There’s a misconception that negotiating with Asian businesses is all about understanding local customs – such as formal greetings and how to present your business card. While these skills are undoubtedly essential, what’s often overlooked is how Asian cultural values influence much more than business pleasantries.
“The way we form business relationships, our communication styles, and our methods for handling conflict are all culturally grounded. Failing to understand and prepare for these differences is a major risk, even for the most experienced negotiator.”
The biggest mistake is to assume that the rules of negotiation are universal. Australians tend to underestimate cultural differences between Asian and Australian negotiation styles. Many business deals have either never made it to the negotiating table, or have gone off the rails due to cross-cultural misunderstandings.
Here are four key cultural differences, and mistakes you’ll want to avoid when negotiating with Asian businesses.
Negotiating Mistake #1: Underestimating regulatory differences.
The first rule of negotiation is planning and preparation, yet it’s surprising how many Australian businesses underestimate regulatory differences when planning for overseas expansion. On discussing the challenges of doing business in Asia, Christine Holgate, outgoing Blackmores’ CEO and Managing Director cites regulation as the number one issue. In this interview as part of PwC’s 2016 APEC CEO Survey, Holgate recommends that if you really want to understand regulation in Asia, you should have a strong local team, and a deep respect of understanding of the way governments work.
Aside from due diligence, you’ll also create trust with your overseas trade partners by demonstrating you understand their regulatory environment. Just as you would expect a foreign partner to know and work within the local Australian context if the deal is Australia-based, the reverse is true when doing business internationally.
Negotiating Mistake #2: Expecting to close the deal quickly.
The negotiation process doesn’t really commence until the specifics of a proposal are presented and discussed. That’s generally the Australian thinking towards business negotiations. However, when KONE of Finland first sent a delegation to Japan to negotiate a joint venture with Toshiba Elevator and Building Systems Corporation (TELC), it wasn’t until Day 6 that the specifics of the proposal were first discussed. This is typical of the negotiation procedure in much of Asia. For the Australian delegation expecting to stitch up a deal in a two or three-day mission, this can be an unpleasant surprise. There are two key reasons why this mistake is so common.
Differences in Negotiating: Relationship vs. Contract
The first difference is the extent to which Asians value relationships over contracts. Those first five days in the KONE-Toshiba negotiation were all about the Japanese party establishing whether they could be confident in maintaining a close business relationship with their foreign partners over the next twenty years.
Although relationships are also important from a western perspective, the Australian emphasis moves fairly quickly from relationship-building to securing and then closing the deal. There’s often an unrealistic expectation to close the deal on your first overseas mission. However, from an Asian perspective, there’s a stronger emphasis on establishing a sound and long-term (e.g. 20-year) relationship. In Asia, this is a prerequisite for building trust and for negotiating a fair deal. Appearing too preoccupied with the short-term contract at hand may cause alarm for your Asian partner. They may in turn look for another party whose values align more closely with theirs.
Differences in Negotiating: Duration
The second difference is that from an Asian perspective, negotiation is an ongoing process of building relationships for the benefit of both parties. As long as the relationship is intact, the negotiation process is never over. A contract is just a piece of paper – a set of guiding principles signalling the start of the partnership.
For Australian businesses, these differences mean factoring in significantly longer time-frames for the “formal” negotiation process. It also means paying much more attention to ensuring the relationship is maintained throughout the contract period. By no means should you forgo having a written contract, but solely relying on it for protecting your business interests could be a big mistake.
Negotiating Mistake #3: Being unaware of communication gaps.
Even when negotiations are conducted in English, communication can be tricky at the best of times. It’s even more challenging when dealing with people from diverse cultural backgrounds. Here are three causes of frequent miscommunication in Australia-Asia negotiations.
1. Australia’s directness in communicating
Example: pointing out that a particular issue under negotiation is “not possible”.
Saving face is a fundamental Asian concept, and this often requires more diplomatic or indirect forms of communication. For instance, being told by your Asian counterpart that “it may be possible” could really be code for “that’s never going to happen”.
2. Aussie humour and informality.
Aussie humour often doesn’t translate well. Just imagine how the Tourism Australia campaign “Where The Bloody Hell Are You?” would have translated in Asian markets where formality and respect are the norm. It’s little wonder the campaign was unceremoniously dumped soon after its launch. As for Australia’s comfort with being informal, that’s another cultural nuance that does not sit well with many cultures – especially Asian cultures where respect for hierarchy is taken ever so seriously.
3. Asian preference for listening.
The ability to “be quiet, listen and observe” is integral to being respectful in Asian cultures. It is also required for understanding and contemplating what the other party’s position is on any given issue. After all, building and maintaining relationships is at the core of Asian negotiations, and misreading your partner’s position may cause severe loss of face. However, Australians have a tendency to “jump in” whenever there’s a lapse in the conversation. From an Asian perspective, this could indicate a lack of confidence on your behalf (after all, why would a confident negotiator talk so much?). Or even worse, you might be perceived as being disrespectful for not giving ample opportunity for your Asian counterpart to communicate (remember, silence is a form a communication too).
Negotiating Mistake #4: Heavy self-promotion.
Of course, you need to showcase how your product or service will successfully solve your Asian partner’s business challenge. However, relationships and status are important indicators of whether it is worthwhile for your Asian counterpart to do business with you. Therefore, rather than positioning your company as an individual supplier (or buyer), it may be more beneficial to elevate your status by emphasising that you are part of a larger, successful network. For example, aligning your business successes with strategic Australian government or industry bodies (e.g. Austrade or an industry council) may be looked upon more favourably in the negotiation context. Even better, enlist the help of high ranking authority figures from peak organisations to sing your praises.
These are just several business and negotiation practices that are perfectly acceptable in an Australian context, but could create misunderstandings and mistrust among your Asian trading partners. What’s important is to be mindful that negotiation practices and communication styles you’re familiar with in Australia won’t necessarily work in Asia. Developing cultural competence should be a key part of your risk strategy when negotiating internationally.
This blog post was written by Craig Shim of Alphacrane. Hear more from Craig about exporting and successfully negotiating with Asian businesses at his upcoming workshop on Tuesday 18 July 2017 “Common Mistakes in Negotiating with Asian Businesses”. Register now.