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Negotiation with Indian Suppliers
Negotiation Simulation Report
Recently I had the opportunity to observe a negotiation simulation where an Indian company was negotiating with a US company. My review of the situation, my involvement and recommendations follow.
Background & Role
I was a classroom observer during a negotiation simulation between Jeneryn from the US and Indian outsourcing firm Dragonfly. Jeredyn is a 50-60 people firm that specialises in medical transcription services. It is lead by CEO and company founder Ms. Katerina Poliakov who has Russian heritage and is very proud of her company’s achievements. Her colleagues are Ms. Margaret Aharoni, the Chief Project Manager, who is all-American and loves baseball and Mr. Theo St. Paul, the Director of Operations, an ex-Newspaper Journalist from Rhode Island. The Dragonfly team comprises of CEO and founder Dr. Ajay Srinivasan, a retired doctor who saw the opportunity to use Indian skilled workers to perform transcription services for Western companies. His colleagues are Mr. Vidyarana Paranjpe, Executive Vice President, a relative of Ajay’s and Ms Nanda Malhotra, Chief of Operations, who is Ajay’s niece.
The first stage was mainly each party sounding out the other party and making introductions. The key observations were:
- Dragonfly arrived after Jeredyn
- Dragonfly made the introductions and very early on took control of the meeting
- Nanda and Vidyarana would only speak if directed by Ajay, otherwise they observed
- Nanda asked some very personal questions of the Jeredyn team
- Margaret did not show active listening, especially with an ipod in her ear, whereas the Dragonfly team always showed active listening
- Dragonfly were collaborative and unified in their approach, whereas Jeredyn were individualistic and had no apparent strategy
Stage 2 centred on answering questions to previously raised concerns and trying to build further relationships. The key points were:
- Ajay took control early on and covered each of the concerns raised the day before
- There were some attacks from the Jeredyn team, but Katerina went back to relationship building immediately after the attacks
- The points being tackled by Dragonfly were not allowed to be finished by the Jeredyn team, therefore not allowing for any resolution before moving on
- There was the appearance of some power/dependence from Jeredyn to prove that Dragonfly has some issues and thereby being able to negotiate a better price
- There was no mention of pricing during this stage
This was the final section when the parties eventually got down to talking pricing. The Dragonfly team relied almost exclusively on Ajay to negotiate this stage, but the entire Jeredyn team were involved in price negotiation. The key points were:
- The first part was CEO to CEO discussion
- Pricing was mentioned but it appeared that quality and timeliness was the major concern
- Ajay was asked by Theo to be more concrete in responses rather than lot’s of ‘if’s’
- Ajay asked for the sale, but hadn’t earned the right to do so. As a result an objection on timeliness was raised. However the price point of 12 cents seemed to be acceptable to both parties
- There was no resolution, but relationship building continued with Ajay inviting the Jeredyn team to his house for dinner and to meet his wife, the HR Manager
There are several themes that were evident throughout the negotiation. They were:
- Lack of understanding of each other’s culture
- Collectivism (Dragonfly) v Individualistic (Jeredyn)
- Femininity and concern about employees
- A power/dependence struggle over quality
- Convergence between a low context and high context culture
It was clear from the commencement of the negotiation that both sides lack knowledge of the other parties’ culture. Jeredyn were clearly shocked by the enquiries into their religion, children and marital status. If Jeredyn had done some basic research, or attended a cross cultural training session, prior to their arrival in India these questions would have appeared normal (Eastwood & Renard, 2008, p.1; Toh & De Nisi, 2005, p.134). Likewise Dragonfly, who is actively selling to US companies, should have known that personal questions are not asked during negotiations. Ajay also should have understood how to sell to USA companies, especially how to build relationships and earn the right to ask for the sale (Friedman, 1992, pp. 165-191) rather than an early trial close with too many unanswered questions. If both parties had taken the time to understand the values and norms of the other’s culture the negotiation commencement would have been smoother (Hill, 2009, p.89) and potentially an outcome could have been reached.
Using Hofstede’s model for understanding culture we can explore the issues surrounding collectivism/individualism and femininity.
From the outset Dragonfly had a plan and allowed their leader, Ajay, to be the spokesperson. This is an example of collectivism in deciding the strategy (Hill, 2009, p.108). India has a lower individualism score than the US where the individual is king (Hofstede, 1983, p.80). This is not an isolated example in Indian business. In a recent Harvard Business Review it was revealed that top Indian managers score high in charismatic leadership while empowering their staff to assist in the decision making (Capelli et al, 2010, pp. 2-3). This was demonstrated throughout the negotiation where Ajay dominated the group discussions with support as required by Vidyarana and Nanda. There was a real collectivist approach within the team and the attempt to gain an outcome for both parties (Ghauri, 2003, p.13). This is in stark contrast to the USA who has low uncertainty avoidance (Hill, 2009, p.108) where they required an outcome for their sole benefit.
The second aspect of the model is femininity. On several occasions Dragonfly mentioned how much they train employees and even Ajay’s wife is involved as the HR Manager. This demonstrates high femininity (Hill, 2009, p. 109; Hofstede, 1983, p.85). Capelli et al (2010, p.4) reinforces this aspect of Indian companies as they invest high levels of resources in employee development and empowerment programs.
Another interesting factor was the power/dependence play from the Jeredyn team. The team were trying to leverage the power/dependence in that while they knew that Dragonfly had a well credentialed solution they wanted to focus on quality issues where they thought that they had some leverage. This is reflective of the Ghauri model (2003, p.7) where Jeredyn tried to influence the outcome of the negotiations due to their power as the buyer requiring absolute quality at all times while Dragonfly tried to prove that they could offer high quality or Jeredyn would not need to pay.
During the negotiation there was some frustration from the Jeredyn team, especially Theo, on the way that Ajay was being indirect with the responses with ‘if’s’. This is because Americans are in a low context culture (Hall, 1990, p.7) where information needs to be explicit and direct (Ghauri, 2003, pp. 13-14). Dragonfly being high context meant that Jeredyn, as the client, was experiencing frustrations that would have been a primary reason for no final agreement in pricing.
Both teams demonstrated strengths in various ways. Dragonfly demonstrated that they could control the negotiations and have a collective strategy. By controlling the negotiations through greeting, acting formally, maintaining eye contact and good body language (Sebenius, 2002, p.80) meant that Dragonfly could maintain the agenda towards negotiating a better price for their services. By having a collective strategy they ensured that they could use their traditional deference to hierarchy (Capelli et al, 2010, p.3) to allow Ajay to be the primary negotiator and to set the agenda. The collectivism doesn’t stop with the negotiation process but is right throughout the firm with relatives and spouses in key positions (Hill, 2009, p.108)
The Jeredyn team were able to use their low context to make Dragonfly answer questions around quality and legal issues. Americans crave concise information (Sebenius, 2010, p. 81) that is direct. While Ajay’s posturing did frustrate the team they stuck to their guns and eventually got the information that they required. This information was then used as a power/dependence when pricing was eventually discussed.
Recommendations for Improvement
For the Dragonfly team there are two aspects where they could have improved. Both stem from a lack of cultural understanding. Dragonfly sells into the US market and as such they need to understand how to effectively sell into this market. The first aspect is to be more direct in their language, no ‘if’s’ but clear and concise information to assist the low communication context culture (Bazerman et al, 2000, p.298)of the US market. The second aspect is to learn US style of sales programs such as the Friedman system (1992) that explains the 8 steps to success
This will allow Dragonfly to be more effective in their sales activities with US firms.
For Jeredyn the opportunities are also around culture and strategy. The team missed out on an opportunity to have a result as they did not understand the Indian culture at all. This is not isolated amongst developed nation firms; in fact it is a form of enthocentrism (Hill, 2009, p.113). By attending cross cultural training the team would have been prepared for the nuances of negotiating with Indian firms and therefore would have had a better outcome (Eastwood & Renard, 2008, p.2). The other key learning is to become more collective during negotiations. Dragonfly was able to control the negotiation process because they were collective in their approach. The opportunity for Jeredyn is to take the learning from their recent experience in globalisation (Hill, 2009, p.111) to be more collective next time.
While cross cultural negotiations can cause a dilemma of differences (Bazerman, 2000, p.299) this can be reduced if both Jeredyn and Dragonfly spent more time understanding the cultural differences of the nations in which they are trying to sell their services or the nation that they want to buy services from.