ prowess in making and responding to offers. Secondly, the negotiations have a discourse domain, which depends on the member’s ability to create interactive connections. Also, such negotiations have a participation domain that involves both parties’ ability to engage in a harmonious and continuous discourse. The fourth component is the stylistic domain, which involves each party’s ability to send and receive the right message using tone. Finally, such negotiations contain nonverbal domains that include the members’ ability to invite rapport through body gestures, such as sitting position.
Most Cross-cultural negotiations follow a three-step protocol of engagement, which includes negotiation context, negotiation process, and negotiation outcome (Wilken et al. 2). Various authors argue that negotiation context has the greatest influence on the possibility of reaching an agreement between the negotiating parties. Negotiation context refers to the elements of each team’s preparation stage that develop rapport between the negotiating parties. Such elements include the negotiator’s goals, team composition, members’ inclination, team’s qualifications (such as cultural moderators), and non-task activities (L. Manrai and A. Manrai 69; Wilken et al. 2). In the negotiation process, the parties employ integrative and distributive negotiation strategies in developing mutually beneficial offers for both parties. Finally, the parties conclude the negotiation by reaching either an agreement or disagreement on the offer based on individual and joint profit considerations.
The Important Points in the Case
The case involves two parties (KE Electronics and JCP) contending over the production and sale of KE’s Plasma Display Products (PDPs). Currently, both parties are in disagreement over the licensing of their patents. JCP argues that the quality of PDPs does not match their patent requirements, while KE argues that JCP is demanding excessive royalties for the patent. Each party is seeking for the restrictions of the opposing party’s products into their domestic market through authority-imposed import barriers. JCP is from Japan, while KE is a South Korean company.
The Difference in Approach between the Korean and Japanese Company
KE and JCP have a culturally conflicting background, which may explain the different approaches taken by each company. According to Hofstede Insights, the main variances between the two company’s cultural backgrounds are in their masculinity and individualism. JCP’s cultural masculinity score is 95, while KE’s is 39 (Hofstede Insights). The difference in masculinity means that JCP’s members are more likely to be motivated by the aspiration of being the best in the PDP industry. Masculinity index rates the markets according to their preference towards being the best at the activity as opposed to enjoying the activity. The main competitive element of products in the Japanese market is likely to be quality superiority. Consequently, JCP may feel that a product that inappropriately dissipates heat would not be competitive in its domestic market. The company may also fear that such products would destroy its public image and market share. However, KE may fail to appreciate the importance of product quality in the market competitiveness. Therefore, JCP may be blocking the importation of KE’s products, which contain JCP’s patent, because of the fear that the products will have adverse effects on the company’s market.
Additionally, Japan has a score of 46 on individualism, while South Korea has a lower individualism index of 18. Individualism refers to the degree of collectivism or independence among the members of a company. South Korea’s individualism index of 18 affirms that Korean companies have a higher sense of collectivism. KE members may believe that the partnership with JCP makes them equal members. Consequently, KE is likely to get motivated by a business relationship where they enjoy equal profits with JCP. Therefore, KE’s members may be aggrieved by JCP’s request for excessive royalties. Conversely, Japan’s individualism score of 46 affirms that JCP is likely to desire higher profit margins. JCP had likely adjusted their royalties without considering the impact on KE’s business. Besides, with a masculinity score of 39 in Korea, KE members are likely to appreciate business ventures where they feel respected. Therefore, KE’s approach is motivated by the financial impact of JCP’s actions.
Identify and Describe the Options to Finding a Solution
Option 1: Agreeing On the Product Quality Requirements and Equal Royalties
The first option to resolving the dispute is discussing the product quality requirement and royalty rights. Members from both companies should sit together to discuss the concerns of each party. KE should find an appropriate manner to explain that they deserve more royalties the offer from JCP. On the other hand, JCP should use integrative and distributive communication strategies to explain its reasons for demanding better quality products. Both parties should include cultural moderators in their mediation, who will bridge the cultural gap. Additionally, both company’s should give offers that create the best outcomes for each party.
Option 2: Buying the Patent and Changing the Product Name
Secondly, JCP may choose to sell the patents to KE, which will require the company to change the name of their product. Members from the two company’s should meet and agree on the terms of purchasing the patent. KE should then change the product’s patent to dissociate it from JCP. Also, KE should agree to refrain from exporting the PDPs to Japanese markets where JCP operates. In return, JCP should request a reduced monetary or equity share reimbursement from KE.
Option 3: Ending the Business Relationship and Retiring All Products
If both parties fail to reach an agreement on the issues of product quality and company royalties, they should retire the products and end their relationship. KE would agree to stop the production of PDP under JCP’s patent. Also, JCP should agree to share the losses from the productions. KE and JCP would then agree on the cost of production that KE had incurred. JCP would then reimburse half of the production cost to KE. Eventually, the two company’s would agree to retire the contentious products.
Advantages and Disadvantages of Each Option
Option 1
If both companies agree on product quality requirements and equal royalties, KE will make more profit from the business partnership while JCP will protect its market image in Japan. However, the agreement would require KE to reproduce or retire the already manufactured PDPs, which would result in higher production costs for KE. Also, the agreement would result in less profit for the JCP company from the product’s royalties.
Option 2
The second option would protect the JCP image in Japanese markets and give most of the product’s royalties to KE. Conversely, JCP would have little or no royalties in the production of KE’s PDPs. Also, KE would have to pay a huge sum to JCP, which could affect the company’s current ratio.
Option 3
If both companies agree to end their business relationship, KE will avoid a potentially non-profitable business venture while JCP would avoid a potentially impaired market image. However, ending the business relationship would result in losses for the two companies because they would have to share the cost of already produced PDPs.
The Option That Will Likely Be Beneficial For Both Companies
The most beneficial option is reaching an agreement on product quality requirements and royalties. The option will ensure that both parties secure a win-win situation in their partnership. Besides, this option retains the possibility that both companies would eventually make a profit from the business venture. Therefore, the negotiating teams should begin by developing common goals for their partnerships, which will help them develop mutually beneficial agreements on product quality and company royalties.
What I Have Learned From the Case
The case has taught me the importance of understanding the cultural background of contentious B2B negotiations. The difference in cultural backgrounds may cause disputes as well as hinder each party from appreciating the perspective of the other. Therefore, both parties must reflect on the reasons resulting in the other party’s concerns. Parties should use effective communication skills to inform others concerning the cultural source of the dispute. Additionally, it is important to include cultural moderators in such cross-cultural negotiations to bridge any communication barriers that may exacerbate the disagreement.
Works Cited
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Hofstede Insights. “Country Comparison: Japan And South Korea”. Hofstede Insights, 2020, https://www.hofstede-insights.com/country-comparison/japan,south-korea/. Accessed 27 Apr 2020.
Manrai, Lalita A., and Ajay K. Manrai. “The Influence Of Culture In International Business Negotiations: A New Conceptual Framework And Managerial Implications”. Journal Of Transnational Management, vol 15, no. 1, 2010, pp. 69-100. Informa UK Limited, doi:10.1080/15475770903584607. Accessed 28 Apr 2020.
Okoro, Ephraim. “Cross-Cultural Etiquette And Communication In Global Business: Toward A Strategic Framework For Managing Corporate Expansion”. International Journal Of Business And Management, vol 7, no. 16, 2012. Canadian Center Of Science And Education, doi:10.5539/ijbm.v7n16p130. Accessed 28 Apr 2020.
Wilken, Robert et al. “The Ambiguous Role Of Cultural Moderators In Intercultural Business Negotiations”. International Business Review, vol 22, no. 4, 2013, pp. 736-753. Elsevier BV, doi:10.1016/j.ibusrev.2012.12.001. Accessed 28 Apr 2020.
Zhu, Yunxia. “Building Intercultural Alliances: A Study Of Moves And Strategies In Initial Business Negotiation Meetings”. Text & Talk – An Interdisciplinary Journal Of Language, Discourse & Communication Studies, vol 31, no. 1, 2011, pp. 101-125. Walter De Gruyter Gmbh, doi:10.1515/text.2011.005. Accessed 28 Apr 2020.