government had plenty of foreign capital; what it needed was a means of upgrading its inefficient, construction manufacturing industry, while maintaining jobs and ensuring a steady supply of construction materials. The government also knew that transferring state-owned entities to local interests would be viewed more favorably from a public relations perspective than would a direct sale to a foreign company.
Lafarge's strategic gaffe involved the choice of whom to send to Yunnan to negoti¬ate. Lafarge initially sent two fairly junior members of their investment team to talk to the heads of the two Yunnan cement companies. Although Lafarge may have thought that they were simply engaging in some due diligence research—were these the right companies to buy—the Chinese were miffed that a potential business partner would send analysts to talk to business directors. According to Sanjeev Krishna (investment of-ficer for emerging markets at Health Sciences, International Finance Corporation— World Bank) the due diligence process in China is far different than in the West. In China, he advises, one needs to develop a solid relationship before embarking on the due diligence process. In the West typically a lot of due diligence is conducted prior to an entity even deciding to develop a relationship.
The end of this story is that Lafarge is in Yunnan province and technical know-how is being transferred to the Chinese cement companies, but the ultimate deal was not quite what Lafarge had envisioned. Lafarge formed a joint venture with a Hong Kong company to purchase 80 percent of the Yunnan cement business. As a result, Lafarge's ultimate share was only half of that (40 percent), not the 100 percent it initially sought.
This chapter is about how culture affects negotiation. It begins with an introduction to ways of characterizing different dimensions and types of cultures. It goes on to de¬scribe a general framework that illustrates how culture affects negotiation.
Although it is filled with examples of negotiating in different parts of the world, keep in mind that the chapter is not about protocol and not about how to negotiate in individual specific places, such as China. The reason for this will be explained more thoroughly in the section on cultural prototypes and cultural stereotypes. But in brief the reason is that even experience within a culture does not guarantee future negotiating suc¬cess. Mr. Romano had 10 years of experience negotiating in Asia. Lafarge started doing business in China in 1994. Ten years later, when Lafarge opened negotiations in Yunnan province it already had cement operations in Sichuan province. To adequately integrate cultural knowledge into negotiation strategy requires more than experience; it requires an understanding of how and why culture affects negotiations.
What Is Culture?
Culture is the distinct character of a social^ group. It emerges from the patterned ways that people in a group respond to the fundamental problems of social interaction.
A useful metaphor for describing culture is an iceberg. Just like with an iceberg there is more to culture below the surface than above, and just like an iceberg, culture is not static, it drifts and shifts. Figure 1 illustrates the cultural iceberg. Visible above the squiggly "waterline" of the cultural iceberg are behaviors and institutions. Below the waterline are two deeper, psychological levels. Each of the following sections examines one level.
government had plenty of foreign capital; what it needed was a means of upgrading its inefficient, construction manufacturing industry, while maintaining jobs and ensuring a steady supply of construction materials. The government also knew that transferring state-owned entities to local interests would be viewed more favorably from a public relations perspective than would a direct sale to a foreign company.Lafarge's strategic gaffe involved the choice of whom to send to Yunnan to negoti¬ate. Lafarge initially sent two fairly junior members of their investment team to talk to the heads of the two Yunnan cement companies. Although Lafarge may have thought that they were simply engaging in some due diligence research—were these the right companies to buy—the Chinese were miffed that a potential business partner would send analysts to talk to business directors. According to Sanjeev Krishna (investment of-ficer for emerging markets at Health Sciences, International Finance Corporation— World Bank) the due diligence process in China is far different than in the West. In China, he advises, one needs to develop a solid relationship before embarking on the due diligence process. In the West typically a lot of due diligence is conducted prior to an entity even deciding to develop a relationship.The end of this story is that Lafarge is in Yunnan province and technical know-how is being transferred to the Chinese cement companies, but the ultimate deal was not quite what Lafarge had envisioned. Lafarge formed a joint venture with a Hong Kong company to purchase 80 percent of the Yunnan cement business. As a result, Lafarge's ultimate share was only half of that (40 percent), not the 100 percent it initially sought.This chapter is about how culture affects negotiation. It begins with an introduction to ways of characterizing different dimensions and types of cultures. It goes on to de¬scribe a general framework that illustrates how culture affects negotiation.Although it is filled with examples of negotiating in different parts of the world, keep in mind that the chapter is not about protocol and not about how to negotiate in individual specific places, such as China. The reason for this will be explained more thoroughly in the section on cultural prototypes and cultural stereotypes. But in brief the reason is that even experience within a culture does not guarantee future negotiating suc¬cess. Mr. Romano had 10 years of experience negotiating in Asia. Lafarge started doing business in China in 1994. Ten years later, when Lafarge opened negotiations in Yunnan province it already had cement operations in Sichuan province. To adequately integrate cultural knowledge into negotiation strategy requires more than experience; it requires an understanding of how and why culture affects negotiations.What Is Culture?
Culture is the distinct character of a social^ group. It emerges from the patterned ways that people in a group respond to the fundamental problems of social interaction.
A useful metaphor for describing culture is an iceberg. Just like with an iceberg there is more to culture below the surface than above, and just like an iceberg, culture is not static, it drifts and shifts. Figure 1 illustrates the cultural iceberg. Visible above the squiggly "waterline" of the cultural iceberg are behaviors and institutions. Below the waterline are two deeper, psychological levels. Each of the following sections examines one level.
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