Jan-Mar 2012

The Culture of Trust and Negotiation

How do cultural differences in trust impact negotiation outcomes? Professor Amit Nandkeolyar writes from a recent research conducted with colleagues Dishan Kamdar from the Indian School of Business (ISB), and Brian Gunia and Jeanne Brett, both from the Kellogg School of Management.

A decade of explosive growth has resulted in India becoming the world’s fourth largest economy in 2010. As India’s development continues, business negotiations, both within India and across cultures, will increasingly determine whether the country stagnates or integrates into the world economy. If Indian managers can use negotiations to create joint gains (value that benefits both themselves and their counterparts), then deals would get made and businesses would prosper. On the other hand, if Indian managers negotiate poorly – reaching deals that leave potential gains on the table – India’s businesses will suffer, with consequences for its billion-plus citizens and the broader global economy. Hence, it is critical to understand how managers can successfully create joint gains.

We propose that the absence of clear institutional norms and sanctions suggest that interpersonal and not institutional trust is the primary driver of behaviour in negotiations. In particular, negotiators from tight cultures such as India, who depend on institutional trust, should trust little in negotiations.

Economies of the world are inter-connected; this creates a need for negotiations that span different cultures. This has spurred an interest in understanding the impact of culture on negotiation in various settings. For example, there are cultural differences in negotiation strategies that manifest early during negotiations. While Western negotiators (e.g. Americans) tend to rely on information-sharing strategies, their Eastern counterparts (e.g. Japanese) tend to rely on offer-making strategies. The existence of cultural differences in negotiation strategies is rather well-documented in empirical research but why culture impacts negotiation outcomes is less understood.

Culture and Trust
People from different national cultures vary in their willingness to trust one another. Typically, Westerners (i.e. North Americans, Western Europeans) tend to make the “swift trust” assumption: others deserve to be trusted until they prove otherwise. In contrast, Easterners (i.e. East and South Asians) not only generally trust less than Westerners but also condition their trust on the situation. This brings to forth the question as to why some cultures, whether Western or Eastern, trust more than others.

Recent studies have suggested an answer: High and low-trust cultures have different mechanisms for controlling behaviour. Cultures in which social norms are clearly defined and reliably imposed (i.e. “Tight Cultures”) tend to enforce behavioural expectations through monitoring and sanctioning. Individuals from these cultures tend to rely more on institutional trust than interpersonal trust to control behaviour and sanction deviance. The term “institution” is commonly applied to customs and behavior patterns important to a society, as well as to particular formal organisations of government and public service. For example, industry, religious system, marriages, military, judiciary, educational community are all various types of institutions. Trust in these institutions, such as government or military, would constitute institutional trust unlike interpersonal trust i.e. trust in a person. One of the primary psychological indicators of cultural tightness is “felt accountability” or the subjective weight of others’ expectations. Psychological research has thoroughly documented how Indian culture fosters higher felt accountability than the US culture by framing everyday social responsibilities as moral, rather than personal choices. One reason for substantial felt accountability is that Indian culture affords numerous and overlapping institutional guarantors of behaviour. From childhood, Indians learn that many, if not most, social interactions are embedded in family networks and that family members – even distant ones – stand ready to monitor and sanction deviance. Indian traditions, such as weddings, reinforce the salience and potency of family ties and may also provide opportunities for monitoring and sanctioning. In all of these ways and others, Indian society reinforces cultural tightness. In contrast, cultures, for example, the US, in which social norms are relatively flexible (i.e. “Loose Cultures”) and informal, typically propose expectations but permit individuals to define range of tolerant behaviours within which they can exercise their own preferences. Thus, enforcement in loose cultures is left to interpersonal mechanisms.

People in strong cultures do not need the social intelligence to find out who is trustworthy – trust is not needed. The strong norms and sanctions underlying institutional trust in “tight” cultures seem to eliminate the need for interpersonal trust. As long as the institutions remain in force, interpersonal trust is unnecessary, and a lifetime of externally controlled situations prevents individuals in such cultures from developing much interpersonal trust. Conversely, cultures with weak norms and sanctions afford few external guarantors of behaviour. Smooth social interaction requires individuals from such cultures to extend one another interpersonal trust. A lifetime of situations relatively free from external constraint leads these individuals to trust swiftly and have faith in one another, unless and until their trust is violated. In sum, institutional and interpersonal bases of trust appear to substitute each other. We propose that the absence of clear institutional norms and sanctions suggest that interpersonal and not institutional trust is the primary driver of behaviour in negotiations. In particular, negotiators from tight cultures such as India, who depend on institutional trust, should trust little in negotiations.

Trust and Negotiations
How does trust impact negotiation outcomes? Empirical evidence suggests that use of high or low trust is associated with the usage of one of two negotiation strategies: Questions & Answers (Q&A) and Substantiation & Offers (S&O). As the name implies, Q&A involves asking questions and providing answers early in the negotiation. It entails sharing information about the preferences, priorities, and interests. In contrast, S&O implies that substantiation complements offers by justifying a negotiator’s own demands and by challenging the counterpart’s rationale (i.e. logic, assumptions, or facts) or using emotional tactics (e.g. threats, power plays, appeals to fairness). In general, high-trusting negotiators use the Q&A strategy as they believe their partners will use the shared information in a mutually beneficial way and not take advantage of it. However, low trusting negotiators stick to the S&O strategy as they are concerned that their counterpart may exploit shared information – so they question the need to ask or answer truthfully. We propose that high-trusting Americans will use the Q&A strategy more than Indian negotiators. Likewise, low trusting Indian negotiators will use the S&O strategy more than American negotiators.

Use of negotiation strategies is critical to creating mutually beneficial joint gains. Creating joint gains involves reaching insights, i.e. discovering the trade-offs that give negotiators favourable terms on their highest priority issue(s) and incorporating those insights into agreements. In order to achieve insight or an understanding of underlying priorities, negotiators need to use Q&A strategy as they facilitate information sharing about preferences, interests and priorities. This promotes higher insights, more trade-offs and higher joint gains. Relying on S&O focuses on positional, issue by issue haggling, and parties tend to miss the relevant trade-offs, have lower insights and realise poor joint gains.

We find support for the propositions that Americans were more trusting, used more of the Q&A strategy, obtained more insights, and achieved higher joint gains compared to their Indian counterparts.

To summarise, if Q&A strategy is positively related and S&O is negatively related to insight and American negotiators use more Q&A and Indian negotiators use more S&O, then American negotiators are expected to have greater insights into each others’ priorities than Indian negotiators do. Finally, as insight is positively related to joint gains, we also expect Americans to negotiate higher joint gains than Indians.

Based on three separate samples of participants enrolled at the Indian School of Business (ISB) and the Kellogg School of Management in MBA and Executive Education programmes, we find support for the propositions that Americans were more trusting, used more of the Q&A strategy, obtained more insights, and achieved higher joint gains compared to their Indian counterparts. Indian negotiators were less willing to trust than American negotiators; they reported using more of the S&O strategy, realised fewer insights, and lower joint gains than their American peers. All three studies provided strong support of causal relation between culture and joint gains. Figure 1 depicts the schematic diagram of the theoretical model. 

Our results suggest that in India or in other tight cultures, behaviours indicative of trust should primarily emerge in situations governed by strong institutions. A pertinent example might be negotiations over a marriage contract, which involves protracted and highly ritualized interactions between two families over issues from gifts to guests. Given that the beliefs and values within a culture are resistant to change, it is important for managers to understand negotiators’ cultural orientation towards trust.
In light of India’s tremendous economic success, our results suggest that Indian managers will benefit from creating more joint gains that may facilitate further economic development. We suggest several ways in which low-trust negotiators can benefit by achieving high joint gains. Even negotiators with high propensity to trust may find these prescriptions useful when negotiating with low-trust counterparts. First, the low-trust negotiators could be trained to signal their own trustworthiness and to analyse whether their counterparts are reciprocating. Second, they can also be trained to “read” the offer patterns, and glean insights into the counterparts’ priorities. Finally, the low-trust negotiators could be encouraged to rely more heavily on multiple-issue (as opposed to single-issue) offers, which build upon their primary preference for S&O.

amit graph

For a detailed review of empirical evidence of impact of culture on negotiation outcomes, please refer to the following publication.
Gunia, B. C., Brett, J.M., Nandkeolyar, A. K. & Kamdar, D. (2011). “Paying a Price: Culture, Trust, and Negotiation Consequences.”
Journal of Applied Psychology, 96, 774-789. This article contains edited and summarised excerpts from the original article.

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