Module 7: Communication, Negotiation, and Decision-Making
1. Communication Process and Barriers
Two very important areas of a global company are communication and negotiation, both
of which can be derailed by cultural nuances.
Luthans and Doh (2018) defined communication as the process of transferring meanings
from the sender to the receiver (p. 210). Communication can be as simple as a quick
conversation by employees in the hallway at the office to the large-scale knowledge
sharing within an organization. When communicating with people from different cultures,
it is important for both parties to understand the meaning of the communication.
Barriers to cultural communication can impede the communication process.
Communication efforts in a company go beyond just personal one-on-one or group
communication. They also focus on the organizational knowledge exchange within a
company. Watch this video to learn more about this aspect of communication:
https://youtu.be/v3VCFuxz0l8
This video explores the importance of organizational knowledge within a company.
There are recognized types of knowledge within an organization:
•
•
•
•
•
What: such as differences in customer preferences;
Why: such as understanding how cultural differences affect cross-cultural
understanding;
How: such as management skills in delegating responsibilities;
When: such as knowledge about the effect of timing; and
Who: such as relationships created over the life of an assignment.
A company should position itself to benefit from that enhanced management knowledge
if it wants to develop a globally experienced management cadre, which is an essential
ingredient for global competitiveness, in particular when there is a high degree of shared
knowledge among the organization’s global managers (Deresky, 2017).
Effective communication must extend to all types of communication to share knowledge
within an organization.
2. Cross Cultural Negotiations
Negotiation is defined by Luthans and Doh (2018) as “the process of bargaining with one
or more parties to arrive at a solution that is acceptable to all” (p. 230). In some cultures,
this can be as simple as negotiation for home goods or clothing at a local market, or as
complex as negotiating for a new company in another country. Regardless of the
commodity, it is an important skill for an international manager to develop, since culture
also affects negotiations.
Demiral (2018) held that the great diversity of the world’s cultures makes it impossible
for international business negotiators, no matter how skilled and experienced they are,
to understand fully all the cultures that they may encounter. In Demiral’s study of
American and Turkish managers working in international firms, he has identified 10
aspects of negotiation tendencies. Look through this chart to learn more about each one.
Negotiation Goal
Building a trust-based relationship
Attitude
Win-lose or win-win
Personal Style
Formal, informal, high-low context
Communication Style
Direct or indirect
Time Sensitivity
Monochronic or polychronic work style
Emotionalism
Emotional factors vs. objective factors
Agreement Form
General/contracts vs. specific contracts
Agreement-Building
Process
Top-down vs. bottom-up decision-making
Team Organization
Consensus vs. individual decision-making
Risk-Taking Behavior
Risk averse vs. risk taking
Watch this video to learn more about different communication strategies in crosscultural negotiations:
https://youtu.be/LC_EXd0uWnA
This video explores how to overcome differences in communication in cross-cultural
negotiations.
Awareness + Preparation = Success!
3. Impact of Conflict on Decision-Making
Conflict is not always a negative thing. It can provide opportunities for managers and
leaders to make appropriate adjustments when needed. It can also allow for the
correction of underlying issues which may be at the root of the conflict. However, conflict
can affect decision-making, whether the conflict exists within a small group, within a
team, or organization-wide. Many factors can influence conflict, and an international
leader must be adept at addressing conflict in a skilled manner.
Click through these tabs to learn more about conflict, why it happens, and how to manage
it:
When Conflict Arises:
It is essential to understand the importance of addressing the issue rather than merely
attempting to correct people. Well-meaning people are often adversely affected by an
undesirable issue. Skilled managers and leaders understand this, and they do what’s
necessary to address the underlying issue. This helps to create an environment that is
more conducive to the success of all parties involved.
Why Conflict Happens:
Conflict can take place for a wide variety of reasons. Often, conflict can be a result of
opposing interests between parties in an organization seeking to work toward goals and
objectives. Conflict between leaders and followers can be devastating to the organization
if there is friction between those who are in authority and the individuals who are
affected. In today’s organizations, there may be disagreements between management
personnel, departments throughout the organization, or even executive leadership who
have different thoughts and ideas regarding process or objectives.
Common Causes of Conflict:
While there may be a wide array of reasons for conflict within an organization, there are
some common occurrences that can take place as a result of different personalities,
competing values, or differing ethical systems. Since conflict is quite common within the
business environment, leaders should understand some of the core causes of employee
conflict. Common causes can include poor communication, differences in personalities
and opinions, allocation of resources, position, and control within the organization.
Effectively Managing Conflict:
Regardless of the cause, skilled leaders can avoid negative consequences by handling
conflict effectively. If conflict is not addressed effectively, it can inhibit the organization
and cause irreparable damage. Therefore, effective resolution strategies are necessary
to keep the organization on task and moving forward. Simply ignoring the conflict is a
sure recipe for negative consequences. Left alone, conflict can cause unnecessary stress,
decrease employee morale, and adversely affect follower satisfaction within the
organization. Such negative consequences can most certainly lead to poor organizational
performance or even the loss of skilled and talented individuals who can bring an
important contribution to the organization. When organizations are unable to arrive at an
agreeable resolution for all parties involved, this can inhibit growth, decrease productivity,
and sometimes create permanent damage. Managers and leaders within the organization
should take the necessary steps to negotiate a resolution as efficiently and quickly as
possible to mitigate potential damage. Doing so may open the door to creating positive
outcomes, regardless of the difficult issues created by the conflict.
Positive Effects of Conflict:
Conflict is not always a bad thing. When handled correctly, it can have a positive effect.
A skilled leader can view conflict as an opportunity for immediate correction, to bring
about positive change. Quickly correcting the underlying cause of conflict can put leaders
in a favorable position to negotiate a viable resolution. This requires effective
communication skills and the ability to connect with conflicting parties to diffuse
escalation. When negotiating a conflict, the leader serves as a type of mediator who
focuses on the best interests of both parties, as well as those of the organization. An
affirmation of the conflicting parties’ concerns and a demonstration of the initiative to
seek resolution can promote a solution.
A leader who is adept at managing conflict promotes the creation of positive outcomes
and opportunities for improvement.
4. The Art of Negotiation Decisions
Katie Shonk (2018) offered three strategies when facilitating conflict resolution:
1. The need for a resolution,
2. The importance of collaboration, and
3. Building a foundation of trust.
Effective leaders who can guide conflicting parties through a collaborative process are in
a better position to create an environment of increased satisfaction and help curb
dysfunctional or counterproductive behavior. The art of negotiation in a difficult situation
may assist the decision-maker in producing a desired result.
Effective conflict and negotiation strategies can take two different approaches:
1. Disruptive bargaining: focused on short-term outcomes; or
2. Integrative bargaining: focused on solidifying long-lasting relationships by moving
forward after a resolution has been reached.
Key decision-makers within the organization should have a proper understanding of the
negotiation process and effective negotiation strategies. Without such understanding,
organizations can be greatly inhibited from future growth. It is important to note that the
overarching goal of the organization is to maintain its momentum in moving forward
toward its objectives, goals, and overall mission. Leaders who understand the art of
successful negotiation are in a better position to assist their organizations in
accomplishing this goal.
Potential conflict is more likely to occur in multinational organizations that transcend
varying cultures, which makes conflict negotiation skills vital. When MNCs are attempting
to serve on a multinational scale, it is important to respect cultural differences, appreciate
boundaries, and show respect to individuals who have varying viewpoints. An
organizational leader who may be instrumental in making decisions across a wide array
of international boundaries will have the opportunity to use negotiation skills to facilitate
both client and organizational constituency.
As modern organizations are faced with competing interests, both locally and abroad, it
is inevitable that conflicts will arise. Whether such conflict is on a small scale, such as a
team or group setting, or on a large scale, such as in a multinational organization,
effective leaders can mitigate potential damage created by conflict and bring about
opportunities for improvement.
Conflict should be viewed as an opportunity to address underlying issues, correct
mistakes, and provide a resolution that will assist the organization in moving forward with
a higher level of efficiency and performance.
References
Demiral, Ö. (2018). A research on the differences between business negotiation styles of
Turkish and American managers. Ege Akademik Bakis, 18(2), 273–288.
Deresky, H. (2017). Managing across borders and cultures text and cases (9th ed.). Pearson
Education, Inc. Hoboken, NJ.
Luthans, F., & Doh, J. P. (2018). International management: Culture, strategy, and
behavior (10th ed.). McGraw-Hill Education, New York, NY.
Shonk, K. (2018). 3 negotiation strategies for conflict resolution. Reach a peaceful end to your
dispute by following these proven negotiation and conflict resolution strategies.
Retrieved from https://www.pon.harvard.edu/daily/dispute-resolution/3-negotiationstrategies-for-conflict-resolution/
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Chapter 7
Cross-Cultural Communication
and Negotiation
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Learning Objectives
• Define the term communication, examine
some examples of verbal communication
styles, and explain the importance of
message interpretation
• Analyze the common downward and upward
communication flows used in international
communication
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Learning Objectives (continued 1)
• Examine the language, perception, culture of
communication and nonverbal barriers to
effective international communications
• Present the steps that can be taken to
overcome international communication
problems
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Learning Objectives (continued 2)
• Develop approaches to international
negotiations that respond to differences in
culture
• Review different negotiating and bargaining
behaviors that may improve negotiations and
outcomes
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World of International Management Netflix's Negotiations
• Faces setbacks due to negotiation and
communication difficulties in:
– China - Setbacks due to a long negotiation process
– Russia - Setbacks because of Netflix’s lack of
communication and negotiation prior to entry
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Communication
• Process of transferring meanings from sender
to receiver
• Advent of the telephone, Internet, and
personal communication devices has
influenced the way people communicate
• Types - Verbal or nonverbal
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Verbal Communication Styles - Context
• Information that surrounds a communication
and helps convey the message
– Plays a key role in explaining many communication
differences
• High-context societies
– Messages are often highly coded and implicit
• Low-context societies
– Messages are often explicit and speaker says
precisely what s/he means
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Table 7.1 - Major Characteristics of Verbal Styles
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Indirect and Direct Styles
• High-context cultures - Messages are implicit
and indirect
– Voice intonation, timing, facial expressions play
important roles in conveying information
• Low-context cultures - People often meet only
to accomplish objectives
– Direct and focused in their communications
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Degrees of Communication Quantity
• Elaborate style - Most popular in high-context
cultures that have a moderate degree of
uncertainty avoidance
– Widely used in Arabic countries
– Involves talking, detailed descriptions, and
repetition
• Exacting style - Focuses on precision and use
of the right amount of words to convey
message
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Degrees of Communication Quantity
(continued)
– More common in low-context, low-uncertaintyavoidance cultures
• Used in England, Germany, and Sweden, etc.
• Succinct style
– More common in high-context cultures with
considerable uncertainty avoidance
– People say few words and allow understatements,
pauses, and silence to convey meaning
– Most common in Asia
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Contextual Styles
• Focus on the speaker and the relationship of
parties
– Associated with high-power-distance, collective,
and high-context cultures
– Speakers choose words that indicate their
status relative to the status of the others
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Personal Styles
• Focus on the speaker and the reduction of
barriers between the parties
– More popular in low-power-distance,
individualistic, and low-context cultures
– Speaker uses first names while addressing others
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Affective Styles
• Characterized by language that requires the
listener to carefully note what is said and to
observe how the message is presented
– Meaning is conveyed nonverbally and requires the
receiver to use intuitive skills to decipher the
message
– Common in collective, high-context cultures
• Middle East, Latin America, and Asia
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Instrumental Styles
• Goal-oriented
• Focuses on the sender who clearly lets the
other party know what s/he wants the other
party to know
– Found in individualistic, low-context cultures
• Switzerland, Denmark, and the United States
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Table 7.2 - Verbal Styles Used
in 10 Select Countries
Source: Anne Marie Francesco and Barry Allen Gold, International Organizational Behavior: Text, Readings, Cases, and
Skills, 1st ed. (Upper Saddle River, NJ: Prentice Hall, 1998). © 1998. Reproduced by permission of Barry Allen Gold.
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Interpretation of Communications
• Effectiveness of communication is determined
by how closely the sender and receiver have
the same meaning for the same message
– If the meaning is different, effective
communication will not take place
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Downward Communication
• Transmission of information from manager to
subordinate
• Purpose - Convey orders or information
– Managers use this channel for instructions and
performance feedback
– Channel facilitates the flow of information to
those who need it for operational purposes
– Sending mixed signals is never helpful in
communication
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Downward Communication (continued)
• Challenges posed by downward
communication in an international context
– Communication is direct and extends beyond
business matters in European countries
– Communication is less direct in Asian countries
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Upward Communication
• Transfer of information from subordinate to
superior
• Purpose - Provide feedback, ask questions, or
obtain assistance from higher-level
management
– Upward communication is not popular outside
Asian countries
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Communication Barriers - Language
• Knowledge of the language used at the
headquarters of an MNC is essential for
personnel placed in a foreign assignment
• Fluency, technical knowledge, and writing
skills
• Misinterpretations often result from unskilled
use of a language
• Inadequate language training
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Cultural Barriers in Language
• Geographic, cultural, and institutional distance
challenge international managers
• Native speakers might deviate from the
standard business communication practices of
other cultures
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Perceptual Barriers
• Perception
– Person’s view of reality
• Advertising messages
– Misunderstandings caused when words are
misinterpreted by others
• View of others
– May be different from what one thinks
– Perceptions influence how individuals see others
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Nonverbal Communication
• Transfer of meaning through means such as
body language and use of physical space
• Types
– Kinesics
– Proxemics
– Chronemics
– Chromatics
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Table 7.7 - Common Forms of
Nonverbal Communication
Source: Adapted from Kendra Cherry, “Types of Non-Verbal Communication,” VeryWell, December 17, 2015, ->https://www.verywell.com/types-of-nonverbal-communication-2795397 -->.
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Kinesics
• Study of communication through body
movement and facial expression
• Areas of concern - Eye contact, posture, and
gestures
• Oculesics: Area of communicating through the
use of eye contact and gaze
• Haptics: Communicating through the use of
bodily contact
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Proxemics
• Study of the way people use physical space to
convey messages
– Intimate distance: Used for very confidential
communications
– Personal distance: Used for talking with family
and close friends
– Social distance: Used to handle most business
transactions
– Public distance: Used when calling across room or
giving a talk to a group
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Figure 7.2 - Personal Space
Categories for Those in the U.S.
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Chronemics
• Way in which time is used in a culture
• Types
– Monochronic time schedule: Things done in linear
fashion
• Used in societies which consider time schedules
important and time to be a controllable factor that
needs to be used wisely
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Chronemics (continued)
– Polychronic time schedule: Several things are
done at the same time
• Place higher value on personal involvement than on
getting things done on time
• Consider personal relationships more important than
time schedules
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Chromatics
Use of color to communicate messages
Knowing the importance and the specifics of
chromatics helps avoid embarrassing
situations
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Achieving Communication
Effectiveness
• Open feedback systems
– Personal - Face-to-face, phone, or e-mail
– Impersonal - Reports, budgets, or plans
• Provide language training
– Non-native speakers of English need to be
provided training to aid them in making face-toface conversations and telephonic conversations
– Written communication is important in achieving
effectiveness
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Achieving Communication
Effectiveness (continued)
• Provide cultural training
– At least one party has to understand the other’s
culture
• Increase flexibility and cooperation
– Improves effectiveness in communication and
understanding and cooperation
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Negotiation
• Process of bargaining with one or more
parties to arrive at a solution that is
acceptable to all
• Follows assessing political environments
• Used in creating joint ventures with local firms
– Once a firm starts operating, additional areas of
negotiation are included
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Types of Negotiations
• Distributive negotiation: Occurs when two
parties with opposing goals compete over a
set value
• Integrative negotiation: Involves cooperation
between two groups to integrate interests,
create value, and invest in an agreement
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Table 7.8 - Negotiating Types and
Characteristics
Source: Adapted from Harvard Business Essentials: Negotiation (Boston: Harvard Business School Press, 2003), pp. 2–6.
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Negotiation Process
• Planning
– Involves identifying objectives, exploring options
to attain objectives, and finding areas of common
ground between parties
• Interpersonal relationship building
– Getting to know people on the other side
• Exchanging task-related information
– Parties setting forth its position on critical issues
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Negotiation Process (continued)
• Persuasion
– Success of a negotiation depends on:
•
•
•
•
Understanding each parties’ position
Identifying areas of similarity and difference
Creating new options
Working toward a solution
• Agreement
– Granting of concessions and hammering out of a
final agreement
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Understanding Cultural Differences
• Counterpart’s home culture should not be
identified too quickly
• Western bias toward doing should be
approached with caution
• Tendency to formulate simple, consistent, and
stable images should be counteracted
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Understanding Cultural Differences
(continued)
• Significance of all aspects of the culture
should not be assumed to be equal
• Differences might exist between the norms for
interactions involving outsiders and between
the compatriots
• Familiarity with counterpart's culture should
not be overestimated
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Negotiation Tactics
• Location
– Businesses choose a neutral site to avoid gaining
advantage of a location and to finish negotiations
soon due to the cost of staying at site
• Time limits
– Important negotiation tactic when one party is
under a time constraint
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Negotiation Tactics (continued)
• Buyer-seller relationship
– Different for certain countries
• Americans believe in trading favors
• Japanese believe they should get most out of a
purchase
• Brazilians are deceptive and self-interested
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Negotiation Tactics - Five General
Principles
Separate the people from the problem
• Understand other’s position, avoid blame, stay positive, and recognize emotions
Focus on interests over positions
• Gives one insight into the motivation behind why a particular position was chosen
Generate a variety of options before settling on an agreement
• Includes brainstorming and shifting thought focus about the problems
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Negotiation Tactics - Five General
Principles (continued)
Insist that the agreement be based on objective criteria
• Emphasize the communal nature of the process
Stand ground
• Neither side should agree to terms that will leave it worse off than its
best alternative to a negotiated agreement, or BATNA
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Bargaining Behaviors
• Verbal and nonverbal
– Verbal behaviors are important as they improve
the final outcome and are critical to the success of
a negotiation
• Use of extreme behaviors
– Some begin with an extreme offer or request,
while some begin with an initial initial position
that is close to the one they are seeking
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Bargaining Behaviors (continued)
• Promises, threats, and other behaviors
– Influenced by culture, and is designed to influence
the other party
• Nonverbal behaviors
– Silent language (silent period, facial gazing,
touching, and conversational overlaps)
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Be the International Management
Consultant - China
• If you are working as a consultant for Coca
Cola, how does the dismissal of the deal by
the Chinese government affect your continued
investment in the country?
• What more could private business, like Coca
Cola, do to convince the government that new
enterprise can bring positive economic
development to the country?
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Be the International Management
Consultant - China (continued)
• Is the prospect of China’s sheer volume of
potential customers too good to pass up?
– Do the actions of the government and the
country’s recent stock market woes indicate a
signal that investment should be reconsidered?
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forwarded, distributed, or posted on a website, in whole or part.
Review and Discuss
• How does explicit communication differ from
implicit communication? Which is one culture
that makes wide use of explicit
communication? Implicit communication?
Describe how one would go about conveying
the following message in each of the two
cultures you identified: “You are trying very
hard, but you are still making too many
mistakes”
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Review and Discuss (continued 1)
• One of the major reasons that foreign
expatriates have difficulty doing business in
the United States is that they do not
understand American slang
– A business executive recently gave the authors the
following three examples of statements that had
no direct meaning for her because she was
unfamiliar with slang
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forwarded, distributed, or posted on a website, in whole or part.
Review and Discuss (continued 2)
– “He was laughing like hell”
– “Don’t worry. It’s a piece of cake”
– “Let’s throw these ideas up against the wall and
see if any of them stick”
– Why did the foreign expat have trouble
understanding these statements, and what could
be said instead?
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forwarded, distributed, or posted on a website, in whole or part.
Review and Discuss (continued 3)
• Yamamoto Iron & Steel is considering setting
up a minimill outside Atlanta, Georgia
– At present, the company is planning to send a
group of executives to the area to talk with local
and state officials regarding this plant
• In what way might misperception be a barrier to
effective communication between the representatives
for both sides? Identify and discuss two examples
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forwarded, distributed, or posted on a website, in whole or part.
Review and Discuss (continued 4)
• Diaz Brothers is a winery in Barcelona
– The company would like to expand operations to
the United States and begin distributing its
products in the Chicago area
• If things work out well, the company then will expand
to both coasts. In its business dealings in the Midwest,
how might culture prove to be a communication barrier
for the company’s representatives from Barcelona?
Identify and discuss two examples
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forwarded, distributed, or posted on a website, in whole or part.
Review and Discuss (continued 5)
• Why is nonverbal communication a barrier to
effective communication? Would this barrier
be greater for Yamamoto Iron & Steel
(question 3) or Diaz Brothers (question 4)?
Defend your answer
• For U.S. companies going abroad for the first
time, which form of nonverbal communication
barrier would be the greatest, kinesics or
proxemics? Why? Defend your answer
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Review and Discuss (continued 6)
• If a company new to the international arena
was negotiating an agreement with a
potential partner in an overseas country, what
basic steps should it be prepared to
implement? Identify and describe them
• Which elements of the negotiation process
should be done with only your group? Which
events should take place with all sides
present? Why?
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forwarded, distributed, or posted on a website, in whole or part.
Review and Discuss (continued 7)
• An American manager is trying to close a deal
with a Brazilian manager, but has not heard
back from him for quite some time
– The American is getting very nervous that if he
waits too long, he is going to miss out on any
backup options lost while waiting for the Brazilian
• What should the American do? How can the American
tell it is time to drop the deal? Give some signs that
suggest negotiations will go no further
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forwarded, distributed, or posted on a website, in whole or part.
Review and Discuss (continued 8)
• Wilsten Inc. has been approached by a
Japanese firm that wants exclusive production
and selling rights for one of Wilsten’s new
high-tech products
– What does Wilsten need to know about Japanese
bargaining behaviors to strike the best possible
deal with this company? Identify and describe five
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Discussion ( 1 )
The decade-long partnership turned sour early in 2007, when Danone publicly accused
Wahaha of illegally selling Wahaha-branded products by using distributors outside of
the ones selected by their joint ventures. The dispute became even more dramatic
when Danone filed a lawsuit in Los Angeles against two companies linked to Wahaha
founder Zong Qinghou's wife and daughter, claiming that these companies had cheated
Danone to the tune of $100 million in lost business. Danone's complaints accused
against Hangzhou Wahaha of breaching the joint-venture contract, which, it said,
required the Chinese side to supply its well-known trademark, while the French partner
put up capital, expertise and technology. Danone also filed for arbitration in Hangzhou
and at a branch of the Stockholm Chamber of Commerce to resolve the trademark
dispute. At the end of this long-running battle, it seems, Danone was the company that
had to give up some ground (Zhang,Van Deusen,2010).
According to Bu (2011) both parties Danone and Wahaha had their own
interests. Danone had the need to develop a growth strategy that would satisfy their
stakeholders because the domestic markets were already saturated. They chose as
part of their growth strategy to use IJVs to enter fast-growing emerging markets. In
addition Danone had the need in 1996 to work with a partner for legal reasons. Wahaha
on the other hand was in need for cash for growth. They were interested in the transfer
of technology and processes from Danone. For example, they had the need to receive
timely technical support for product quality development, which was a very important
issue on the Chinese market. To be competitive and distinguish from other suppliers
implementing measures to ensure and improve quality was a must for them.
In Chinese culture the trust towards the family is much higher compared to the
western culture and therefore for Chinese businesses it is a logical consequence that
family members are deeply involved in the business. Although Zong had breached the
JV agreement with the setup of the non- joint venture subsidiaries the action against his
wife and his daughter was most likely perceived by him as a personal attack. In case of
the Wahaha dispute it seems that this differences in business culture perhaps led to a
misunderstanding in that Wahaha felt outsmarted by Danone. In that case it was even
more tricky since Danane didn’t have the 51% share from the beginning but only a
25,5% share. Only when they bought the 25,5% share from Bai Fuqin did they have the
full control in their opinion. Wahaha did never have the chance to become the major
shareholder since they haven’t been given the chance to bid for the shares from Bai
Fuqin (Munro-Smith.2008)
As a leader when making decisions on daily bases there must be some risks or
uncertainties, whether by making them individually or by a group, making that decision
harder to select the best appropriate option (Sevastyanova, Stegniy,. 2015). The whole
decision making process seems to be easy and simple to apply, but that is not the case
when it comes to clarifying the selection criteria and include all the information that has
led to that simple decision, that is why the leader needs to be up to date with the
decision making process owning an awareness of decision regarding an important role
to follow and make sure that organizational activity is running smoothly aligning with the
desired organizational goals and objectives in order to handle the conflicts when it
arises.
References:
Bu, Q. (2011). Danone v Wahaha: Who Laughs Last?. Business Law Review, 32(6).
Munro-Smith, N. (2008). Danone and Wahaha in China The Interaction of Strategy,
Cultural Differences and Organization Design in International Joint Venture Conflict.
Proceedings of the Northeast Business & Economics Association.
Sevastyanova, I., & Stegniy, V. (2015). Managerial decision making oriented towards
achieving results. Asian Social Science, 11(7), 371-375.
Zhang, P., & Van Deusen, C. (2010). French Danone and Chinese Wahaha: Yet
another example of an unsuccessful international joint venture. International Business:
Research, Teaching and Practice, 4(1), 82-100.
Discussion ( 2 )
In the late 1980s, Danone spread to the Chinese market. Nevertheless, due to lack
of market knowledge, Danone faced challenges in China. In 2000, Danone bought
Robust, the Chinese beverage industry's then-second largest business. In 1999, Robust's
revenue had reached RMB2 million. Danone fired the original management after the
acquisition and directly supervised Robust. Robust failed because his new management
was not acquainted with the Chinese drink market. It almost disappeared from the market
its tea and milk products. So, the company lost RMB150 million between 2005 and 2006.
In 1996, in a joint venture, Danone Group, Bai Fu Qin and Wahaha Group joined
forces. Danone acquired Bai Fu Qin's interests and with 51 percent of the shares gained
legal control of the joint venture. While, members of the JV have the right to use the
trademark of Wahaha. Due to Danone's lack of knowledge of the Chinese market, the
company can make better market decisions through the joint venture and established
China's largest beverage company.
The issue is that wahaha used its trademark to open branches in other countries,
but Danone claims that the Wahaha trademark belongs to the joint venture and that
Wahaha is not permitted to use the trademark for its own purposes. The difference in
understanding the role in the joint venture between Danone and Wahaha is that Danone
claims he owns 51 percent of the shares so he has the right to control the decisions of
Wahaha. Nevertheless, Wahaha claims that under its own trademark it can open new
businesses and does not need the permission of any other corporation. Therefore,
Wahaha's national culture has not grasped what joint venture means. So it influenced
Danone and Wahaha's organizational culture.
Indeed, Danone filed over 30 lawsuits against Wahaha in other countries for
breaching the agreement and unlawfully using the Wahaha logo of the JV. Most of those
cases, though, are in favor of Wahaha. Therefore, in 2009, Danone agreed to end the two
companies ' cooperative relationship. Once entering the Chinese market, the main
lessons from this case are Danone's need to consider business culture and industry. It is
a good choice to form a joint venture with a Chinese company to make better consumer
and business decisions. But it's not easy to get along well with the Chinese company as
there is always a distance between understandings.
Furthermore, the recommendation was not pursued by Danone. Danone expected
that 51 percent of ownership would be able to gain effective control, and on a clear and
certain legal basis it did not form a JV. It also anticipated that, instead of using
understanding and cooperative relationships, it would use technology to claim or gain
control in a JV. And on a day-to-day management basis, their agreement was not
established.
References
Bu, Q. (2011). Danone v Wahaha: Who Laughs Last?. Business Law Review, 32(6).
Munro-Smith, N. (2008). Danone and Wahaha in China The Interaction of Strategy,
Cultural Differences and Organization Design in International Joint Venture
Conflict. Proceedings of the Northeast Business & Economics Association.
Zhang, P., & Van Deusen, C. (2010). French Danone and Chinese Wahaha: Yet
another example of an unsuccessful international joint venture. International Business:
Research, Teaching and Practice, 4(1), 82-100.
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