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Intercultural Contract Negotiation


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Procurement managers involved in cross-country negotiations, especially with the Chinese, often find that cultural differences may put the success of contractual arrangements at risk. Yet, understanding these differences may help mitigate any confusion early on. Read more or visit us at

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Intercultural Contract Negotiation

  1. 1. Mitigating the Risks of Cross-Country Business Dealings: A Cultural Perspective By Sandy Chong & Guy Callender In this series, we take a peek into the norms of different cultures and suggest how these norms may affect business practices in the respective cultures. Procurement managers involved in cross- country negotiations often find that cultural differences may put the success of contractual arrangements at risk. Yet, a better understanding of these differences may help one to preempt and mitigate any confusions and misunderstandings early in the business transaction. Part I CHINA Creativity | Passion | Growth
  2. 2. Creativity | Passion | Growth Over the past 20 years, the People’s That said, misunderstandings and Republic of China has emerged as one disagreements may arise from of the most significant economies in intercultural differences, which the world; its GDP growth has been explains why every cross-border more than double that of most Western procurement contract bears high risks. economies. Today, China is the world's largest consumer of natural resources It is therefore crucial that managers such as oil and gas, and Western understand what effects cultural countries like Australia, being differences between buyer and seller competitive exporters of such may have on a business transaction, resources, are well poised to respond especially within a globalised to their consumption needs. marketplace. "I am convinced that much of our difficulty with people in other countries stems from the fact that so little is known about cross-cultural communications." E.T. Hall in The Silent Language, 1959. Mitigating the Risks of Cross-Country Business Dealings 2
  3. 3. Creativity | Passion | Growth The purpose of this article is to help businesses understand the Chinese culture better. To put things into context, selective elements of the Chinese culture are compared against the Australian culture. Certainly, the views provided here do not reflect the Chinese culture fully, but the broad overview will provide procurement managers with meaningful insights about the challenges of cross- cultural contract negotiations. Mitigating the Risks of Cross-Country Business Dealings 3
  4. 4. Creativity | Passion | Growth CHINA Confucian philosophy forms the basis In his 2006 pledge, President Hu Jintao of Chinese culture. The ideals of the reinforced the country's commitment great 6th century BCE thinker to make China "an innovation-oriented permeated throughout China since the society in the 21st century" (said Han Dynasty, amongst other during China's National Science & philosophies like Taosim. Today, Technology Conference in 2006). researchers have noted that many behaviours and values of the Chinese • Nature of human activity are deeply rooted in Confucianism and other ancient Chinese philosophies. (chuan dao qiao tou zhi ran zhi) Adapting to This is a Chinese idiom that literally translates as "the boat will be Environments straightened on its own when it gets under the bridge", i.e., the future will • Relationship with nature work itself out. This school of thought One of the key teachings of ancient is deeply ingrained amongst the Chinese philosophy is that one must be Chinese, who tend to take a longer in harmony with nature, rather than time to reflect, plan and adapt to new strive to have a hold over it. The situations. In most cases, maintaining widespread practice of Feng Shui in the status quo is preferred. China is a case in point. Australians, on the other hand, often demonstrate • Dealing with logic and reality an abiding sense of domination over In business presentations, Chinese nature. tend to begin with an in-depth analysis and explanation before arriving at Chinese people also tend to avoid risks their conclusion in the end. The and uncertainty. This is reflected in reverse is frowned upon as it implies their management styles - the need that there is no room for evaluation for adequate and careful planning. In and open discussion. China, the tried and tested methods are highly valued for they guarantee future success. This phenomenon is Social Integration slowly evolving, nevertheless. With an economy greatly impacted by • Human nature globalisation, Chinese entrepreneurs are embracing more risks in order to survive in the international (ren zhi chu xing ben shan) marketplace. Mitigating the Risks of Cross-Country Business Dealings 4
  5. 5. Creativity | Passion | Growth These were the opening words of an such ideals. ancient Chinese scripture ("The Three Characters"), which reflects the belief Australian society recognizes that human beings are kind by nature. hierarchies as well, but pays limited This is often interpreted in a social respect to senior colleagues. Seniors context, but in a corporate context, are usually addressed by their first Legalism (another ancient school of names, and badges of rank are often thought) overrides Confucianism. I.e., what matter. In fact, there is evidence it is believed that law in itself of negative attitudes toward older possesses a virtue that sets it above workers. any other human principle and thus should be applied without exception. • Collectivism The family and social contexts (i.e., In Australia, however, 95% of all societal roles and relationships) often religions were Christian define an individual, according to denominations, which generally Confucianism. The former Chinese believed that man are inherently Communist leader, Mao Tse Dong, was sinful. a firm champion of the slogan: • Human relationships The Chinese culture is generally (tuan jie jiu shi li liang) socially oriented, which is exhibited by the people’s tendencies to avoid That is, "unity is power". This ideal is punishment, embarrassment, conflict, still embedded in contemporary rejection, ridicule and retaliation. Chinese management philosophy. Correspondingly, harmony, self- discipline, moderation, and teamwork Western cultures like in Australia show are highly-regarded, so as to create a strong support for individualism, positive atmosphere. This is unlike the though. There is usually much focus on general Australian population which is personal progress and performance. more task oriented. The Chinese term (guanxi) is Space, Language & Time widely known amongst those who have business dealings in the Republic; it Studies have shown that the Chinese literally translates as "relationship". To people’s deeply rooted family values, the Chinese, establishing "guanxi" is of and their communal living experiences utmost importance, as it is a way of contribute to their preference for developing a network of contacts, physical closeness. This is in contract from whom favours are expected, and to Australians who, having grown up in to whom favours are done. houses on large pieces of land, are used to large spaces. • Hierarchy In China, silence is often considered an important part of language. The (jiang hai shi lao de la) above saying literally means "silence is gold" – which lends support to the idea Confucius' idea of respect for of "do more, say less". tradition, ancestors and elders best explains the hierarchical emphasis There are generally two types of time found in Chinese societies. The above management styles: Polychronic traditional Chinese saying translates as (multi-tasking) and Monochronic (doing "the old ginger still tastes better". one thing at a time). The Chinese tend Where two people of the same ranks towards the former style, and are also are compared, the older one should strict on keeping with time receive greater respect. This notion commitments and schedules. Similarly, was prevalent previously, but Australians regard time as a resource globalisation and the permeation of to be used effectively. Western culture has started to weaken Mitigating the Risks of Cross-Country Business Dealings 5
  6. 6. Creativity | Passion | Growth Concluding Remarks It is indeed difficult to reflect the full That said, more refinements are This article is an abridged version of scope of the Chinese business culture required in future studies to paint a the following conference paper: in this article. Yet, this information more comprehensive picture of a may be useful for managers involved in culture – whether Chinese or Sandy Chong, Guy Callender, and the contract formation process. The Australian – and show how it is Xiao-Zhou Huang (2007) A Study of broad views presented aims to provide relevant to contract negotiations. Contracting Risk Associated with meaningful insights for managers and Sourcing by Organizations of researchers in the field of global Looking ahead, a comparative cross- Different Cultural Origin: sourcing and contract formation. national study is currently being Perspectives from the People's planned. This will include in-depth Republic of China and Australia. In: There are certainly many areas of interviews and focus groups with 16th Annual International Purchasing uncertainty when negotiating contract senior executives from China and and Supply Education and Research terms between buyers and suppliers Australia who are responsible for Association Conference. Bath, UK. from different cultures, all of which global sourcing and contract create confusion and misunderstanding formation. at the contract formation stage. About the Authors About Us Dr. Sandy Chong Verity Consulting is a boutique international Principal consultant marketing & communication consultancy specializing Verity Consulting Pty Ltd in corporate training, senior executive coaching and business advisory services. For more information about Verity’s global services Dr. Guy Callender and innovative business solutions, contact us at: Foundation professor & chair +61 4 02211373 (Australia) Leadership in Strategic Procurement +65 8337 7178 (Singapore) Curtin Business School Copyright © 2010 Verity Consulting Pty Ltd. All rights reserved. Mitigating the Risks of Cross-Country Business Dealings 6