PROFESSIONAL DEVELOPMENT The Importance of Culture and Bargaining in International Negotiations Bruno S. Wengrowski TThe American culture offen doesn'f embrace the need to create larger environment for trade-offs in order to come to an agreement uring the course of my contracting professional Most negotiations focus on terms, conditions, and prices life, I served more that twenty years in overseas in order for the parties to mutually agree to form a con- assignments. I had the opportunity to visit more tract. The American culture often doesn't embrace the than 40 countries on five continents. Though the need to create a larger environment for trade offs in order predominant international commercial language to come to an agreement. Our considerations are often is English, and the universally accepted currency is the limited to cost or price and are fact-based, either on data U. S. dollar, the bargaining process and cultural aware- provided or an audit In international discussions and ne. ness of a given country have a profound impact on suc- gotiations, the culture often requires that additional non- cess or failure on negotiations and business arrangements. price trade-offs are included in the negotiations. Frequently contract management for the Defense Acquisition University's South Region Campus in Huntsville, Ala, where he teaches Contingency Contracting Shaping Smart Business Decisions, and Advanced Business Solutions for Mission Support. efense AT&L: September-October 2004 Ilustration by Parula Croisetiere
Defense AT&L: September-October 2004 26 Wengrowski writes from the perspective of more than 20 years of overseas assignments in Italy, Germany, and Singapore. He is a professor of contract management for the Defense Acquisition University’s South Region Campus in Huntsville, Ala., where he teaches Contingency Contracting, Shaping Smart Business Decisions, and Advanced Business Solutions for Mission Support. PROFESSIONAL DEVELOPMENT The Importance of Culture and Bargaining in International Negotiations Bruno S. Wengrowski During the course of my contracting professional life, I served more that twenty years in overseas assignments. I had the opportunity to visit more than 40 countries on five continents. Though the predominant international commercial language is English, and the universally accepted currency is the U. S. dollar, the bargaining process and cultural awareness of a given country have a profound impact on success or failure on negotiations and business arrangements. Most negotiations focus on terms, conditions, and prices in order for the parties to mutually agree to form a contract. The American culture often doesn’t embrace the need to create a larger environment for trade offs in order to come to an agreement. Our considerations are often limited to cost or price and are fact-based, either on data provided or an audit. In international discussions and negotiations, the culture often requires that additional nonprice trade-offs are included in the negotiations. Frequently Illustration by Paula Croisetiere
in a foreign culture, extensive bargaining must occur as dle Eastern, Asian, and African countries think in a cir- a matter of course in order to save face, and this exten- cular pattern, with the additional bits of information rolled sive bargaining can be leveraged to get a better overall into the next concept. Both parties may reach the same deal or to get more bang for the buck conclusions: however. the amount of time taken the thought processes, and the rituals associated with ensu- The Importance of Bargaining ing discussions are significantly different When I was a Navy contracting officer assigned in Naples, Italy, a severely storm-damaged destroyer required ex- Perception of Time tensive repairs. The ship was directed to Greece where In cultures other than our own, people's perception of the repairs would be done under a non-competitive con- time is linked with their view of history. Chinese and Russ- tract. During the repair period of three weeks, further crit- ian cultures, for example, think in terms of centuries, not ical damage was discovered and needed to be fixed. It years, and history is a continuum. There's usually not a was the end of the fiscal year, and no additional funds sense of urgency unless there's a life-threatening situa- were available. For the safety of the ship, the work could tion On the other hand, the tendency of Americans is to not be canceled or delayed. A fair and reasonable amount be very time-conscious. Time is considered a precious for the newly identified repairs was $40,000. I had only commodity, time lost is viewed as an opportunity lost S15,000. Americans often arrive in advance of a scheduled meet ing. Conversely, other cultures may consider that time is The contractor, a large shipyard in Greece, displayed in relative to other commitments and appointments, not an its boardroom the plaques of some 60 U.S. Navy ships hour and minute on the clock Punctuality is often not that had been repaired in its yard. The company's glossy considered a virtue, and many cultures consider individ brochure featured photographs of the Navy plaques on uals who are preoccupied with timeliness to be impulsive its cover. Because of political differences with Greece at or impertinent the time, no ship repairs had been done in more than two years. Realizing the political and public relations value Meeting Rituals the current repair could have to the company, I decided Different cultures have different views of proper negoti- to leverage the intangible value of a ship's plaque against ation form. A society may consider local custom, culture, my $25,000 shortfall. The ship's crew had the capability and business practices inextricably linked. It's often the to manufacture a plaque. I met with the skipper to inform perception that in many overseas business meetings, him of my negotiation strategy nothing"productive"occurs during the first scheduled appointment-just introductions, pleasantries, and ex The ship yard did first-class work, and the ship's com- change of business cards manding officer agreed to write a letter of appreciation on the ship's letterhead. The work was completed on time The importance of(in particular)the business card ritual at the reduced price, and we avoided the additional as the prelude to a meeting cannot be over emphasize $25,000 cost of the repairs. The shipyard hosted a pre- It is recommended that the business card be printed on sentation ceremony, including photographs. The brochure both sides. One side should be in English and the other produced by the company for the next year prominently in the host nation language. Titles are very important displayed the plaque, letter of appreciation, and a photo since many cultures are position- or rank-conscious. The of the presentation. The use of bargaining saved the Navy business card should be kept in a small container in the S25,000 and was worth the amount, in kind, to the ship- breast pocket of the shirt or suit coat, not in a wallet in the pants pocket. This creates the impression that the person carrying the card considers the other person im- Where Culture Comes in portant enough to make a presentation from the heart Bargaining is most impacted by the culture in the over- Most countries have a ritual associated with the presen- seas country. To prepare properly, the negotiator must tation of the card. For example in Asia, the card is held ave an awareness of how information is assimilated, his. with both hands and the person presenting gently nods tory, concept of time, customs and practices, behavioral his/her head. When you receive the card, take a minute taboos, and geography of the given country or so to study it. If you immediately place the card in your pocket, you may create an impression that your coun- Assimilation of Information terpart is inferior. First of all, the negotiator must appreciate how informa- tion presented is received, absorbed, digested, calculated, Overseas meetings can run the gamut from and summarized. Most Europeans think in a linear fash- mal to highly structured, depending on the location and ion, like Americans. We go from point a to point B, to the familiarity between the parties. Meetings are often point C, and so on, until we reach a conclusion based on accompanied with large amounts of tea, coffee, local bev a logical progression. Many other cultures, especially Mid- erages, and often food. If one keeps drinking, the host Def
in a foreign culture, extensive bargaining must occur as a matter of course in order to save face, and this extensive bargaining can be leveraged to get a better overall deal or to get more bang for the buck. The Importance of Bargaining When I was a Navy contracting officer assigned in Naples, Italy, a severely storm-damaged destroyer required extensive repairs. The ship was directed to Greece where the repairs would be done under a non-competitive contract. During the repair period of three weeks, further critical damage was discovered and needed to be fixed. It was the end of the fiscal year, and no additional funds were available. For the safety of the ship, the work could not be canceled or delayed. A fair and reasonable amount for the newly identified repairs was $40,000. I had only $15,000. The contractor, a large shipyard in Greece, displayed in its boardroom the plaques of some 60 U.S. Navy ships that had been repaired in its yard. The company’s glossy brochure featured photographs of the Navy plaques on its cover. Because of political differences with Greece at the time, no ship repairs had been done in more than two years. Realizing the political and public relations value the current repair could have to the company, I decided to leverage the intangible value of a ship’s plaque against my $25,000 shortfall. The ship’s crew had the capability to manufacture a plaque. I met with the skipper to inform him of my negotiation strategy. The ship yard did first-class work, and the ship’s commanding officer agreed to write a letter of appreciation on the ship’s letterhead. The work was completed on time at the reduced price, and we avoided the additional $25,000 cost of the repairs. The shipyard hosted a presentation ceremony, including photographs. The brochure produced by the company for the next year prominently displayed the plaque, letter of appreciation, and a photo of the presentation. The use of bargaining saved the Navy $25,000 and was worth the amount, in kind, to the shipyard. Where Culture Comes in Bargaining is most impacted by the culture in the overseas country. To prepare properly, the negotiator must have an awareness of how information is assimilated, history, concept of time, customs and practices, behavioral taboos, and geography of the given country. Assimilation of Information First of all, the negotiator must appreciate how information presented is received, absorbed, digested, calculated, and summarized. Most Europeans think in a linear fashion, like Americans. We go from point A to point B, to point C, and so on, until we reach a conclusion based on a logical progression. Many other cultures, especially Middle Eastern, Asian, and African countries think in a circular pattern, with the additional bits of information rolled into the next concept. Both parties may reach the same conclusions; however, the amount of time taken, the thought processes, and the rituals associated with ensuing discussions are significantly different. Perception of Time In cultures other than our own, people’s perception of time is linked with their view of history. Chinese and Russian cultures, for example, think in terms of centuries, not years, and history is a continuum. There’s usually not a sense of urgency unless there’s a life-threatening situation. On the other hand, the tendency of Americans is to be very time-conscious. Time is considered a precious commodity; time lost is viewed as an opportunity lost. Americans often arrive in advance of a scheduled meeting. Conversely, other cultures may consider that time is relative to other commitments and appointments, not an hour and minute on the clock. Punctuality is often not considered a virtue, and many cultures consider individuals who are preoccupied with timeliness to be impulsive or impertinent. Meeting Rituals Different cultures have different views of proper negotiation form. A society may consider local custom, culture, and business practices inextricably linked. It’s often the perception that in many overseas business meetings, nothing “productive” occurs during the first scheduled appointment—just introductions, pleasantries, and exchange of business cards. The importance of (in particular) the business card ritual as the prelude to a meeting cannot be over emphasized. It is recommended that the business card be printed on both sides. One side should be in English and the other in the host nation language. Titles are very important, since many cultures are position- or rank-conscious. The business card should be kept in a small container in the breast pocket of the shirt or suit coat, not in a wallet in the pants pocket. This creates the impression that the person carrying the card considers the other person important enough to make a presentation from the heart. Most countries have a ritual associated with the presentation of the card. For example in Asia, the card is held with both hands and the person presenting gently nods his/her head. When you receive the card, take a minute or so to study it. If you immediately place the card in your pocket, you may create an impression that your counterpart is inferior. Overseas meetings can run the gamut from very informal to highly structured, depending on the location and the familiarity between the parties. Meetings are often accompanied with large amounts of tea, coffee, local beverages, and often food. If one keeps drinking, the host 27 Defense AT&L: September-October 2004
TETTERS We hire Letters Different cultures have different pies of proper negotiation form will keep pouring. Once the guest has had sufficient re- freshment, the cup should be left full. The guest should not attempt to cover the cup when the beverage is poured since that action implies the offering is lacking in taste or not fresh. Get used to tobacco smoke during an inter- national meeting. Many countries don't have the prohi- bitions against smoking that are enforced in the United State Dont anticipate that final agreement will be reached in one or two meetings. The initial meeting is often social and it may not be until the second meeting that topics or business areas of interest are introduced. In some coun ies. business is disc er lunch and the lunch meet- ing may drift into a dinner meeting when the parties get nto more details. In other countries. business is never The final meeting to consum the agreement is usually in an office setting, and there is often a separate session scheduled for the actual signing of the contract, which is usually followed by an exchange You've just finished of gifts and the taking of photographs ading an article in Defense AT&l, and you have Local Etiquette something to add from your own experience. Or As final notes on cultural and ethnic awareness inform maybe you have an opposing viewpoint yourself of social taboos, acceptable gestures, and use of words in the country-or even the part of the country- Don't keep it to yourself--share it with other where you will be negotiating. Our sign for"OK, " for ex- Defense AT&eL readers by sending a letter to the ample, has an entirely different meaning in other parts editor. We'll print your comments in our"From of the world. Sometimes the written word is the safest Our Readers"department and possibly ask the for common understanding within a given country. In the author to respond. People's Republic of China, for instance, where there are many distinct dialects, a word spoken in one regions di If you don't have time to write an entire article, a alect may have an entirely different meaning in the di- letter in Defense Al&l is a good way to get your alect of another part of the country. The written symbols, point across to the acquisition, technology, and however, are universally understood logistics workforce E-mail letters to the managing editor A major consideration is that your foreign counterpart judith. greig@dau. mil know English as a second or third language. Even so, allow your foreign counterpart time to comprehend and assimilate the English language. Avoid American slang, Defense AT&L reserves the right to edit letters for length business and military jargon, acronym-speak, and ex- and to refuse letters that are deemed unsuitable for publication. tremely colloquial expressions. They often have a short shelf life and confuse the listener. It is very difficult to ex- plain slang phrases like"What's up with that? "or"M efense AT&L: September-October 2004
LETTERS. We Like Letters. will keep pouring. Once the guest has had sufficient refreshment, the cup should be left full. The guest should not attempt to cover the cup when the beverage is poured, since that action implies the offering is lacking in taste or not fresh. Get used to tobacco smoke during an international meeting. Many countries don’t have the prohibitions against smoking that are enforced in the United States. Don’t anticipate that final agreement will be reached in one or two meetings. The initial meeting is often social, and it may not be until the second meeting that topics or business areas of interest are introduced. In some countries, business is discussed over lunch, and the lunch meeting may drift into a dinner meeting when the parties get into more details. In other countries, business is never discussed over meals. The final meeting to consummate the agreement is usually in an office setting, and there is often a separate session scheduled for the actual signing of the contract, which is usually followed by an exchange of gifts and the taking of photographs. Local Etiquette As final notes on cultural and ethnic awareness, inform yourself of social taboos, acceptable gestures, and use of words in the country—or even the part of the country— where you will be negotiating. Our sign for “OK,” for example, has an entirely different meaning in other parts of the world. Sometimes the written word is the safest for common understanding within a given country. In the People’s Republic of China, for instance, where there are many distinct dialects, a word spoken in one region’s dialect may have an entirely different meaning in the dialect of another part of the country. The written symbols, however, are universally understood. Language A major consideration is that your foreign counterpart know English as a second or third language. Even so, allow your foreign counterpart time to comprehend and assimilate the English language. Avoid American slang, business and military jargon, acronym-speak, and extremely colloquial expressions. They often have a short shelf life and confuse the listener. It is very difficult to explain slang phrases like “What’s up with that?” or “My Defense AT&L: September-October 2004 28 You’ve just finished reading an article in Defense AT&L, and you have something to add from your own experience. Or maybe you have an opposing viewpoint. Don’t keep it to yourself—share it with other Defense AT&L readers by sending a letter to the editor. We’ll print your comments in our “From Our Readers” department and possibly ask the author to respond. If you don’t have time to write an entire article, a letter in Defense AT&L is a good way to get your point across to the acquisition, technology, and logistics workforce. E-mail letters to the managing editor: judith.greig@dau.mil. Defense AT&L reserves the right to edit letters for length and to refuse letters that are deemed unsuitable for publication
bad! "Jargon expressions like "hit the ground running"or buying. All other imports were paid in dollars, especially pushing the envelope"are likely to mean nothing to fuel and lubricants. Our team knew that the negotiations many non-native English speakers. And remember that would be extremely delicate as compared to previous ne- since acronyms universally understood within the De- gotiations because the reduction in the price of the next partment of Defense aren,'t comprehensible even to most contract-the result of no standby helicopter and fewer non-DoD Americans, foreigners certainly won 't under- missions-would be unpalatable to the contractor. stand them We needed to employ a unique, creative strategy for the Advance preparation with regard to knowledge of the cul- impending negotiations. I met with the PM in Bangkol ture, customs, and language of a given country cannot be to discuss and implement a plan for negotiations. The stressed enough. The Department of State is a source of strategy would include educating the Vietnamese con- literature on aspects of culture and customs in different tractor to understand and use capitalist approaches and countries. Another excellent resource is Do's and Taboos Western business practices. The previous contracts were around the World, published by the Parker Pen Company priced per mission, based on continuous use of two he- and edited by Roger E. Axtell, who has authored several licopters, as indicated above. Because most of the sites books on the subjects of do's and taboos of international as likely areas for MIA remains had been identified, we trade, hosting international visitors, public speaking, and could determine with certitude the exact number of mis- body language sions required per year. Each mission lasted between 30 and 45 days. The JTF support personnel to assist in the Creative Negotiations Make for a Win-Win searches were available for six-week periods, and the PM Situation could identify the specific dates for each mission. We Once the cultural aspects of negotiations have been con- worked closely with the customer to identify the exact sidered, the next concept is bargaining, which provides requirements. We structured the pricing section of the so- the parties with an opportunity for a win-win situation in licitation like a menu in a restaurant. Cost of aircraft op- negotiations. Trade-offs made in lieu of prices or cost con- eration per hour, fuel, maintenance, standby, and other siderations need to be part of the negotiation strategy To price elements were specifically covered in the proposed illustrate, I will use a personal bargaining experience. contract I was the technical director for contracting and procure- During our negotiations, we stressed with the Vietnamese ment for an office in Singapore that supported the joint contractor that we encouraged use of the helicopters when Task Force for Full Accounting (TF-FA)program in Viet- there was no scheduled search mission. We suggested nam, Cambodia, and Laos. The jTF-FA mission was to lo- they contact oil exploration and mining companies that cate the remains of missing in action(MIA)pilots, air- might be interested in using their helicopters, and we men, and soldiers. The contractor was affiliated with the gave the contractor the names of companies and points Vietnamese Air Force and had completed two contracts. of contact. Although the Vietnamese firm would receive The program had been in existence before the United a contract worth $5 million dollars less than the previous States and the People's Socialist Republic of Vietnam had contracts, the opportunity for greater revenue was sig. nificantly increased. As further incentive, we suggested that their team come to Singapore for a formal contract As a result of budgetary cutbacks and the diminishing signing ceremony, and eight corporate officials did so number of likely sites for the MIA remains, the program We scheduled a formal luncheon with photo opportuni- funding was cut by approximately 20 percent, or more ties for the attendees. The ceremony was a great success than $5,000,000, over the period of the contract. Our and was repeated when each option on the contract was dilemma was compounded by the fact that the contrac- exercised tor had been encouraged by the program manager(PM) to buy newer, larger-capacity helicopters, replacing the In conclusion, the importance of understanding culture, Soviet MI 8 with the MI 17 model. The newer helicopters history, language, bargaining, and business practices in were more expensive to maintain than the older model. foreign negotiations cannot be overstated. Advance prepa The two previous contracts had contained a requirement ration and awareness of the differences in the non-Amer that one helicopter be available on a 24/7 schedule to ex- ican environment will lead to success and a win-win out tract our personnel in the event of civil unrest. Since diplo- come for all parties matic relations had been formalized with vietnam that requirement would not be included in the next contract The Vietnamese relied on the payment in U.S. dollars since the helicopters and their parts were purchased from Editor's note: The author welcomes comments and the Russians with U.S. dollars. The Vietnamese dong cur- questions. He may be contacted at bruno. wengrowski rency had no international standard to leverage overseas Defense AT&L: September-October 2004
buying. All other imports were paid in dollars, especially fuel and lubricants. Our team knew that the negotiations would be extremely delicate as compared to previous negotiations because the reduction in the price of the next contract—the result of no standby helicopter and fewer missions—would be unpalatable to the contractor. We needed to employ a unique, creative strategy for the impending negotiations. I met with the PM in Bangkok to discuss and implement a plan for negotiations. The strategy would include educating the Vietnamese contractor to understand and use capitalist approaches and Western business practices. The previous contracts were priced per mission, based on continuous use of two helicopters, as indicated above. Because most of the sites as likely areas for MIA remains had been identified, we could determine with certitude the exact number of missions required per year. Each mission lasted between 30 and 45 days. The JTF support personnel to assist in the searches were available for six-week periods, and the PM could identify the specific dates for each mission. We worked closely with the customer to identify the exact requirements. We structured the pricing section of the solicitation like a menu in a restaurant. Cost of aircraft operation per hour, fuel, maintenance, standby, and other price elements were specifically covered in the proposed contract. During our negotiations, we stressed with the Vietnamese contractor that we encouraged use of the helicopters when there was no scheduled search mission. We suggested they contact oil exploration and mining companies that might be interested in using their helicopters, and we gave the contractor the names of companies and points of contact. Although the Vietnamese firm would receive a contract worth $5 million dollars less than the previous contracts, the opportunity for greater revenue was significantly increased. As further incentive, we suggested that their team come to Singapore for a formal contractsigning ceremony, and eight corporate officials did so. We scheduled a formal luncheon with photo opportunities for the attendees. The ceremony was a great success and was repeated when each option on the contract was exercised. In conclusion, the importance of understanding culture, history, language, bargaining, and business practices in foreign negotiations cannot be overstated. Advance preparation and awareness of the differences in the non-American environment will lead to success and a win-win outcome for all parties. Editor’s note: The author welcomes comments and questions. He may be contacted at bruno.wengrowski @dau.mil. 29 Defense AT&L: September-October 2004 bad!” Jargon expressions like “hit the ground running” or “pushing the envelope” are likely to mean nothing to many non-native English speakers. And remember that since acronyms universally understood within the Department of Defense aren’t comprehensible even to most non-DoD Americans, foreigners certainly won’t understand them. Advance preparation with regard to knowledge of the culture, customs, and language of a given country cannot be stressed enough. The Department of State is a source of literature on aspects of culture and customs in different countries. Another excellent resource is Do’s and Taboos around the World, published by the Parker Pen Company and edited by Roger E. Axtell, who has authored several books on the subjects of do’s and taboos of international trade, hosting international visitors, public speaking, and body language. Creative Negotiations Make for a Win-Win Situation Once the cultural aspects of negotiations have been considered, the next concept is bargaining, which provides the parties with an opportunity for a win-win situation in negotiations. Trade-offs made in lieu of prices or cost considerations need to be part of the negotiation strategy. To illustrate, I will use a personal bargaining experience. I was the technical director for contracting and procurement for an office in Singapore that supported the Joint Task Force for Full Accounting (JTF-FA) program in Vietnam, Cambodia, and Laos. The JTF-FA mission was to locate the remains of missing in action (MIA) pilots, airmen, and soldiers. The contractor was affiliated with the Vietnamese Air Force and had completed two contracts. The program had been in existence before the United States and the People’s Socialist Republic of Vietnam had diplomatic relations. As a result of budgetary cutbacks and the diminishing number of likely sites for the MIA remains, the program funding was cut by approximately 20 percent, or more than $5,000,000, over the period of the contract. Our dilemma was compounded by the fact that the contractor had been encouraged by the program manager (PM) to buy newer, larger-capacity helicopters, replacing the Soviet MI 8 with the MI 17 model. The newer helicopters were more expensive to maintain than the older model. The two previous contracts had contained a requirement that one helicopter be available on a 24/7 schedule to extract our personnel in the event of civil unrest. Since diplomatic relations had been formalized with Vietnam, that requirement would not be included in the next contract. The Vietnamese relied on the payment in U.S. dollars since the helicopters and their parts were purchased from the Russians with U.S. dollars. The Vietnamese dong currency had no international standard to leverage overseas
