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Mitigating the Risks of
Cross-Country Business Dealings:
A Cultural Perspective
By Sandy Chong & Guy Callender




 In this series, we take a peek into the norms of different cultures
 and suggest how these norms may affect business practices in
 the respective cultures. Procurement managers involved in cross-
 country negotiations often find that cultural differences may put
 the success of contractual arrangements at risk. Yet, a better
 understanding of these differences may help one to preempt and
 mitigate any confusions and misunderstandings early in the
 business transaction.




                                                         Part I

                                                         CHINA



                                                                       Creativity | Passion | Growth
Creativity | Passion | Growth




Over the past 20 years, the People’s     That said, misunderstandings and
Republic of China has emerged as one     disagreements may arise from
of the most significant economies in     intercultural differences, which
the world; its GDP growth has been       explains why every cross-border
more than double that of most Western    procurement contract bears high risks.
economies. Today, China is the world's
largest consumer of natural resources    It is therefore crucial that managers
such as oil and gas, and Western         understand what effects cultural
countries like Australia, being          differences between buyer and seller
competitive exporters of such            may have on a business transaction,
resources, are well poised to respond    especially within a globalised
to their consumption needs.              marketplace.


                 "I am convinced that much of our difficulty with people
                     in other countries stems from the fact that so little is
                           known about cross-cultural communications."
                                                                  E.T. Hall in The Silent Language, 1959.

                                                           Mitigating the Risks of Cross-Country Business Dealings 2
Creativity | Passion | Growth




The purpose of this article is to help
businesses understand the Chinese
culture better. To put things into
context, selective elements of the
Chinese culture are compared against
the Australian culture.

Certainly, the views provided here do
not reflect the Chinese culture fully,
but the broad overview will provide
procurement managers with meaningful
insights about the challenges of cross-
cultural contract negotiations.




                Mitigating the Risks of Cross-Country Business Dealings 3
Creativity | Passion | Growth




                                                                                                        CHINA


Confucian philosophy forms the basis      In his 2006 pledge, President Hu Jintao
of Chinese culture. The ideals of the     reinforced the country's commitment
great 6th century BCE thinker             to make China "an innovation-oriented
permeated throughout China since the      society in the 21st century" (said
Han Dynasty, amongst other                during China's National Science &
philosophies like Taosim. Today,          Technology Conference in 2006).
researchers have noted that many
behaviours and values of the Chinese      • Nature of human activity
are deeply rooted in Confucianism and
other ancient Chinese philosophies.
                                               (chuan dao qiao tou zhi ran zhi)


Adapting to                               This is a Chinese idiom that literally
                                          translates as "the boat will be
Environments                              straightened on its own when it gets
                                          under the bridge", i.e., the future will
• Relationship with nature                work itself out. This school of thought
One of the key teachings of ancient       is deeply ingrained amongst the
Chinese philosophy is that one must be    Chinese, who tend to take a longer
in harmony with nature, rather than       time to reflect, plan and adapt to new
strive to have a hold over it. The        situations. In most cases, maintaining
widespread practice of Feng Shui in       the status quo is preferred.
China is a case in point. Australians,
on the other hand, often demonstrate      • Dealing with logic and reality
an abiding sense of domination over       In business presentations, Chinese
nature.                                   tend to begin with an in-depth analysis
                                          and explanation before arriving at
Chinese people also tend to avoid risks   their conclusion in the end. The
and uncertainty. This is reflected in     reverse is frowned upon as it implies
their management styles - the need        that there is no room for evaluation
for adequate and careful planning. In     and open discussion.
China, the tried and tested methods
are highly valued for they guarantee
future success. This phenomenon is        Social Integration
slowly evolving, nevertheless. With an
economy greatly impacted by               • Human nature
globalisation, Chinese entrepreneurs
are embracing more risks in order to
survive in the international
                                                (ren zhi chu   xing ben shan)
marketplace.


                                                                                  Mitigating the Risks of Cross-Country Business Dealings 4
Creativity | Passion | Growth

These were the opening words of an           such ideals.
ancient Chinese scripture ("The Three
Characters"), which reflects the belief      Australian society recognizes
that human beings are kind by nature.        hierarchies as well, but pays limited
This is often interpreted in a social        respect to senior colleagues. Seniors
context, but in a corporate context,         are usually addressed by their first
Legalism (another ancient school of          names, and badges of rank are often
thought) overrides Confucianism. I.e.,       what matter. In fact, there is evidence
it is believed that law in itself            of negative attitudes toward older
possesses a virtue that sets it above        workers.
any other human principle and thus
should be applied without exception.         • Collectivism
                                             The family and social contexts (i.e.,
In Australia, however, 95% of all            societal roles and relationships) often
religions were Christian                     define an individual, according to
denominations, which generally               Confucianism. The former Chinese
believed that man are inherently             Communist leader, Mao Tse Dong, was
sinful.                                      a firm champion of the slogan:

• Human relationships
The Chinese culture is generally                       (tuan jie jiu shi li    liang)
socially oriented, which is exhibited by
the people’s tendencies to avoid             That is, "unity is power". This ideal is
punishment, embarrassment, conflict,         still embedded in contemporary
rejection, ridicule and retaliation.         Chinese management philosophy.
Correspondingly, harmony, self-
discipline, moderation, and teamwork         Western cultures like in Australia show
are highly-regarded, so as to create a       strong support for individualism,
positive atmosphere. This is unlike the      though. There is usually much focus on
general Australian population which is       personal progress and performance.
more task oriented.

The Chinese term           (guanxi) is       Space, Language & Time
widely known amongst those who have
business dealings in the Republic; it        Studies have shown that the Chinese
literally translates as "relationship". To   people’s deeply rooted family values,
the Chinese, establishing "guanxi" is of     and their communal living experiences
utmost importance, as it is a way of         contribute to their preference for
developing a network of contacts,            physical closeness. This is in contract
from whom favours are expected, and          to Australians who, having grown up in
to whom favours are done.                    houses on large pieces of land, are
                                             used to large spaces.
• Hierarchy
                                             In China, silence is often considered
                                             an important part of language. The
        (jiang hai shi lao de la)            above saying literally means "silence is
                                             gold" – which lends support to the idea
Confucius' idea of respect for               of "do more, say less".
tradition, ancestors and elders best
explains the hierarchical emphasis           There are generally two types of time
found in Chinese societies. The above        management styles: Polychronic
traditional Chinese saying translates as     (multi-tasking) and Monochronic (doing
"the old ginger still tastes better".        one thing at a time). The Chinese tend
Where two people of the same ranks           towards the former style, and are also
are compared, the older one should           strict on keeping with time
receive greater respect. This notion         commitments and schedules. Similarly,
was prevalent previously, but                Australians regard time as a resource
globalisation and the permeation of          to be used effectively.
Western culture has started to weaken

                                      Mitigating the Risks of Cross-Country Business Dealings 5
Creativity | Passion | Growth


Concluding Remarks
It is indeed difficult to reflect the full   That said, more refinements are             This article is an abridged version of
scope of the Chinese business culture        required in future studies to paint a       the following conference paper:
in this article. Yet, this information       more comprehensive picture of a
may be useful for managers involved in       culture – whether Chinese or                Sandy Chong, Guy Callender, and
the contract formation process. The          Australian – and show how it is             Xiao-Zhou Huang (2007) A Study of
broad views presented aims to provide        relevant to contract negotiations.          Contracting Risk Associated with
meaningful insights for managers and                                                     Sourcing by Organizations of
researchers in the field of global           Looking ahead, a comparative cross-         Different Cultural Origin:
sourcing and contract formation.             national study is currently being           Perspectives from the People's
                                             planned. This will include in-depth         Republic of China and Australia. In:
There are certainly many areas of            interviews and focus groups with            16th Annual International Purchasing
uncertainty when negotiating contract        senior executives from China and            and Supply Education and Research
terms between buyers and suppliers           Australia who are responsible for           Association Conference. Bath, UK.
from different cultures, all of which        global sourcing and contract
create confusion and misunderstanding        formation.
at the contract formation stage.



About the Authors                            About Us

Dr. Sandy Chong                              Verity Consulting is a boutique international
Principal consultant                         marketing & communication consultancy specializing
Verity Consulting Pty Ltd                    in corporate training, senior executive coaching and
dr.sandychong@verityconsult.com              business advisory services.
www.linkedin.com/in/sandychong
                                             For more information about Verity’s global services
Dr. Guy Callender                            and innovative business solutions, contact us at:
Foundation professor & chair                 +61 4 02211373 (Australia)
Leadership in Strategic Procurement          +65 8337 7178 (Singapore)
Curtin Business School                       info@verityconsult.com




                                               Copyright © 2010 Verity Consulting
                                                  Pty Ltd. All rights reserved.




                                                    www.verityconsult.com        Mitigating the Risks of Cross-Country Business Dealings 6

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Intercultural Contract Negotiation

  • 1. Mitigating the Risks of Cross-Country Business Dealings: A Cultural Perspective By Sandy Chong & Guy Callender In this series, we take a peek into the norms of different cultures and suggest how these norms may affect business practices in the respective cultures. Procurement managers involved in cross- country negotiations often find that cultural differences may put the success of contractual arrangements at risk. Yet, a better understanding of these differences may help one to preempt and mitigate any confusions and misunderstandings early in the business transaction. Part I CHINA Creativity | Passion | Growth
  • 2. Creativity | Passion | Growth Over the past 20 years, the People’s That said, misunderstandings and Republic of China has emerged as one disagreements may arise from of the most significant economies in intercultural differences, which the world; its GDP growth has been explains why every cross-border more than double that of most Western procurement contract bears high risks. economies. Today, China is the world's largest consumer of natural resources It is therefore crucial that managers such as oil and gas, and Western understand what effects cultural countries like Australia, being differences between buyer and seller competitive exporters of such may have on a business transaction, resources, are well poised to respond especially within a globalised to their consumption needs. marketplace. "I am convinced that much of our difficulty with people in other countries stems from the fact that so little is known about cross-cultural communications." E.T. Hall in The Silent Language, 1959. Mitigating the Risks of Cross-Country Business Dealings 2
  • 3. Creativity | Passion | Growth The purpose of this article is to help businesses understand the Chinese culture better. To put things into context, selective elements of the Chinese culture are compared against the Australian culture. Certainly, the views provided here do not reflect the Chinese culture fully, but the broad overview will provide procurement managers with meaningful insights about the challenges of cross- cultural contract negotiations. Mitigating the Risks of Cross-Country Business Dealings 3
  • 4. Creativity | Passion | Growth CHINA Confucian philosophy forms the basis In his 2006 pledge, President Hu Jintao of Chinese culture. The ideals of the reinforced the country's commitment great 6th century BCE thinker to make China "an innovation-oriented permeated throughout China since the society in the 21st century" (said Han Dynasty, amongst other during China's National Science & philosophies like Taosim. Today, Technology Conference in 2006). researchers have noted that many behaviours and values of the Chinese • Nature of human activity are deeply rooted in Confucianism and other ancient Chinese philosophies. (chuan dao qiao tou zhi ran zhi) Adapting to This is a Chinese idiom that literally translates as "the boat will be Environments straightened on its own when it gets under the bridge", i.e., the future will • Relationship with nature work itself out. This school of thought One of the key teachings of ancient is deeply ingrained amongst the Chinese philosophy is that one must be Chinese, who tend to take a longer in harmony with nature, rather than time to reflect, plan and adapt to new strive to have a hold over it. The situations. In most cases, maintaining widespread practice of Feng Shui in the status quo is preferred. China is a case in point. Australians, on the other hand, often demonstrate • Dealing with logic and reality an abiding sense of domination over In business presentations, Chinese nature. tend to begin with an in-depth analysis and explanation before arriving at Chinese people also tend to avoid risks their conclusion in the end. The and uncertainty. This is reflected in reverse is frowned upon as it implies their management styles - the need that there is no room for evaluation for adequate and careful planning. In and open discussion. China, the tried and tested methods are highly valued for they guarantee future success. This phenomenon is Social Integration slowly evolving, nevertheless. With an economy greatly impacted by • Human nature globalisation, Chinese entrepreneurs are embracing more risks in order to survive in the international (ren zhi chu xing ben shan) marketplace. Mitigating the Risks of Cross-Country Business Dealings 4
  • 5. Creativity | Passion | Growth These were the opening words of an such ideals. ancient Chinese scripture ("The Three Characters"), which reflects the belief Australian society recognizes that human beings are kind by nature. hierarchies as well, but pays limited This is often interpreted in a social respect to senior colleagues. Seniors context, but in a corporate context, are usually addressed by their first Legalism (another ancient school of names, and badges of rank are often thought) overrides Confucianism. I.e., what matter. In fact, there is evidence it is believed that law in itself of negative attitudes toward older possesses a virtue that sets it above workers. any other human principle and thus should be applied without exception. • Collectivism The family and social contexts (i.e., In Australia, however, 95% of all societal roles and relationships) often religions were Christian define an individual, according to denominations, which generally Confucianism. The former Chinese believed that man are inherently Communist leader, Mao Tse Dong, was sinful. a firm champion of the slogan: • Human relationships The Chinese culture is generally (tuan jie jiu shi li liang) socially oriented, which is exhibited by the people’s tendencies to avoid That is, "unity is power". This ideal is punishment, embarrassment, conflict, still embedded in contemporary rejection, ridicule and retaliation. Chinese management philosophy. Correspondingly, harmony, self- discipline, moderation, and teamwork Western cultures like in Australia show are highly-regarded, so as to create a strong support for individualism, positive atmosphere. This is unlike the though. There is usually much focus on general Australian population which is personal progress and performance. more task oriented. The Chinese term (guanxi) is Space, Language & Time widely known amongst those who have business dealings in the Republic; it Studies have shown that the Chinese literally translates as "relationship". To people’s deeply rooted family values, the Chinese, establishing "guanxi" is of and their communal living experiences utmost importance, as it is a way of contribute to their preference for developing a network of contacts, physical closeness. This is in contract from whom favours are expected, and to Australians who, having grown up in to whom favours are done. houses on large pieces of land, are used to large spaces. • Hierarchy In China, silence is often considered an important part of language. The (jiang hai shi lao de la) above saying literally means "silence is gold" – which lends support to the idea Confucius' idea of respect for of "do more, say less". tradition, ancestors and elders best explains the hierarchical emphasis There are generally two types of time found in Chinese societies. The above management styles: Polychronic traditional Chinese saying translates as (multi-tasking) and Monochronic (doing "the old ginger still tastes better". one thing at a time). The Chinese tend Where two people of the same ranks towards the former style, and are also are compared, the older one should strict on keeping with time receive greater respect. This notion commitments and schedules. Similarly, was prevalent previously, but Australians regard time as a resource globalisation and the permeation of to be used effectively. Western culture has started to weaken Mitigating the Risks of Cross-Country Business Dealings 5
  • 6. Creativity | Passion | Growth Concluding Remarks It is indeed difficult to reflect the full That said, more refinements are This article is an abridged version of scope of the Chinese business culture required in future studies to paint a the following conference paper: in this article. Yet, this information more comprehensive picture of a may be useful for managers involved in culture – whether Chinese or Sandy Chong, Guy Callender, and the contract formation process. The Australian – and show how it is Xiao-Zhou Huang (2007) A Study of broad views presented aims to provide relevant to contract negotiations. Contracting Risk Associated with meaningful insights for managers and Sourcing by Organizations of researchers in the field of global Looking ahead, a comparative cross- Different Cultural Origin: sourcing and contract formation. national study is currently being Perspectives from the People's planned. This will include in-depth Republic of China and Australia. In: There are certainly many areas of interviews and focus groups with 16th Annual International Purchasing uncertainty when negotiating contract senior executives from China and and Supply Education and Research terms between buyers and suppliers Australia who are responsible for Association Conference. Bath, UK. from different cultures, all of which global sourcing and contract create confusion and misunderstanding formation. at the contract formation stage. About the Authors About Us Dr. Sandy Chong Verity Consulting is a boutique international Principal consultant marketing & communication consultancy specializing Verity Consulting Pty Ltd in corporate training, senior executive coaching and dr.sandychong@verityconsult.com business advisory services. www.linkedin.com/in/sandychong For more information about Verity’s global services Dr. Guy Callender and innovative business solutions, contact us at: Foundation professor & chair +61 4 02211373 (Australia) Leadership in Strategic Procurement +65 8337 7178 (Singapore) Curtin Business School info@verityconsult.com Copyright © 2010 Verity Consulting Pty Ltd. All rights reserved. www.verityconsult.com Mitigating the Risks of Cross-Country Business Dealings 6