Negotiation in Southeast Asia
by: Erika Visser, Associate partner of Hofstede Insights
The goal of this document is to give some specific details on how negotiations are conducted in Southeast Asia and give a few pointers on how to do it and win. What should be highlighted and some aspects of Southeast Asian culture that might help you win.
Why should I read this document?
Negotiation is an important part of doing business, and understanding how each culture negotiates can help companies to be successful in their business dealings. The most important point to understand is that communication in Southeast Asia is implicit and thus nonverbal. This can be a challenge for explicit cultures where decision-making is more direct, and understanding subtle indirect messages might be difficult, affecting business relationships and outcomes of negotiations.
Important!
5 most important things to know about doing business in Southeast Asia:
1. Establishing long-term relationships and building trust is the only way to ensure long-term business success in Southeast Asia, and this takes time and patience!
2. All cultures in Southeast Asia are hierarchical and collectivist cultures and thus management is top-down and centralized. The boss is expected to be more directive acting as a father or mother rather than a coach.
3. In Southeast Asia, displaying appropriate behaviour when doing business is important. Southeast Asian cultures are all high context indirect communicators and disrupting this harmony can damage or end business relationships.
4. Using intermediaries with a greater understanding of the local culture, customs and regulations is important to help understand your business counterpart.
5. Check whether the countries in Southeast Asia that you are dealing with are more Masculine or Feminine, as this will affect the way to motivate employees.
"Southeast Asian cultures have a high Power Distance and low Individualism score indicative of top-down decision making that is centralized. Harmony is key, thus conflict should be avoided. Communication is mainly nonverbal and thus it is more challenging to understand the subtle messages from your negotiating counterpart. Without a third party connection, you will not be able to pick up these subtle hints that are essential to successfully negotiate business deals."
2. All cultures in Southeast Asia are hierarchical and collectivist cultures and thus management is top-down and centralized. The boss is expected to be more directive acting as a father or mother rather than a coach.
3. In Southeast Asia, displaying appropriate behaviour when doing business is important. Southeast Asian cultures are all high context indirect communicators and disrupting this harmony can damage or end business relationships.
4. Using intermediaries with a greater understanding of the local culture, customs and regulations is important to help understand your business counterpart.
5. Check whether the countries in Southeast Asia that you are dealing with are more Masculine or Feminine, as this will affect the way to motivate employees.
"Southeast Asian cultures have a high Power Distance and low Individualism score indicative of top-down decision making that is centralized. Harmony is key, thus conflict should be avoided. Communication is mainly nonverbal and thus it is more challenging to understand the subtle messages from your negotiating counterpart. Without a third party connection, you will not be able to pick up these subtle hints that are essential to successfully negotiate business deals."
How do you conduct negotiations with in Southeast Asia
The quality of decisions depends on the degree of excellence of the top manager. Emphasize the quality of the decision by referring to wisdom, experience and know-how. Cross cultural management is more likely to succeed when working in Southeast Asia, if you bear in mind that each person has a very distinct role within the organisation, and maintaining that role helps to keep order. People believe that their supervisors have been chosen because they have more experience and greater knowledge than those they manage, and it is therefore, unnecessary, and even inappropriate for them to consult with lower-ranking individuals when making decisions.
What are Southeast Asians sensitive to?
Try to avoid topics about religion and politics. Do not show anger or negative emotions, disrupting harmony and bringing shame to Southeast Asian people. Self-control and respect are essential for successful business relationships, thus use a softer tone of voice and limit your hand gestures. Do not touch or shake hands with the opposite sex unless initiated by that person.
What will you have to do?
- Present a long-term vision and be patient.
- Build strong relationships and trust.
- Business appointments should always be made in advance.
- Arrive on time for a meeting but be prepared to wait.
- Meetings are always started with small talk and you might be asked multiple personal questions, this will be followed by business discussions from the most senior Southeast Asian counterpart - follow his/her lead and wait for their cue.
- Older people and people with the highest rank are usually introduced first and they should be treated with great respect.
- Always honour the titles and job descriptions from your Southeast Asian counterparts.
- Remain polite and demonstrate good etiquette at all times.
- Work with local third-party contacts to get a better insight into the culture and the subtle messages that are portrayed during business interactions.
- Take time to establish productive business relationships with your Southeast Asian counterparts.
- When entering into business dealings with a Southeast Asian company, connect via a mutual contact, as Southeast Asians prefer to conduct business with familiar connections.
- Be well-prepared, anticipate needs and be willing to share copious amounts of information, to the degree that you can. Send more information than you normally do. For higher UAI cultures, such as Thailand, you need to provide even more detailed information compared to other countries in the region.
Negotiation on different levels - who should negotiate with whom?
In Asia, due to the hierarchy, decisions are made top-down, thus decisions will need to go through your negotiating counterpart to the top as he/she is only the ‘messenger’ and most likely does not hold any power to make decisions on behalf of the company or department. Thus is due to the high Power Distance (PDI) in most Asian countries and the low Individualism (IDV), you need to find the key decision maker in order to be successful. If you cannot find the key decision maker you might not be able to complete negotiations. At first you might think that you are making good progress, only to find out that you are going around in circles. It is important to know that you also need to have the status to deal with these figures of power as they most likely will not respond to a manager or someone with a lower position than their own. You will need inside help from a third party that understands the hierarchy, knows how to play the network, and that are able to identify the relevant key decision makers. Once you know who has the power to make the decisions, you will need to be introduced by a mutual connection and build rapport through a series of informal meetings. Building trust takes time and requires patience but it is worth the investment.
How long will it take?
Be patient with your Southeast Asian counterparts when doing business negotiations. The process is often long and detailed, and should not be rushed.
Will you need to negotiate the price?
Ensure that you have a strong business relationship established prior to discussing pricing. Develop a pricing structure with different options including the ideal price, an acceptable price and the lowest price that you will settle for. Negotiation is part of Southeast Asian culture and you need to have a good understanding of each culture that you are dealing with in order to be successful. Try to incorporate package deals or discounts to show your counterpart that you are investing in a long-term business partnership, rather than a quick deal. Be careful not to talk about business at informal meetings, wait for your negotiating counterpart to raise the topic.
What should you never do?
Try to avoid topics about religion and politics. Never let your Asian counterpart lose face, this will erode trust and harm or end business relations. Never think about the short-term gain but the long-term investment. Initial meetings are usually more formal and used for building rapport as business relationships are based on familiarity and trust, thus when having a first meeting do not expect business decisions to be made.
Short case study
If a Vietnamese manager is asked to negotiate with an American manager in the same department and at the same job level, the Vietnamese manager will most likely need to go back to their boss after each meeting to make sure that senior management is informed and able to give their input. The American manager does not likely need to do this due to his/her position to make decisions on behalf of the department. Due to the hierarchical nature of Vietnamese culture, the Vietnamese manager will not have the same power to make decisions for his/her department as the American manager. This might lead to frustration and misunderstanding as the process can be back and forth until a final decision is reached.
This example shows that decision-making takes longer in hierarchical, high Power Distance cultures due to the top-down structure. It is therefore important to identify the right people within the hierarchy who have the power to make decisions, this will help to speed up the process. Building relationships and establishing trust is also key to ensure successful negotiation.
Summary: relevant cultural aspects
It is also important to understand that these Southeast Asian countries are divided by high and low Masculinity and high and low Uncertainty Avoidance scores. For example, Thailand, Vietnam, and Singapore score below average on the Masculinity dimension and thus more feminine compared to other countries in this region. Thailand also scores higher on the Uncertainty Avoidance dimension, indicative of Thais feeling uncomfortable when the outcome cannot be predicted. It is important to note that both low and high Uncertainty Avoidance cultures take risks, however, the reasons for taking risks are different. For example, high Uncertainty Avoidance cultures take risks to avoid failure, whereas low Uncertainty Avoidance cultures take risks in order to be successful. As for Long-Term Orientation, Southeast Asian cultures that are more pragmatic or long-term orientated can continue negotiations after contracts have been signed. This can frustrate cultures that are more normative or short-term orientated. In this case, you need to expect that your counterpart might come back with last minute amendments and also use this to your advantage - always leave room to give future concessions. Lastly, note that corruption is everywhere, thus decide upfront what your policy is: go with it or 100% not; or go with it partly through using “agents” who are paid a fee or percentage of business deals.