Finance free essay: Cross cultural transactions
Joint ventures are generally proposed to enable firms to enjoy the opportunity of exploiting the capacity of their partner which is not currently possible while also extending similar privilege to the partner as a strategic advantage in operations. Negotiations of a similar transaction must be conducted on the fundamental provisions of successful international business (Keegan and Schlegelmilch 2001, p43). In this discourse, several aspects of such negotiations involving joint venture proposal between an American (Electrowide) and a Chinese (Motosuzhou) firm are discussed.
Cultural Differences and Impact on Negotiations
The main attributes of the Chinese culture that appear to be different from the US culture are associated with the role of the society and government in making socioeconomic and political decisions as distinct entities. Whereas the Chinese space for individuals to make decisions appear to experience some direct influence from the government, the US has a liberal space for individuals to decide on many issues without a direct influence from the government. Politics around the social scene affects the cultural definition between the two countries with the Chinese culture being closely monitored and dictated upon by the strong political forces. In terms of the comparison of the political environment which directly affects business in any country, the US democratic model is perhaps one of the most liberalized in the world making it one of the leaders in the most favored nation (MFN) in economic terms. In contrast, the Chinese political setting has been a socialist model that appears to be on the opposite end when compared to democracy, which depicts the setting as intolerant of democratic values and principles. Bearing in mind that the global economy runs on a capitalist model that thrives well in democratic political establishments, China has had to reorganize its economic system in terms of liberal scale to allow more foreign investment. However, a huge gap still exists in the Chinese culture to make it as competitive as other global players of overseas investments (Bucknail 2002, p102).
As an illustration of the close political ties that the Chinese culture has to an extent that business is largely dictated by the political system, every city has a government official assigned to the developments of every business establishment. Entering the Chinese market to set up shop is likely to be subjected to tight government bureaucracies than in the US. The government cronies found all over china may pose the greatest challenge to setting out investment due to their political inclination thereby affecting foreign investment. In addition, the highly patriarchal cultural system that is well established in the political arena hinders the role of women in Chinese economy, which may affect foreign investors.
In terms of the impact of the cultural differences encountered in the joint venture negotiations, it is clear that the economic decisions options that the Motosuzhou management has are defined by the high political influence right from the organization structure. Considerations of the political influence that the Electrowide joint venture may have on the Chinese foreign policy of isolation based on its government structure come into the equation. Despite the apparent allowance that the government has accorded Motosuzhou along side other 1000 companies in terms of liberal decision making, the role of Minister of Finance in the internal structure contradicts this assumption. Socialist model of the Chinese culture that emphasizes on understanding social attributes of the negotiation panel forwarded by Electrowide also consumed a lot of time that would otherwise have made progress in terms of the Americans’ estimation. Gender discrimination of female negotiator in the Electrowide team was not welcome from the Americans causing more frustrations. Deep cultural and social orientation of the Chinese negotiators complicated the life of the Electrowide team in terms of the apparent differences that the two settings have.
Evaluation of Joint Venture Selection Criteria
Joint venture negotiations must contemplate the selection criteria of a partner for success in such negotiations, which were heavily compromised in the Electrowide and Motosuzhou case. In terms of this failure, it is possible to single out such compromising conditions from both partners which include;
However, the negotiations between Electrowide and Motosuzhou were not clear of what each partner was willing to obtain and offer as part of the joint venture. During the negotiations, there were several assumptions that cut across communication and cultural differences that initially appeared to be compatible just for the actual exchange to be absent. As negotiation time passed, it appeared that the Chinese team acted casually and did not utilize the time as the American team assumed in assessing the compatibility of the strategies that would facilitate a successful entry into the joint venture. Several assumptions of the part of the venture that each firm would execute formed the most important part of the negotiation while it was not the exact position of the intended entry strategies for both parties. Unfortunately, time had lapsed for such important strategy compatibility detail to be mutually agreed upon and the emergence of differences came a little too late when the American team had come to the end of their stay in China. Apparently, the mutual agreement on the entry strategy focuses on the compatibility of the opportunity offers being exchanged by the two parties which was not possible to discern due to cultural issues.
Secondly, compatible operating policies which define success in joint ventures were compromised in many respects as depicted by the Electrowide and Motosuzhou case. Firstly, the accounting policies that the two firms applied in their operations were very different for instance in the treatment of manufacturing costs and their allocation in the books. For better performance of the joint venture, it is important that the internal operations of the firms are not very different for purposes of harmonizing the joint operations. As it also appeared in the disparities, Motosuzhou did not follow a strict compliance with audit rules which is a fundamental requirement in American corporate operations.
Thirdly, communication is a basic necessity in the negotiations of a joint venture as well as during the implementation of the agreement. Apparently, it was not possible for Electrowide and Motosuzhou to engage in useful discussions as a communication barrier was created by the cultural assumptions from either side. As an illustration, the American corporate culture was approached in carrying out negotiations which affected the tolerance level from the Americans. Fourthly, successful joint venture contracts must be devoid of trust issues. As a general rule, complete advantage of the opportunity availed by the joint venture platform can only be possible of the players trust that the other party means well for the business. Suspicion and mistrust at the beginning and during the negotiations do not present the right setting for a suitable agreement (Alon 2003, p77). As observed in the Electrowide and Motosuzhou negotiations, there were several indications that the parties were suspicious of each other, probably due to lack of understanding of the cultural setting from which both were coming from.
Appropriateness and Competence of Electrowide Negotiation Team
As part of staffing for international assignments, particularly important discussions such as regarding joint ventures, the team must be competent enough to handle the challenges of such an assignment. The company did not make the appropriate choice of representatives, although it did try to balance a few considerations which appeared inadequate for the Chinese assignment. At a glance, the Electrowide negotiation team for the joint venture was professionally composed and capable of arriving at the most suitable deal for the firm. However, negotiations for cross cultural deals require better preparations in understanding the environment in which the negotiations are to be conducted (Legacee n.d, para.4).
In terms of professional strengths, Tom, the team leader had deep understanding of technicalities in management and a rich experience at managerial level. As a weakness, little encounter with international transactions stretching to just one symposium is likely to have compromised his ability to lead the negotiations team. Further weakness is the form of international assignment that the symposium exposed the leader to overseas transactions. The assignment was not only a simple representation duty in comparison to the joint venture input needed but also the nature of cultural settings that the two assignments had were different. Canadian setting in terms of business duties is by far similar to American setting while the Chinese setting presents a material difference likely to have affected the competence of the group leader. In terms of his personal attributes, the group leader appears to be impatient and judgmental which could have contributed to the hasty handling of matters always based on the wrong assumptions.
Barb Morgan as a team member was perhaps presented with the wrong assignment before the Chinese delegation, bearing in mind that the patriarchal system would overlook at any female delegate from the beginning. As qualified as she was, it was not possible for her to make a mark at the negotiations table as she always felt intimidated by the male domination of the Chinese deep cultural setting (Kwintessential n.d, para.7). As a weakness to her preparedness, she has personal issues regarding her divorce which could have affected her judgment and concentration in the proceedings. Alternatively, Mark Porters’ position in the company’s ranks would have enabled him to deliver better results had he been exposed to overseas assignments. In terms of corporate experience, business analyst roles must have been his biggest asset in analyzing the deal and advice the team on several cases. However, he appeared to be disoriented and disinterested from attending the negotiations and his withdrawn character must have affected his team’s competence. Towards the end of the team’s duties, he contracted a flu which further disoriented him in the assignment.
Alternative Strategies and Future Considerations
Firstly, perhaps the most important consideration that Electrowide management team must have addressed in the generation of a negotiation strategy to accompany the set out plan was the cross cultural setting of the assignment. Despite the fact that the Chinese firms are continually embracing foreign investment and allowing liberalism in the operation of several firms, the impact of political forces on foreign investment must have been addressed (Mungenast 2007, p123). Understanding that the finance minister was indirectly involved in the decision taken by Motosuzhou negotiation team would have forced the team to consider what the other parties to the deal would have liked.
Secondly, communication implicates the outcome of business negotiations. Understanding a communication inside a culture extends beyond understanding the language of a people as ethnographic studies in business reveal. As an illustration, socializing issues of the business partners must be understood to avoid sending the wrong signals of distrust and suspicion. Whereas communication would be eased by the presence of an interpreter in the negotiations, there are certain aspects of non-verbal communication that play a defining role in different cultures. It would perhaps been important for the Electrowide team to consider their team being equipped with deeper Chinese cultural setting to avoid feelings of time wasting and excessive philanthropy (Sims 2002, p108).
Thirdly, composition of the negotiation team must address the tasks ahead in terms of joint ventures within an overseas context. Whereas it may not be easy to understand every culture on earth, it may be simply done by dedicating sufficient research to the negotiation team to an extent of dispatching a team ahead of the main discussion for purposes of familiarity (Jackson and Mathis 2006, p600). It would have been found out that sending a lady in the discussion table was not acceptable before the Chinese and probably contribute to faster mutual consensus. Barb would have played a better role if she worked behind the scenes as an adviser without necessarily attending the discussions which would perhaps not affect her input.
Cross cultural negotiations of important transactions such as joint ventures are subject to several setting factors which determine the outcomes. As a general, future international negotiations in which Electrowide will engage must be based on an understanding of the socioeconomic and political setting of the host country (Sims 2002, p109). Research on the implicating factors such as culture and politics will be useful in defining the composition of the staff as well as designing the timetable of the assignment. A flexible timetable for the negotiations would involve an allowance of delays such as those witnessed in the case, if anticipated in advance. Staffing needs of negotiation team must consider outsourcing services such as those of home firms operating in the new market for important detail on the proceedings.
Alon, I. (2003) Chinese Culture, Organization Behavior and International; Business Management, Westport, CT: Praeger Publishers
Bucknail, K. (2002) Chinese Business Etiquette and Culture, Raleigh, NC: Boson Books
Jackson J. H. & Mathis R. L (2006) Human Resource Management, Mason, Oh: Thomson South Western Publishers.
Keegan, J. W. & Schlegelmilch B. B. (2001) Global Marketing Management: a European Perspective, Eaglewood Cliffs, NJ: Financial Times Prentice Hall.
Mungenast, H. (2007) Chinese Business Culture, Norderstedt, Germany: GRIN Verlag
Sims R., (2002) Organizational Success through Effective Human Resources Management, Westport, CT: Quorum Books
Kwintessential (n.d) Doing Business in China [Online] Available from <http://www.kwintessential.co.uk/etiquette/doing-business-china.html> [Accessed 18 January 2012]
Legacee (n.d) The Global Leader: Understanding Chinese Business Culture and Business Practices, [Online] Available from <http://www.legacee.com/Culture/CultureOverview.html> [Accessed 18 January 2012]
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